Today, many would say we are at a pivotal moment that will determine the future of this planet and its human inhabitants. As we face the choice of how we engage with the technological revolution and leverage it to the benefit of society, humanity and planetary longevity.

The world at present faces an unprecedented set of challenges: from heightened geopolitical disruption, to the ongoing effects of climate change and adjustment from the Covid pandemic, to conflict that has led to even greater global tension and pressure on resources and costs. At the same time opportunities abound in utilising technology, including AI, to effect transformational change whilst mindful of risks and balance.

It is against this backdrop that the 2023 Scaleup Review is published and we take stock of the UK scaleup landscape as we head into 2024.

Scaleup businesses remain at the forefront of opportunities, generating new ideas; new solutions to world problems and drivers of local economies.

They remain a key to future UK prosperity – now representing 58% of UK SME output at £1.3 trillion despite only accounting for 0.5% of the business population – and despite the domestic and global challenges, they remain optimistic about their growth outlook, with 9 in 10 expecting to grow next year, and a further 1 in 5 expecting this growth to be above 50%.

The ScaleUp Institute is now nine years into our mission to make the UK the best place in the world to scale a business, not just start one, and we have seen the awareness of scaleups and their importance to the UK economy increase over this period, alongside recognistion of their need for specific tailored and segmented support. We are also starting to see continued concrete action to tackle some of the longest standing challenges that scaling businesses face, and despite global pressures, we must not lose momentum.

In 2023, we have witnessed an increasing swell of ecosystem actors – including institutional investors – leaning into scaleups, and we have made progress on a number of key ScaleUp Institute recommendations. In particular:

• Affirming the UK’s membership of Horizon Europe – an important partnership for scaleups
• The Procurement Act and progress on the reviews by Sir Patrick Vallance1 alongside the Investment Research review2 which align to scaleup needs
• On commitments to building out clusters and investment zones, and sectoral strategies, including taking forward the Life Science ScaleUp Taskforce recommendations, and Creative Sector Growth programme

And

• Significantly, in the package of measures now underway to address the growth capital gap in unlocking institutional capital including: The Edinburgh and Mansion House Reforms, coupled with Mansion House and BVCA Compacts, alongside the LIFTS initiative and Capital Markets Industry Taskforce: combined, represent pivotal steps forward in unlocking institutional capital towards growth companies.
• Alongside at the national level, the creation of DSIT and DBT which should bring greater cohesion to scaleup policy.

This is real progress and picks up many of the recommendations we have made in our prior reviews and papers such as our Future of Growth Capital report.

However, these initiatives need to be implemented at pace and they need to cut through to scaling businesses in every sector, locality and diversity.

At present our connectivity with scaleups is not sufficiently proactive or consistent. We still need to organise and collaborate much better and take lessons from our international counterparts, including in fostering account management and high growth teams. We can use data to far more effect – pinpointing scaling firms and ‘ fast tracking’ relevant resources, as well as through Open Data Access and Sandboxes that provide them with tools to enable their scaleup pathway. This includes leveraging data  held in HMRC more effectively – which the Data Protection and Digital Information Bill should enable.

In the challenging economic environment that we face, it is essential that every lever is pulled to support companies to grow. The ScaleUp Institute will continue to work with the Government, private and education ecosystem at local, regional, national and international levels to achieve this.

LANDSCAPE OVERVIEW

As we examine the UK’s landscape, scaleups continue tomake a substantial contribution to the UK economy inevery sector and locality. Challenges such as the impact of COVID-19, geopolitics and supply chain issues have led toa decline in the total number of scaleups to 28,410 (downfrom 33,955). Nonetheless, there is a significant pipeline of 13,170 potential scaleups awaiting conversion and, ashighlighted above, they remain significant contributors tothe UK economy. We also note the power of our science andtech base, – moving to second in scaleup sector significance- from fifth in 2013.

Positivly, scaleups are also getting bigger with an increasein larger scaleups to 10,161 now listed on our Visible Index having crossed the £10.2 million turnover and/or £5.1 millionasset threshold. This represents a 164% increase since we began tracking visible scaleups in 2017. Among these scaleups, 325 are listed on AIM, 53 university spinoutsand 745 are founded by women. We have also tracked 63 unicorns, with 157 created since 1998, including 19 university spinouts, which we have analysed in detail this year. (see page 24)

The ScaleUp Index also consistently reinforces theimportance of the core government agencies of Innovate UK and the development banks. Grants to scaleups by Innovate UK of £375m, which have leveraged £8.67bn of private sector money – a 23x multiplier – highlight the ‘kitemark’ effect that it has in crowding in private sector backers to scaling businesses. The British Business Bank has backed 86 investment firms, 50 of which have invested in one or more visible scaleups since 2011.

