Innovation Economy Outlook 2014 - UK Report

Innovation Economy
Outlook UK
2014 Report
ENTER

Welcome to Innovation Economy Outlook 2014, Silicon
Valley Bank’s annual study of executives’ perceptions
in the innovation sector. Each year, we take the pulse of
these businesses to find out how they’re doing, from past
performance to future prospects, and the challenges and
opportunities they foresee.
This year we expanded our survey to include businesses in
innovation centres around the world and, in addition to start-
ups, larger businesses with revenues upward of $1 billion USD.
I’m pleased to offer the most comprehensive look yet at the
state of the global innovation economy, with insights reflecting
the more than 1,200 survey responses.
Our prognosis is, in a word, momentum. We see abundant
potential in the pace of new business formation, global
expansion and availability of capital, and the emergence of
new products and solutions that will change the world.
Many of the executives surveyed are SVB clients, which should
come as no surprise to those of you who know us. SVB is the
bank for half of all venture capital-backed technology and life
science businesses in the United States, two-thirds of those
businesses that went public in 2013 and a majority of the
investors who fund them. The make-up of our client base is
growing increasingly global and has expanded over the years
to serve businesses of all sizes.
As the bank of the global innovation economy, we are
committed to bringing clients the connections and tailored
financial solutions they need to succeed. We also consider
ourselves champions for innovation. With studies like this one,
we can build a better understanding of what it takes to disrupt
an industry or launch a high-growth business. And with that
knowledge, we can help create a better environment in which
all innovators can thrive.
Thanks for taking a look at this year’s report. Reading between
the statistics, insights and observations, you’ll find stories of
the phenomenal intelligence, courage and determination it
takes to build a successful business.
Greg Becker
President and Chief Executive Officer
Silicon Valley Bank and SVB Financial Group
Letter from the CEO
INNOVATION ECONOMY OUTLOOK UK REPORT 2014INNOVATION ECONOMY OUTLOOK UK REPORT 2014
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A B O U T T H I S R E P O R TI N T R O D U C T I O N H I T T I N G I T S S T R I D E S C A L I N G U P C O N N E C T I N G

3 Executive summary
4 Report at a glance
3
Introduction
6 The UK innovation
economy hits its stride
9 2013 in review
11 2014: A look ahead
13 Building from the core
15 Managing capital with
realistic expectations
20 Growth means jobs
6
Hitting its stride
22 The challenge:
Scaling up
27 Connecting to the global
innovation economy
32 Seizing the opportunity at hand
22
Scaling up
27
Connecting
34 About Silicon Valley Bank’s
Innovation Economy Outlook 2014
36 A snapshot of survey
respondents
34
About this report
CONTENTS
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If the UK can meet the needs of rapidly growing
innovation economy businesses at home and help
them tap into global markets, it will reap the benefits
of jobs and economic growth.
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Executive summary
Heading into 2014, the UK innovation ecosystem,
though young, is vigorous and filled with promise.
Three-quarters of the executives surveyed say their
business met or beat their 2013 revenue targets.
Eight in 10 think business conditions will continue
to improve in 2014.
In 2014, UK executives see opportunities in offering
new products, entering new markets and increasing
their size and scale. This momentum translates into
jobs. Eighty-four percent of this year’s respondents
plan to grow their workforce in the coming year,
outpacing even their peers in the United States.
On a variety of fronts – 2013 performance, 2014
outlook and 2014 views on the fundraising situation –
UK executives show they have learnt to manage their
businesses and their expectations to reflect the capital
available in the UK market.
The foundation has been laid for a vibrant UK
innovation economy. What then does the future hold?
In the following pages, we explore the views of
respondents to our annual Innovation Economy
Outlook survey, including executives from rapidly
growing businesses in the software, hardware,
healthcare and cleantech sectors. We also examine
the opportunities and obstacles facing businesses
in the UK, and compare them to what US businesses
are seeing.
UK innovation economy executives say their
two biggest challenges in 2014 are scaling their
operations and recruiting and managing talent.
While the vast majority of businesses want to hire,
virtually all executives have a difficult time finding
people with the skills and experience they need.
For the UK economy, the opportunity is clear. If the
UK can meet the needs of rapidly growing innovation
economy businesses at home and help them tap into
global markets, it will reap the benefits of jobs and
economic growth.
