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2019 Startup Outlook UK Report


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UK startups are less confident than a year ago that business conditions will improve. Most say a split from the EU would have a negative impact on the UK innovation economy. Ongoing unpredictability is likely to affect access to talent, international trade and international capital. Still, innovation is moving ahead. A large majority of startups report healthy domestic fundraising and 2019 hiring plans. More good news: Women are moving into startup leadership positions. Looking ahead, we asked which technologies will have the most promise in a decade: UK startups say AI, digital health and life science.

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2019 Startup Outlook UK Report

  1. 1. UK Startup Outlook 2019 Key insights from the Silicon Valley Bank Startup Outlook Survey
  2. 2. LETTER FROM SVB CEO Startups are focused on innovating despite uncertainty For the 10th year, Silicon Valley Bank is proud to present our Startup Outlook Report. The innovation economy has expanded greatly in the US and abroad in the past decade, and so has Startup Outlook. In our first report, we surveyed 300 people, most of them in California. The 2019 report includes the perspectives of nearly 1,400 technology and healthcare founders and executives primarily in major innovation hubs across the US, the UK, China and, for the first time, Canada. In their responses this year, many startups tell us they expect business conditions to improve in 2019, and they are making plans to hire employees and raise capital. I love the fact that entrepreneurs are optimistic thinkers — after all, where would we be if they didn’t have a positive outlook? At the same time, they are realistic about the challenges they may face, whether hiring top talent, planning exits during volatile markets or navigating geopolitical uncertainty (read: US-China trade tensions and Brexit). Looking at the first report from 10 years ago, I noted that hiring top talent was a concern then — even with high unemployment rates coming out of the Great Recession. Today, we hear how hiring challenges affect businesses in every major innovation hub, whether due to unprepared workforces, immigration policies or competition with tech giants. Entrepreneurs seldom speak with one voice, but this report underscores the unified need to find solutions — or risk a slowdown in innovation. A small but interesting measure highlights the speed of innovation: The report of 10 years ago did not mention, for example, AI, autonomous cars or blockchain — now pioneering technologies. This year, we asked respondents to predict what the most promising technologies will be a decade from now. Check out the reports to see what each country chose. One more shift: Today, the innovation economy, with its size and complexity, is a key barometer of the overall economy in many places and is subject to macroeconomic tailwinds and headwinds. Whether 2019 will be a turning point for global economies is hard to know. But we do know that innovators are adept at uncovering opportunities and overcoming challenges. That is one constant I don’t expect will change. We hope you find useful takeaways in this report to help your company succeed. Thank you for your interest. Let us know what you think. Greg Becker CEO, Silicon Valley Bank UK STARTUP OUTLOOK 2019 2
  3. 3. ABOUT THE STARTUP OUTLOOK SURVEY About the Startup Outlook Survey Our annual survey of startup executives offers insights into what is on the minds of technology and healthcare leaders. For the 2019 report, we received responses from startup executives in innovation hubs primarily in the US, the UK, Canada and China. Total respondents Primary place of business Ownership Founder gender Revenue stage (USD) Companies with at least one founder born outside their primary country Industry sector Size Company age Profitable 1,377 95% Private 59% US 18% Pre-revenue 28% At least one female founder 57% 0–25 employees 52% Yes 5% Public 8% UK 67% < $25 million in revenue 72% Male-only founder(s) 8% Other 50% US 69% UK 49% Canada 8% Canada 25% 26–100 employees 62% < 5 years old 38% > 5 years old 48% No 17% China 15% ≥ $25 million in revenue 18% > 100 employees 66% Technology (net) 16% Healthcare (net) 18% Other UK STARTUP OUTLOOK 2019 3
  4. 4. UK startups are realistic despite uncertainty While generally optimistic before the 2016 Brexit vote, fewer entrepreneurs expect business conditions to improve than in previous years. The percentage saying conditions will grow worse stands at 22 percent, while 41 percent say they will improve. Describe your outlook on business conditions for your company this year compared with 2018. BUSINESS CONDITIONS Will be better Will stay the same Will be worse 2018 2016 2019 2017* 49% 48% 58% 42% 36% 41% 9% 16% 1% 41% 37% 22% *First survey results after the June 2016 Brexit vote UK STARTUP OUTLOOK 2019 4
  5. 5. Startups predict Brexit impact would be negative We asked UK entrepreneurs to gauge the general impact of a post-Brexit era on the innovation economy, not tied to any specific exit plan. In no uncertain terms, they say it would be negative. Post Brexit, the impact on the UK innovation economy will be: PUBLIC POLICY “Not only has Brexit delayed investment decisions but it has also wasted a huge amount of time and effort on plan Bs.” CFO, software company 75% Negative 14% No impact 11% Positive UK STARTUP OUTLOOK 2019 5
  6. 6. More UK startups plan a European outpost With access to European markets a concern, 28 percent of startups say they plan to open a mainland European outpost. Still, the UK appears set to remain a vibrant centre of global innovation: Eight in 10 startups say they have no thought of moving their headquarters outside the UK. As a result of the 2016 Brexit vote, I am: PUBLIC POLICY “Recruiting has gone from painful to almost impossible, and we are opening offices in the EU.” CEO, semiconductor company Remaining in the UK and not opening a European outpost Remaining in the UK but opening a European outpost Thinking about moving my HQ to Europe Moving my HQ elsewhere (outside the UK or Europe) Definitely moving my HQ to Europe 2018 2019 10% 14% 5%2%2% 6% 28%25% 55%53% UK STARTUP OUTLOOK 2019 6