These are all positive signs but we cannot afford to ignore, as warned last year, the concerning slowdown in the pace of scaleup growth.

Whilst our cities and regions continue to harbour vibrant and diverse scaleup clusters, notably outside of London, including Bristol, Cardiff, Birmingham, Leeds, Liverpool, Manchester, Edinburgh, Oxford, Thames Valley and North Yorkshire; there has been a slow down in this growth, with regional disparities still needing to be tackled and only 17 local areas enjoying some form of scaleup growth, with only 2 achieving greater than 1 per 100,000 of population insuccessive years. As part of our work to address this hiatus and imbalance, in June 2023, the ScaleUp Institute, hosted our fourth “Driving Economic Growth through ScaleUp Ecosystems”residential programme, supported by Innovate UK, at Coventry University. Once again we brought together ecosystem representatives from across the UK’s regions, including Investment Zones, to provide tools and lessons learned from scaleup ecosystems worldwide, to enable them to collaborate on plans to drive forward their local scaleup economy and embed scaleups into Local Strategic Economic Plans. Given the changes to the funding landscape and increased devolution, it is critical that the right expertise is fostered within local ecosystems to enable scaleup growth, particularly during this time of economic challenge. We need to continue to double down and keep the pace and focus on our scaleup initiatives. We need to share knowledge, build clusters and leverage what works across communities. We need to continue to break down silos and build scaleup identities. We must increase the engagement of UK funds with UK scaleups. We must nurture our scaling pipeline to break through into scaleups and our scaleups to break through into becoming global leaders.

SCALEUP CEO HORIZON

As we head into 2024, the confidence of our scaleup leaders is fragile but they remain going for growth.

The 2023 ScaleUp Institute’s survey covers 306 scaleup CEOs from across all sectors collectively generating £1.8 billion, employing almost 10,000 people, from across the whole of the UK. These scaleup leaders remain diverse, highly innovative, international, productive, and with a strong social focus. 9 in 10 have engaged in some form of innovation activity over the last three years, with 8 in 10 introducing a new product or service. 5 in 10 already export and 7 in 10 are looking to do more next year with a clear focus on global expansion. More than 50% say they are either a social business, operate in the green economy or are ESG compliant. They invest heavily in research and development with 6 in 10 utilising funding raised for R&D, with AI seen as a significant opportunity by all of them.

However, not unexpectedly, scaleup CEOs have critical concerns about macroeconomic factors impacting their growth; with inflation their most significant concern and their belief in the UK being a good place to scale a business is dampened in 2023, with 6 in 10 scaleup CEOs now saying it is harder to grow a business in the UK now than in the past – up from 4 in 10 in 2021.

Yet despite all of these concerns and headwinds, the overwhelming majority – 9 in 10 – still expect to grow in 2024: with 1 in 5 expecting to grow more than 50%.

This is testament to the resilience, focus and ambitious mindset of our scaleup leaders.

However, there remains persistent barriers to their growth ambitions. Their primary concerns going into 2024 revolve around access to domestic and international markets, talent acquisition and retention, and accessing growth capital, alongside building leadership capacity and having the local infrastructure – space – to scale. This means that on a longitudinal basis these have been their top 5 issues for the past 10 years, with market access the number 1 issue for 3 years running.

To help achieve their potential, leaders emphasise the need for consistency and commitment to local and national growth initiatives and tax incentives.

They regard local hubs and enterprise agencies as key facilitators for accessing resources from both the public and private sectors. Access to research and development, as well as the surrounding infrastructure, remains essential, and the scaleup CEOs express a need for easier access to these resources. Furthermore, they seek enhanced connectivity with universities, advisors, investors, and local resources. They are clear that enterprise agencies and growth hubs have value and majority want to be known and relationship managed: 73% would like a single point of contact to act as a relationship manager for them, up slightly from last year (70%) and the majority want data that they supply to the Government to be used to identify them to fast-track them through to appropriate public and private sector resources.

Scaleup CEOs also want more tailored support that offers guidance on funding options, investor introductions, and better connections to R&D and talent resources available at universities and business schools.

Nurturing and retaining these innovative, export-led companies within communities and enabling their scaleup development is vital in the current economic context. These businesses are central to our local communities, future job opportunities and the prosperity of regions and nations across the UK.

