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Funding & Skills Shortages, Scaling Up & Bitcoin Concerns; The World Of UK Tech According To Smith & Williamson’s Enterprise Index

Dirty break clutch and accelerator gear shifter pedal of manual transmission car

Time to put the pedal to the metal? According to a new survey from Smith & Williamson, entrepreneurs are unable to secure enough funding to help their companies “scale up”

Scaling up is never easy to do, but you have to give it a go. It’s the best we can do.

Not a set of Abba lyrics (A-Ha!) but the state of Britain’s tech scene, according to new survey conducted by accountancy firm and professional and financial services group” Smith & Williamson.

The quarterly “Enterprise Index” survey, which gathers the thoughts of small business leaders in the UK, reveals, according to S&W partner Nick Travis, that; “the UK is excellent at creating and developing tech start-ups but there is a feeling in the market now that we need to concentrate more on scaling up businesses.”

It’s not the first time the point has been made. When will companies start to emerge from the startup sandpit and begin creating large scale employment, challenging some of the world’s biggest and most innovative companies, and driving Britain’s economy forward?

In case you missed last year’s “Scale Up” report, compiled by Sherry Coutu, a former CEO and Angel investor who was born in Canada but now resides in Cambridge, a “scale-up” business is defined as: “an enterprise with average annualised growth in employees or turnover greater than 20% per annum, over a three year period, and with more than 10 employees in the first year of observation.”

A boost of just 1% to Britain’s Scale-Up population will provide an additional 238,000 jobs, Coutu reveals in the report, and add £38 billion to GVA within 3 years.

“In the medium-term”, the Scale-up report says, “assuming we address the skills-gap, we stand to benefit by £96 billion per annum and in the long-run, if we close the scale-up gap, then we stand to gain 150,000 net jobs and £225 billion additional GVA by 2034.” So what are we waiting for?

Funding, according to Smith & Williamson’s survey. The Enterprise Index revealed that only 50% of respondents felt that there was access to appropriate funding in the UK, and only one third expressed the same appetite for borrowing that they had expressed just 3 month’s ago.

Travis explains: ““There is a big difference between the UK and US in the funding of new ventures, particularly amongst high growth areas such as Virtual Reality, Augmented Reality, internet of things, education technology and tech to assist the elderly.”

“Venture Capitalists in the US generally seem to think a lot bigger and invest a lot more money. Start-ups, particularly tech ventures, are far more able to scale in the US than the UK.”

We’ve argued in this blog before that attempting to replicate the success of the US Venture Capital industry in the UK could be misguided. For one thing, the infrastructure in the UK is different to the US, which doesn’t have to be a bad thing; for another, the VC industry isn’t all peaches, cream, and happy face emojis on Facebook. It can be a brutal way to do business.

Still, there is a strong startup culture in Britain and more VC Capital, £2.46bn of it in 2015 to be precise, of which 60% went to London, is flowing into the country than ever before.

In their press release, Smith & Williamson suggest that FinTech disruptors such as Crowdfunding site Crowdcude and P2P lenders Funding Circle are “fundamentally changing finance by challenging and disintermediating financial institutions.” This may be true, but their models are largely unproven, whereas Britain’s Financial Services sector, the City, The Square Mile, Canary Wharf, is one of the largest, and most trusted, despite 2008 and all that, in the world.

The release goes on to praise a care-tech platform for the elderly called Alcove, which aims “to replace the red cord”, reporting that the company has “saved lives” after being introduced into several housing associations “through the hard work of those involved coupled with the appropriate people to invest.”

Do British based workers have the necessary STEM skills to drive the economy forwards? 66% of respondents to Smith & Williamson’s survey of business leaders didn’t think so

Lack of basic STEM skills worrying business leaders

66% of Enterprise Index respondents said they were concerned that a lack of core STEM (science, technology, engineering and maths) skills amongst Britsih based tech workers is hindering companies chances of scaling-up.

“We are increasingly hearing of talent moving to countries such as the US where the marketplace is perceived to be more attractive. It would be highly beneficial if action was taken to retain and encourage highly-skilled individuals to remain in the UK,” commented Fergus Caheny, S&W partner.

Bitcoin in the doldrums?

Bitcoin, despite its recent surge in price from around $400 per Bitcoin to over $700, also comes in for criticism in the survey; 61% of respondents did not see the digital currency having a big impact on major currencies and models of payment over the next five years.

“Once heralded as the currency of the future, Bitcoin has taken severe hits to its reputation and popularity over recent years”, says Caheny, although this may, at least in part be due to the rise of alternative digital currencies, and the rise of the “blockchain”, bitcoin’s underlying technology, which is being taken seriously by startups and VCs alike, although nobody has yet been able to offer a clear vision of what role it can play in the international currency markets.

Will startup’s arrest the trend of gloomy predictions and produce “scale-ups” of genuine value?

Not surprisingly, Smith & Williamson are the official sponsor for the National Business Awards’ search for the 2016 Scale-Up Business of the Year Award. Although their Enterprise Index dropped 4 points quarter on quarter to 111.4, to its lowest point in 12 months, and despite fears over funding, the talent pool, and growing pains, S&W still attributes most of the negativity to fears over a Brexit and the effect it could have on the British economy, as well as a pronounced global slowdown due to concerns about the valuations of tech mega-companies, oil production, slowing growth in China, the Japanese economy and the future of the EU.

The trouble is, scaling-up just isn’t as sexy as starting-up, and there have some high profile failures already (POWA Technologies, anyone?).

Let’s hope our currently thriving tech scene doesn’t turn out to be a case of “In these old familiar rooms children would play; Now there’s only emptiness, nothing to say”

Scaling up is never easy to do, but it’s the best we can do?

The Smith & Williamson Enterprise Index survey gathers responses from business leaders quarterly.  You can have your say in the Q2 survey here.

 

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