INNOVATION ECONOMY OUTLOOK UK REPORT 2014 3INNOVATION ECONOMY OUTLOOK UK REPORT 2014 3
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HIGHLIGHTS
Optimismfollowsstrong2013.
Three-quarters of surveyed UK executives say
their business met or beat 2013 revenue targets,
and 8 in 10 think business conditions will be even
better in 2014.
Growthwillcomefromthecore.
Growth is expected to stem from new products, new markets and
scaling operations.
CapitalandtalentareessentialtotaketheUKinnovationeconomy
tothenextlevel.
UK businesses must find the capital and the means to meet their
top challenges – scaling operations and recruiting and managing
talent – if the innovation economy is to reach its full potential.
The UK innovation
economy hits its stride
The challenge: Scaling up Connecting to the global
innovation economy
UKbusinesseshaveaglobalperspectiveongrowth.
Although UK businesses look first to the UK for 2014
growth, the United States is not far behind. Hiring
patterns track these growth aspirations. Overall, UK
businesses are more internationally focused than
their US peers.
Report at a glance
HIGHLIGHTS
1 2 3
Growthmeansjobs.
More than 8 in 10 surveyed UK executives – even
more than in the United States – expect their
business will grow in 2014. Young businesses
are growing the fastest. At the median, young
businesses expect to double in size.
Business conditions outlook
40%
39%
19%
2%
Business conditions outlook
2014 VS. 2013 (UK)
Much better
Somewhat better
About the same
Somewhat worse
Greatest opportunities in 2014
New
products or
markets
Scaling
operations
Business
conditions
in existing
markets
Access to
equity
MA
35%
30%
25%
20%
15%
10%
5%
0%
37%
Top hiring locations
◻ UK
◻ US
◻ Western Europe
◻ Eastern Europe
1%
9%
1%
89%
36%
UK US
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Overall, UK innovation
economy businesses are more
internationally focused than
their US peers.
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A vibrant innovation economy starts with entrepreneurs – people with ideas and the
passion to turn those ideas into breakout businesses. In turn, those entrepreneurs
benefit from the resources available in a vibrant innovation economy – talent, capital
and a supportive business environment. This ecosystem provides what entrepreneurs
need for success.
Five years ago, in the midst of a financial
downturn, the outlook for the UK innovation
economy was uncertain.
A January 2009 survey of 80 UK-based venture
capitalists found two-thirds believed the fundraising
environment was more difficult than it had been for a
decade or longer. Three-quarters of respondents thought
venture investments would decrease, and half thought
the drop would be significant. Eighty-eight percent said
it was difficult or impossible to raise B and C rounds for
their businesses – a particularly dire view, since they
also believed that over half of their portfolio businesses
could not survive the coming year without raising new
equity capital.1
In the words of Jeremy Hand, chairman of the British Private
Equity Venture Capital Association, “Survival prospects
for many early-stage businesses and investments [were]
extremely uncertain,” as “the venture capital market in the
UK, in contrast to the US, [had] not achieved the critical
mass necessary to fund an appropriate proportion of the
most promising and innovative businesses through all
stages of their development.”2
Today, the picture is remarkably different. During
2013, the UK reaffirmed its standing as the European
destination of choice in the global market for venture
capital, with £1.2 billion flowing into UK businesses,
up 13 percent from 2012. More important is that the
overall ecosystem has moved from fragile to firm.
9 2 0 1 3 I N R E V I E W
1 1 2 0 1 4 : A L O O K
A H E A D
1 3 B U I L D I N G F R O M
T H E C O R E
1 5 M A N A G I N G
C A P I T A L W I T H
R E A L I S T I C
E X P E C T A T I O N S
2 0 G R O W T H
M E A N S J O B S
The UK innovation economy
hits its stride
CHAPTER1 Silicon Valley Bank’s
Innovation Economy Outlook 2014 UK Report
1 British Private Equity Venture Capital Association, “BVCA/Populus: Venture Capital Outlook Survey 2009,”
www.bvca.co.uk/ResearchPublications/ResearchReports/BVCAPopulusVentureCapitalOutlookSurvey.aspx.