Regarding market access, 8 in 10 scaleups operate in the B2B market, while 2 in 10 focus on B2C. These differing markets present unique challenges and opportunities that require more targeted support. B2B scaleups, who want to double their opportunities with corporates and government, encounter complex processes and difficulties in accessing key decision-makers and contract opportunities. In contrast, B2C scaleups require assistance in enhancing brand awareness, choosing the right marketing channels, and understanding and influencing their target audience. Both private and public sectors can take practical steps to address these issues, such as organising more “meet the buyer” events, appointing dedicated scaleup procurement managers, and increasing funding, including corporate venturing, for scaling firms.

International expansion is a significant factor of scaleup success; and the ScaleUp Institute’s work evidences exporting as a key predictor of scaleup potential. 7 in 10 scaleups remain focused on global expansion in 2024, to markets such the Middle East, Australasia, and other parts of Europe outside the EU. We need to improve our support for their international aspirations by  providing better introductions to overseas buyers, tailored scaleup trade missions, market information, alongside dedicated scaleup points of contact, and ‘scaleup desks’ overseas to ease their pathway to new markets.

Talent recruitment and retention continues to be one of the foremost challenges highlighted by scaleup CEOs.

Companies are actively hiring talent across the UK and internationally, employing various measures to build and retain their talent base, including offering apprenticeships and returnerships. 8 in 10 offer opportunities to young people – twice the rate of other firms. They want more employee encounters and better careers advice with businesses like theirs, including enhanced funding for apprenticeships/work placements and more teaching of entrepreneurship. There is a critical need for sales and business development, marketing and brand expertise, particularly in their leadership teams. In their future hires they are predominantly seeking people with resilience and flexibility alongside excellent capabilities in people management, collaboration and critical thinking. They believe hybrid working is here to stay and are focused on team development as well as recognising their need to evolve their talent and board plans; 4 in 10 want more help in accessing Non-Executive Director networks, and 5 in 10 help in finding mentors and peer networks.

As high adopters of new technology – not surprisingly, when we assess some of the key roles they are now seeking to fill – a good range of their requirements are in digital and engineering skill sets: They want to see in the deployment of Maths to 18 a focus on skills for the modern workplace, including AI, coding financial modelling, statistics and investment training, such as that undertaken in the US.

Of course, it is also critical to be able to attract the very best international talent to want to work with these innovative scaling companies. The ScaleUp Visa has an important role to play here and we were pleased to see this introduced last year. However, awareness of the Scaleup Visa remains limited among the majority of these companies and we need to make sure it offers the fast track it was originally intended to do, an area we are exploring further with the Home Office.

Turning to growth capital, scaleups remain much heavier users of finance – across its multitude of forms – than their SME counterparts with 8 in 10 having some form of funding. Of those utilising finance 58% are already using or planning to use Venture Capital and 48% angel investment. From our 2023 ScaleUp Index, we can also see that BGF holds its position as the most active investor in our scaleup cohort (2013-2022). Crowdfunding platforms Crowdcube and Seedrs also continue to be prolific backers of scaleups.

However, 5 in 10 of our scaleups remain of the view that they do not have sufficient capital to meet their current growth trajectory, and a similar number still perceive that much of the funding resides in London and the South-East. Moreover only 3 of the top ten investors by value are based in the UK, with Cayman Islands based DST Global narrowly edging out Japan’s Softbank Vision Fund to be the largest; these two are followed by Silicon Valley Based Accel.

From the perspective of scaleup CEOs the taxation system in the UK is a key plank to enable the scaling up of their ventures: EIS, SEIS, R&D tax reliefs, and Capital Allowances have all played important roles in supporting their investment opportunities. These need to remain in place – and be consistent – to ensure we encourage, and give confidence, to our scaleups to invest and grow in the future. How we raise awareness of these schemes and make them – particularly for R&D – as broad and as easy to access as possible is a key task from our scaleup leaders.

Further, scaleup leaders are supportive of the Edinburgh and Mansion House Reforms and the ability to unlock institutional money to aid in their growth, but 8 in 10 are sceptical about if this money will reach them. To combat this a clear programme to connect this capital to companies that need it across the whole of the UK, and in all of our growth sectors, is essential. Scaleups are clear about what would make a difference to their finance access from: more finance mentors; and investor and sector curated briefings, structured referrals between investors and relationship managers at investors.

In the nine years the ScaleUp Institute has been scanning our scaleup horizon ScaleUp CEOs have been consistent on their needs. Today, their forecast message is clear: despite cloudy economic predictions ahead, they are bright about their ability to grow; leveraging AI and technology; innovating and pushing forward on international expansion but they need the ecosystem to Blow Away stubborn market, talent and finance barriers, and to proactively connect solutions to scaleups that ’cut through’ and with confidence fragile we need consistent long term policies for scaleups to feel secure in their future R&D and investment plans.

