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Increase in UK startups scaling to exit, but half still struggle

Despite more startups scaling to the point of exit than ever before, half are still stuck in low growth stages – particularly those working with emerging technologies

More UK startups are scaling to exit than ever before, with the percentage of firms reaching exit now greater than the percentage that fail. However, around half are still languishing at the early stages of growth without adequate support, according to data from entrepreneurial network Tech Nation.

While 23% of UK tech startups made it to either a Series C investment round or exit in 2022 – compared with 20% that went under in the same time – Tech Nation has warned that these “major liquidity events” must not detract from the support needed by the majority (50%) of firms stuck with consistently low growth, employment and investment.

Tech Nation said support is especially vital for research and development (R&D) intensive firms, which tend to have much longer development cycles and take more time to get to market.

“If these seed and pre-seed tech firms are to grow into the scaling engines of the UK economy, the supply of capital that sustains their early growth must be prioritised, or the UK runs the risk of stifling future stars of the global tech stage,” it said.

“Across the entire startup ecosystem, renewed emphasis must be placed on access to early stage funding. But this need is especially true for deep tech startups – working on cutting-edge technologies like AI [artificial intelligence] and quantum computing, which fuel UK impact tech – and can require longer periods of intensive innovation at the outset of their scaling journey.”

It added that if the UK tech sector is to succeed long-term, it must focus on nurturing early stage or slow-growing companies across all regions of the country, and provide them with access to the resources, support, coaching and networking opportunities needed to accelerate growth.

Over the past decade, 54 tech firms (roughly 0.4% of the UK’s total) have undergone an initial public offering (IPO), with 37 of those happening in 2021 alone. This has collectively raised £3.22bn.

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In the same period, there have also been more than 1,200 acquisitions, with the firms involved cumulatively valued at £12.5bn.

However, the majority of IPOs and acquisitions have happened in the financial technology (fintech) sector, at 15% and 13% respectively. A further 13% of acquisitions took place in the cyber security sector.  

“We have a lot to be proud of in our tech sector, with more and more companies achieving high-quality liquidity events,” said George Windsor, research and data director at Tech Nation.

“We know that the UK is globally renowned for its success in fintech, which dominates for IPOs, and although this is truly exciting news, we must not ignore the fact that an even larger percentage of tech companies are not seeing the same success.

“We must nurture the newest wave of UK tech companies, who are innovating to address important social, healthcare and environmental problems,” he said. “It is imperative that we give these companies the support they need to achieve their full potential and shape our world for the better.”

Revenue increase

At the start of August 2022, a government-backed sectoral analysis revealed that UK “safety tech” companies saw a revenue increase of 21% over the past year to reach £381m, making it one of the fastest-growing sectors of the UK tech industry.

According to a separate Ipsos report released on 27 July, Trust, safety and the digital economy, companies that adopt online safety technology also experience greater brand trust, higher user engagement and better staff and customer retention.

Overall, the UK tech sector is now worth $1tn following a surge of investment during the Covid-19 pandemic, making it the third country in the world after the US and China to reach the valuation.

Data published by Dealroom in March 2022 showed that the UK tech ecosystem was valued at $446bn in 2018, but is now valued at $942bn after growing 42% between 2020 and 2021, as a result of greater investment into software and digital companies at the start of the pandemic.

The drastic increase in investment at the start of the pandemic also coincides with a sharp increase in the number of new technology firms being set up, with UK business creation figures from March 2021 showing that a new technology business was created every half an hour during 2020, with nearly 19,500 registering in total across the UK.

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