2 British Private Equity Venture Capital Association, “Benchmarking UK Venture Capital to the US and Israel: What lessons can be
learned?” www.bvca.co.uk/Portals/0/library/Files/News/2008/2008_0008_benchmarking_uk_vc_to_israel_and_us.pdf.
INNOVATION ECONOMY OUTLOOK UK REPORT 2014 6
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In the following report, we explore the views of
respondents to our annual Innovation Economy Outlook
survey: executives from rapidly growing businesses
in the software, hardware, healthcare and cleantech
sectors. We compare the opportunities and obstacles
facing businesses in the UK, and look at how those
compare with the United States.
In 2014, UK executives see opportunities in offering new
products, entering new markets and increasing their size
and scale. This momentum translates into jobs. Eighty-
four percent of this year’s survey respondents plan to grow
their workforce in the coming year, outpacing even their
peers in the United States.
On a variety of fronts – 2013 performance, 2014
outlook and 2014 views on the fundraising situation –
UK executives show they have learnt to manage their
businesses and their expectations to reflect the capital
available in the UK market.
From the start-up phase, UK executives focus
relentlessly on the bottom line and use the resources
available to them, for as long as possible. This helps them
manage their need for external capital and helps reduce
their vulnerability to external shocks. In addition, it
lets them increase the probability that they will be able
to raise capital when they need to by creating traction
in the form of clients and/or revenue.
The crucial issue in 2014 and beyond is growth. While
there are plenty of younger businesses at the front
end of the innovation pipeline, start-ups are finding it
difficult to move through it and achieve scale.
The UK innovation economy hits its stride
CHAPTER 1
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The UK innovation economy hits its stride
CHAPTER 1
AMOUNT
INVESTED
MILLIONS OF
POUNDS
2007 2008 2009 2010 2011 2012 2013
£2,000
£1,500
£1,000
£500
£0
600
500
400
300
200
100
0
Source: British Private Equity Venture Capital Association
NUMBER
OF DEALS
UK venture capital investments: 2007-2013
532
414
350
375
367 367
347
£1,347
£1,152
£900
£1,604
£1,328 £1,222
£1,377
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The innovation economy businesses in
this year’s survey performed well in 2013.
Seventy-seven percent of executives say
they met or beat their revenue targets.
This is an even stronger showing than in
the US survey, where 65 percent report
meeting or exceeding targets.
Most of the businesses that beat targets did so by
between 1 and 20 percent, with 40 percent of
businesses even exceeding that performance. That
compares with 33 percent of US executives who beat
targets by more than 20 percent. At the median, UK
executives beat targets by 20 percent, compared with
15 percent among US executives.
Strong performance by UK innovation economy businesses
in 2013 partly reflects the fact that UK businesses
generally had a good year. We also think it reflects the fact
that UK entrepreneurs are realistic or even conservative
in forecasting future performance. In fact, we think that
the common UK executive approach to goal setting may
account for the differences between the UK and US results.
2013 in review
Meeting and beating revenue targets 2013
UK US
0 %
10 %
20 %
30 %
40 %
50 %
60 %
Revenues were
above target
Revenues were
roughly on target
Revenues were
below target
60%
50%
40%
30%
20%
10%
0%
54%
44%
23%
21%
23%
35%
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Conservatism appears to be a healthy strategy. UK
executives and investors understand the need to manage
growth with limited private capital. They also remember
the sobering lessons of the 2009 financial downturn.
As a result, they tend to raise seed capital and then
focus on generating revenue and reaching profitability.
This approach may also have a cultural component.
The UK ecosystem tends to echo the swings in the US
innovation economy. Optimism (and, when it comes,
pessimism) tends to take hold first in the United States
and then radiate outward, with the highs in the UK never
quite as high and the lows never quite as low as those in
the United States.
2013 in review
CHAPTER 1
Annual venture capital investment by geographic focus
2007 2008 2009 2010 2011 2012 2013
2007-2013 (ALL SECTORS)
◻ US
◻ Europe
◻ Asia
◻ Others
$60
$50
$40
$30
$20
$10
$0
Source: Dow Jones VentureSource
AMOUNT INVESTED (BILLIONS OF DOLLARS)
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UK executives are uniformly upbeat. The
vast majority say business conditions in
2014 will be even better than in 2013.