We need to continue the focus on scaleup initiatives encouraging local clusters, getting skilled talent and capital into the regions and building scaleup identity, as our research into the Drivers of Local Growth highlights. We cannot afford to leave any area behind.

The policy agenda we set out when the ScaleUp Institute was established in 2015 remains as powerfully relevant today. The public, private and education sectors must continue to recognise the scaleup segment of our UK business community as distinctive and work with these innovators with global aspirations to support their further growth.

POLICY OUTLOOK

ScaleUp Institute research consistently underscores the critical importance of implementing long-term, at scale interventions, building on what is working. The building up of local, regional and national tailored, segmented and relationship-managed scaleup solutions is essential if we are to deliver our full scaleup potential.

As we head into 2024, the scaleup challenges ahead remain clear and consistent, and we have identified clear priorities to match them.

AS AN ECOSYSTEM WE MUST:

• Continue to use the data available, including HMRC data sets (tax and National Insurance data), to allow better engagement with the scaleup community and fast-tracking of relevant solutions to scaleup leaders, ensuring through the Data Protection and Digital Information Bill that progresson identifying how government datasets can be shared more effectively across departments;
• Crack the Markets Access issue, which remains fragmented, unclear, and complex. The Procurement Act is a step forward in the public arena, as was the review by Sir Patrick Vallance which should be implemented in full. There are also simple things we can do to correct market barriers, such as being more organised and developing scaleup relationship managers and high growth teams; meet the buyer events and scaleup ‘desks’ situated within overseas embassies/innovation agencies and banks. Further, we can be more like our US counterparts in leveraging public procurement and R&D investment into innovative scaleup firms by using the Government spending power at local and national level as anchor clients and being more effective in the deployment of the SBRI and Regulatory Sandboxes, with open data, and ‘passport’ capabilities. This should include ‘allocation’ of Department Budgets to scaling & R&D intensive firms. This is not about spending more but spending more wisely.
• Ensure corporates who want to do more with scaleups learn from their peers that do it well, with consideration of A Procurement Charter to help showcase those corporates and procurers who adhere to best practice. Corporate venturing should be further encouraged.
• Leverage initiatives such as GROW, Catapults and sectoral hubs: to help scaleups access new markets, every region should have a GROW programme, mirroring the successful model in London.
• Progress our talent pipeline by actively promoting use of the Scaleup Visa so that companies can access the right skills for their growth, and ensure it is ‘fit ‘for the fast track’ intended’ and
• Work more collaboratively with our education system, improving alignment with scaleup needs and connections with scaleup leaders through internships, work placements, apprenticeships and job opportunities. Local Skills Improvement Partnerships should have a scaleup plan and focus. These connections can be fostered through expansion of existing platforms and impactful initiatives such as those endorsed by the ScaleUp Institute which include Founders4Schools and Careers Enterprise Company, as we seek to bring more entrepreneurship to schools.
• Continue to focus on digital and tech skills shortages. There is good work being undertaken in this area but we must see the ‘siloed’ actions being more collaborative. The Digital Skills Council has a key role to play here alongside private sector initiatives such as FutureDotNow and the existing initiatives endorsed by the ScaleUp Institute including Google Digital Garage and Barclays LifeSkills.
• Maintain the momentum to close the leadership needs of our scaleup businesses; peer to peer groups and mentoring remain important and need to continue, as well as the development of greater connections to non-executive directors who can add value to a scaleup’s board and more specific Finance Mentors would be valued.
• Continue to foster university collaboration with scaleups, including as we consider how to help our most promising spinouts to scale and University Resources opening further, introducing a more balanced weighting of investment to KEF initiatives. Innovate UK Innovation Fellowships should also seek to have wider engagement with scaling firms and support the crossover between academia and business.
• Connect capital that is expected to be released through the Edinburgh and Mansion House Reforms to scaleup businesses that are seeking to grow, across all sectors and all areas of the UK. This means the private sector working together even more closely to step up and provide new solutions, new benchmarking and research tools, and collaborations to foster larger pools of scaleup growth capital across the country and initiatives to connect the capital locally. Initiatives such as the Capital Markets Industry Taskforce led by the London Stock Exchange Group has a vital role here, along with the continued work of the British Business Bank, Bank of England on the productive finance and net-zero agenda and the Mansion House and BCVA Compacts.
• Consider the permanency of the British Business Bank and Innovate UK to the UK economy. Now is the time to drive certainty into the ecosystem and give confidence to investment by giving greater permanent status to these institutions for the longterm, mirroring international counterparts. They both have a proven and critical positive impact in fostering our larger scaleups.
• Ensure consistency of tax initiatives to boost confidence to invest; maintain and promote existing initiatives to close the growth capital knowledge gap and connectivity asymmetries. EIS/SEIS/VCTs, Capital Allowances and R&D should be consistent and maintained with better awareness raising, and ensure they remain ‘fit for purpose’ at the critical scaleup phase of a business, by removing restrictions on the 7 and 10 year rules that exist under the VCT and EIS schemes and extending these to 15 years to enable the long term follow on funding at the scaleup stage of growth through to Unicorn status.
• Strengthen our ecosystem structure that supports growth, particularly developing locally situated clusters and hubs. From work we have assessed in Denmark, Ireland and the US, and our own quantitative analysis of local growth drivers, the ScaleUp Institute has seen the evidence of how these can make a real difference to enabling scaleups with inclusion of scaleup champions and relationship managers within them; alongside growth resources. The ScaleUp Institute has a range of exemplars and endorsed case studies such as ScaleUp North East, ScaleUp Scotland, Alderley Park; Babraham Research Campus, ScaleSpace and Stevenage Bioscience Catalyst that can be fostered, replicated and leveraged.
• Take the opportunity in the new investment zones to foster greater investor and scaleup connectivity. The infrastructure supporting scaleup growth is crucial. Local clusters and hubs are instrumental in fostering scaleups, and successful initiatives and hubs should be expanded and leveraged. To ensure that every part of the country focuses on scaleups, every location’s Strategic Economic Development Plan should include a scaleup segment, and Investment Zones should have dedicated resources and provide structured showcases and referrals between investors. As the UK evolvesits public business support services at local level consideration should be given to the umbrella this is given of UK Enterprise, or England at least modelling UK nations counterparts, with England Enterprise.