  7. 7. PUBLIC POLICY Access to talent remains the top public policy issue The unpredictable outcome of Brexit is prompting concerns over hiring, should immigration rules tighten and international trade grow more complicated. Amid new EU privacy standards — notably the General Data Protection Regulation (GDPR) that took effect in May 2018 — UK startups also cite consumer privacy as an important public policy concern. What are the most important public policy issues affecting companies like yours? Note: Respondents could choose up to three responses. 2017 2018 2019 Access to talent International trade Consumer privacy 82% 46% “Protectionist policies are unhelpful for tech companies that don’t see international borders the way traditional companies may have. Simplification of tax regimes for cross-border trade would be beneficial.” Treasurer, software company 31% 81% 45% 42% 76% 30% 26% UK STARTUP OUTLOOK 2019 7
  8. 8. UK startups are hiring Challenges finding talent may be increasing, but hiring forecasts are strong. Eight in 10 UK startups plan to expand their workforces in 2019, down slightly since the 2016 Brexit vote. Startups are most in need of filling sales, product development/RD and technical positions. These hiring trends are similar to those in the US. What are your projections for hiring new employees in 2019? HIRING AND TALENT Increase workforce Stay the same Reduce workforce “We need to ensure that businesses can employ the right people, especially as we expand into foreign markets.” Founder, software company 2017 2018 2019 1% 89% 1% 83% 1% 81% 10% 16% 18% Percentage of respondents who say finding talent is extremely challenging: 26% 25% 33% 2017 2018 2019 UK STARTUP OUTLOOK 2019 8
  9. 9. Women are moving into tech leadership roles As attention on gender parity in the innovation ecosystem grows, UK startups are reporting progress. The percentage of startups with at least one woman on the board of directors is now nearly 50 percent. And for the second year in a row, nearly 60 percent of startups have at least one woman in an executive position. SVB will publish an in-depth report on Women in Technology Leadership in H1 2019. Percentage of startups with at least one woman in a leadership position: HIRING AND TALENT 2017 2018 2019 Women on board of directors Women in executive positions 27% 34% 47% 2017 2018 2019 42% 59% 57% UK STARTUP OUTLOOK 2019 9
  10. 10. Startups see healthy fundraising at home, weaker abroad Three in four UK startups successfully raised capital last year, and a quarter say fundraising is not challenging. This underscores the healthy amount of domestic capital available for innovation companies. But the outlook for raising international capital is dimming: 44 percent believe that access to funding from international sources will decline compared with 30 percent a year ago. What is your view of the current fundraising environment? FUNDING Note: Asked of private companies that successfully raised capital. The ability to raise capital internationally in 2019 will: 44% Worsen 40% Stay the same 16% Improve 2019 67% Somewhat challenging 25% Not challenging 8% Extremely challenging UK STARTUP OUTLOOK 2019 10
  11. 11. UK startups rely on venture capital What do you expect to be your company’s next source of funding? FUNDING Note: Asked of private companies that successfully raised capital. Other sources of funding include bank debt, IPOs, ICOs, mergers, government grants and crowd funding and represented 9% in 2017, 12% in 2018 and 6% in 2019. Venture capital Angel/ micro VC/ individual investor Organic growth Private equity Corporate investor 56% 20% 8% 5% 2% 47% 23% 4% 3% 10% 50% 16% 13% 10% 5% 2017 2018 2019 By a large margin, startups expect their next source of funding to come from venture capital. There is an uptick in the percentage of startups that say they plan to rely on organic growth for funding needs, so they don’t plan to raise capital. UK STARTUP OUTLOOK 2019 11
  12. 12. Acquisition is the most likely exit strategy While acquisition remains the most likely exit path, a growing number of UK startups say they expect to stay private. Eight in 10 startups think MA activity will grow or remain about the same in 2019. What is the realistic long-term goal for your company? FUNDING Acquisition IPO Stay private Don’t know 43% 21% 17% 13% 49% 22% 24% 11% 2018 2019 How do you think the MA market will change in 2019? More acquisitions No change Fewer acquisitions 2018 43% 45% 46% 36% 11% 19% 2019 UK STARTUP OUTLOOK 2019 12
  13. 13. AI is the most promising sector now — and in the future AI, digital health and big data are the top areas that UK entrepreneurs say have the most promise now. Looking ahead 10 years, they expect autonomous transportation and cleantech/energy innovation to replace big data and fintech in the top five. FUNDING Which areas will be the most promising in the innovation economy? 2019 Note: Respondents could choose up to three responses. AI Digitalhealth Big data Life science Fintech AI Autonom ous transportation Life science Digitalhealth Cleantech/ energy innovation 0%20%40%60% In a decade 80% UK STARTUP OUTLOOK 2019 13
  14. 14. About Silicon Valley Bank For more than 35 years, Silicon Valley Bank (SVB) has helped innovative businesses, enterprises and their investors move bold ideas forward, fast. SVB provides a range of targeted financial services and expertise through its office in the UK. With commercial and international banking services, SVB helps address the unique needs of innovators. The UK’s leading technology and life science businesses, in all stages of development, look to SVB’s niche expertise, years of experience and unparalleled network as they grow at home and tackle new markets abroad. Learn more at Silicon Valley Bank is registered in England and Wales at Alphabeta, 14-18 Finsbury Square, London EC2A 1BR, UK, under No. FC029579. Silicon Valley Bank is authorised and regulated by the California Department of Business Oversight and the United States Federal Reserve Bank; authorised by the Prudential Regulation Authority with number 577295; and subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request.