In my last post, I discussed a critical area that’s shaping the UK’s startup scene: entrepreneurs’ decisions to sell versus scale-up.
The startup ecosystem in the UK is thriving, especially so in recent years. Strong venture capital activity, growing government support and successful accelerators and incubators are all encouraging increased startup activity. But, lacking support to transition from a small startup to a medium-sized business – a transition that, for many UK companies, requires expansion into international markets – many founders are choosing to sell their businesses, often to large international firms, rather than tackle the risks and challenges of further growth.
The choice to sell rather than scale, though understandable, is nonetheless having an impact on attitudes within the startup ecosystem, as well as farther-ranging consequences for the economy.
One medium- or large-sized business has a greater economic impact than hundreds of startups, through revenues, tax contributions and employment. Yet selling rather than scaling is coming to be seen as the expected path for a UK startup. Companies that choose to scale – such as cyber security firm Sophos, whose IPO in 2015 was valued at £1.1 billion – are seen more as an
anomaly than the norm.
This trend has to change. As put succinctly by Sherry Coutu, author of an independent report to the government on this issue, The Scale-Up Report: On UK Economic Growth, “Competitive advantage doesn’t go to the nations that focus on creating companies, it goes to nations that focus on scaling companies.” And here, the UK is falling behind.
What’s happening to bridge this gap and what else can be done to encourage startups to scale?
The UK’s strong startup ecosystem is clearly creating and nurturing companies with the potential to be come true international players. Now what we need is the support to help entrepreneurs grow their businesses to reach that potential – without selling out.
Subscribe to KPMG’s Venture Pulse Newsletter
If you would like to receive a newsletter when a new selection of blogs or the latest Venture Pulse report has been released, please reply to:
Barry Carter has been a Partner in the UK for the last 15 years. He has over twenty years’ experience of transaction related work with particular focus on Technology businesses. He heads the Technology sector team for EMA within Transaction Services and has significant cross border deal experience. He also acts as lead relationship partner to a number of Technology businesses, particularly innovative and fast growing businesses with ambitious plans, where he acts as a sounding board to stakeholders on strategy and takes overall responsibility for co-ordinating KPMG services. Barry has extensive capital market experience and has worked alongside corporates to achieve listings and fund raising on UK, German and US public markets.
Quarterly global report on VC trends published jointly by KPMG International and CB Insights.