For our part the ScaleUp Institute remains committed to its role as the OWL: – the Observatory of trends; the Wisdom provider on what works and Wavemaker for scaleups; Leaning into the ecosystem to foster and nurture understanding, knowledge and local scale up growth.

Our 10 point plan for scale is moving forward but is not yet fertile in every area.

We will remain relentless in our focus of work with the private, education and public sectors to deliver upon this.

In 2024 we will also seek to do more to help join the dots between scaling firms and resources, with collaboration of our partners and local ecosystem leaders, including through our Round UK ScaleUp Britain Tour working with London Stock Exchange, WPP and our partners, alongside local ecosystem leaders.

Continuing to develop a robust and agile ecosystem that is flexible enough to support scaleup growth remains vital. The building up of local, regional and national tailored, segmented and relationship-managed scaleup solutions is essential if we are to deliver to our full scaleup potential.

Our 2023 review findings send a clear message that we must not let our determined focus on scaleups slip. The economy needs these ambitious businesses to flourish and the ecosystem must redouble its efforts to support them.

IN SUMMARY

We must be focused on building upon programmes that are already working, and implementing at pace the Reforms that are underway to meet the needs of scaleup businesses. This means grasping the ‘moment in time’ and fully delivering on initiatives to unlock UK patient capital for scaleups, procurement and export opportunities, and developing the right mechanisms for these to be deployed towards them. It also means developing a clear, proactive Relationship Management structures within Government, education and private sector players, at local and national level, to ensure a clear point of contact for these companies and to help curate the services that they will need as they grow.

As we lay out our policy imperatives for 2024, we mustfocus on maintaining the momentum:

• Leverage and build on what works to create, at scale, long term sustainable interventions, deployed at local level
• Champion the case of our scaleups and growth sectors, aligning the right people and making available the best funding resources
• Build clusters and hubs – at a local level – connecting our scaleup communities to the talent, finance and markets that they need to propel their growth
• Build a robust continuum of finance and joined-up scaleup solutions across markets, talent and growth capital
• Segment our business population, identifying scaleups at a local level and ensuring that programmes are tailored for their needs, building upon the distinction of ‘start up’, ‘scaleup’, and ‘stay ahead’
• Develop cluster maps, relationship management and high growth teams to support scaleup growth

If we are to see ambitious companies growing across sectors, geographies and boundaries – and by doing so advance our international competitiveness – we must act collectively and champion the cause of our scaleups, engage with them to support their routes to markets, innovation and talent, and ensure all our resources are aligned to their needs and enable their scaling.

We know that a scaleup pathway is being carved out but it needs to be an easier, more joined up, proactive and collaborative one, making sure scaling firms can plant secure roots, to scale further and stay here for decades to come.

The scaleup community continues to change our planet inextraordinary ways, and can be transformed further by usbeing a powerful force in propelling it forwards to new and brighter horizons.