According to data analysis performed by UK consultancy, ScaleWise, two-year graduation rates from Seed to Series A for UK startups have drastically fallen from 12.5% in 2020 to just 4.5%.
While this decline naturally slows down the success of early-stage companies, it also holds potential implications for the UK’s wider economic growth, by negatively impacting job creation, discouraging innovation, and stemming the flow of investment.
In short, this substantial drop in the early graduation rate of UK startups highlights a crisis in the startup ecosystem – something that strategic advisor and investor James Disney-May believes can be addressed, at least in part, through venture capital and angel investment.
In a previous article regarding measures that would help drive investment in UK startups, James said: “The UK’s entrepreneurial ecosystem is a powerhouse of innovation, job creation, and economic growth, yet it faces mounting challenges that could hinder its trajectory.
“The incoming government has an opportunity to implement strategic budgetary measures to bolster this ecosystem and solidify the UK’s position as a global leader in technology, renewable energy, and advanced sectors.
“By prioritising targeted support through tax incentives, venture capital encouragement, and regulatory flexibility, policymakers can create a fertile environment for start-ups, especially in high-growth areas.”
Expanding upon this line of thought, Disney-May explained how the creation of a supportive environment in the UK for venture capital and angel investment could promote a “high-risk, high-reward culture” akin to the US.
Currently based in the US, Disney-May has seen first-hand how this culture drives innovation and economic growth, a finding which is supported by some studies – Science Direct analysed stock market beta and found firms with a high-risk culture not only invest more in innovation activities, but also excel in obtaining innovative growth opportunities.
James Disney-May advises that expanding upon initiatives, such as the British Patient Capital, can offer UK startups the vital opportunity to access later-stage funding without reaching out for investment from abroad.
This government-backed programme is on a mission to “enable long-term investment in innovative UK companies led by ambitious entrepreneurs who want to build successful, world-class businesses,” making it easier for these businesses to scale domestically.
By offering more initiatives with a similar mission, the UK would be highlighting their dedication to promoting entrepreneurship and innovation, helping to attract greater investment into its startup ecosystem.
Disney-May adds that enhanced tax incentives for individual investors, building upon the EIS (Enterprise Investment Scheme) and SEIS (Seed Enterprise Investment Scheme) opportunities that currently offer angel investors generous tax breaks, could encourage a more growth-oriented environment in the UK.
The entrepreneur explains that these incentives could also be delivered alongside government-backedco-investment fundsto promote greater interconnection, supporting small UK companies well beyond the initial funding stages and driving their success.
With regards to navigating regulatory speedbumps, Disney-May explains how the introduction of a ‘regulatory sandbox’for startups concerned with emerging technologies is likely to promote greater innovation within this industry.
Protected by the sandbox, private firms could test and experiment new and innovative products or services on a small-scale with the regulator’s supervision, allowing them to test their solutions with no immediate consequences.