British Startups Overcome Difficulties in a Tough Year
Every entrepreneurial journey varies, but 2024 showed indications of a testing period for small enterprises in the UK. The economy was sluggish, investors remained apprehensive, and a mid-year general election introduced both anticipation and uncertainty.
However, 2024 was also a time when UK startups introduced their offerings to the market, found customers, and secured financing, overcoming substantial obstacles as they surfaced. To understand the true essence of business expansion in 2024, I reached out to a diverse group of entrepreneurs about the challenges they faced.
Unsurprisingly, funding continued to be a concern. As per KPMG’s Venture Pulse, investment was quiet at the start of the year, picked up in the second quarter, and then reduced (compared to the previous year) during the July-September period. In figures, VCs directed $13.5 billion to UK startups in Q3 compared to $14.8 billion the year before. According to KPMG's analysis, the decline was due partly to election uncertainty.
Concentrated Financial Investment
A glance at the figures suggested that Artificial Intelligence was a potential opportunity, but according to Dr. Hector Zenil, Chief Visionary Officer at Oxford Immune Algorithmics, investment has been heavily focused on specific sectors of the AI world.
“The main challenge has been the excessive concentration of investment in large language models (LLMs) and chatbots,” he says.
In his view, this allocation of funds has moved away from other promising investment possibilities, making it more difficult to secure capital. To tackle this issue, Oxford Immune Algorithmics uses AI in predictive medicine and has developed a platform to analyze patient health. Dr Zenil explains that the company emphasizes its value proposition and the likelihood of returns when pitching to investors.
“We're emphasizing the tangible impact and near-term ROI of our value proposition, distinguishing ourselves from the speculative nature of current LLM investments,” he says.
There's a broader message here. Certain sectors, such as climate and AI, are attracting significant investor attention, but with many VC funds still dry, the road can be tough for companies outside the current preferred sectors.
According to Emma Watkinson, CEO and co-founder of clothing marketplace Silkfred, women continue to lose in the investment race. “Accessing financing is always challenging for founders, especially female founders and mixed-gender founding teams. Only 2% of venture capital went to female founders in 2022, and only 14% to mixed-gender teams,” she says.
Watkinson's company has secured the necessary funds, despite questioning if the journey would have been smoother with more female investors, particularly angels. She acknowledges the need for change and highlights the formation of the Invest in Women Task Force as a step in the right direction.
The Economic Landscape
Watkinson also notes that UK startups are continuing to operate in a stagnant economy, as is true for much of Europe. On the positive side, inflation has drawn closer to target levels, but prices, for the most part, remain above pre-pandemic levels. This affects both consumers and purchasers of companies.
John Readman is the founder and CEO of Leed-based ASK BOSCO, a marketing analytics platform designed for retailers, brands, and marketing agencies. “The commercial climate seems to be warming up again,” he says. “Inflationary pressures have caused challenges for us and our clients.”
As Readman sees it, AI offers a means to alleviate economic pressures by applying available technologies to drive efficiencies. He states that ASK Bosco has adopted AI and encourages others, especially clients, to do the same.
The Political Backdrop
Politics has impacted startups as well. For example, Readman points out that business sentiment was dampened by uncertainty around the general election and subsequent policy decisions.
Russ Shaw, CBE, makes a similar observation. He is the founder of Tech London Advocates and Global tech Advocates, organizations that aim to provide a voice for the innovation economy.
“2024 was a tough year for startups,” he says. “It was shaped by political and economic upheaval. Labour's victory brought new policies that businesses are still adjusting to. Significant among these is the increase in Capital Gains Tax, which threatens to undermine essential investment.”
However, he also sees potential for startups. He cites: “Government-backed investments in renewable energy, data centers, and critical infrastructure provide fertile ground for growth.” And it's worth noting that the government's stated intention of reducing barriers to growth could have long-term positive effects on startup prospects.
So there's optimism, but also uncertainty. Dr. Simon Thomas is co-founder and CEO of Paragraf, a Cambridge-based company that uses graphene in the construction of electronic devices. As he explains, the company began the year questioning if it could remain headquartered in the UK and meet its goal of becoming an example of "commercially scaled innovation." He says more needs to be done to assist in scaling.
“While we expect the election results to provide some stability in terms of government policy – hopefully, for at least a few years – we have to acknowledge that the barriers to business that we have been negotiating for the past seven years have not been removed, and we have had to confront new and emerging challenges.”
Thomas says he is hoping to see more clarity on policy in 2025, and also a stronger commitment to supporting scaleups.
Apart from the broader dilemmas, the feedback I got from these budding companies frequently dealt with problems unique to their own scenarios, like speedy advancements by rivals and shifting customer preferences. The majority of them, though, were set on pinpointing and executing remedies.
In the context of the stagnant economy affecting UK startups, John Readman from ASK Bosco stated, "The commercial climate seems to be warming up again, but inflationary pressures have caused challenges for us and our clients." Dr. Simon Thomas, co-founder and CEO of Paragraf, a graphene-based company, shared his concerns, stating, "We began the year questioning if we could remain headquartered in the UK and meet our goal of becoming an example of 'commercially scaled innovation.'" To address the issue of funding, Emma Watkinson, CEO and co-founder of clothing marketplace Silkfred, highlighted the need for change in the investment landscape, stating, "Accessing financing is always challenging for founders, especially female founders and mixed-gender founding teams."