Although that expectation is down slightly from a
year ago, fewer UK executives express outright
pessimism than a year ago. Rather, they expect the
coming year to be about the same. Considering other
survey results, these expectations may simply reflect the
strength of the overall economic situation in 2013.
Executives in the UK share an upbeat mood with their
counterparts in the United States where 82 percent of
respondents expect business conditions to improve in
2014. And in both places, executives at young software
businesses (those with less than $25 million USD in
revenue) are even more optimistic, with 85 percent
projecting improvement.
2014: A look ahead
40%
2%
19%
39%
43%
2%
4% 40%
11%
2012 VS. 2013
2013 VS. 2014
UK business
conditions outlook
◻ Much better
◻ Somewhat better
◻ About the same
◻ Somewhat worse
◻ Much worse
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Executives at young
software businesses
(those with less than
$25 million USD in
revenue) are even more
optimistic, with 85 percent
projecting improvement.
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Across the board, executives are looking
within for growth in the coming year
by selling new products, entering new
markets and scaling operations.
They are not hoping to grow by acquiring other
businesses or riding the wave of improving
business conditions. Plans to build from the core
may not be surprising for young businesses in the
innovation economy, but it is a sign of strength
and another indicator of the firm roots of the UK
innovation ecosystem.
Thirty-seven percent of UK respondents see offering
new products or entering new markets as their
greatest opportunity. Scaling operations, at 30
percent, follows. All other opportunities trail by a
large margin. The views of UK respondents largely
echo those of their US counterparts.
Building from the core
40%
35%
30%
25%
20%
15%
10%
5%
0%
Greatest opportunities in 2014
MAAccess to equityBusiness conditions
in existing markets
Scaling
operations
New products
or markets
37%
30% UK US
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UK executives
are uniformly upbeat.
The vast majority say
business conditions
in 2014 will be
even better
than in 2013.
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Although UK venture investing has
rebounded to the levels we saw
before the financial downturn, global
venture capital will continue to flow
disproportionately to the United States
because the United States is a much
larger market, and US-focused funds
have performed better overall.
Historically, a smaller pool of venture capital for
start-ups has been one of the challenges facing the
UK innovation economy. This is not likely to change.
Even so, capital is a positive sign for the UK innovation
economy, because executives have learned how to manage
their businesses using the resources that are available
to them. Entrepreneurs' responses to this year's survey
reveal ways that they deal with the reality they face.
Depending on whom you talk to, access to capital is
either an opportunity or a challenge. Nine percent of
the executives in the UK survey – and 21 percent of
early-stage, pre-revenue businesses – see access to
equity as an opportunity.
An equity infusion gives growing businesses the cash
they need to develop products, hire employees and
extend market reach, making it a powerful growth
driver for businesses that can raise money successfully
and use it effectively.
Managing capital with
realistic expectations
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Next source of capital
Looking forward, entrepreneurs plan to reduce reliance
on angel funding and government grants while increasing
use of other funding types.
Type of capital raised
One source of strength for the UK innovation economy is
an increasingly vibrant group of angel investors – private
individuals, many of whom have been part of successful
innovation economy businesses, who invest in very early-
stage start-ups.
CHAPTER 1
Managing capital with realistic expectations
Venture capital
Angel investor
Bank debt
Private equity
Corporate investor
Crowdfunding
IPO
Government grant
Merger
Other
6%
2% 1% 1%
5%
Venture
capital
Angel
investor
Private
equity
Corporate
investor
Government
grant
Crowdfunding Other
61%
41%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Source of funding in 2013
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While 15 percent of UK executives say access to equity is
their top challenge, this is less than in the United States,
where 21 percent call access to equity their top challenge.
Executives at early-stage, pre-revenue businesses are
driving the difference in views. Executives at pre-revenue
US companies are twice as likely to say access to equity
is their top challenge, suggesting intense competition
in the United States for early-stage funding, as well as the
appetite for capital among US entrepreneurs looking to
reach scale quickly in a large market.
Looking at those businesses that raised capital in 2013,
or those that tried and failed, offers a more sanguine view
of UK entrepreneurs. In both cases, UK executives report
better outcomes than their US counterparts.
Fifty-one percent of UK respondents successfully raised
equity capital in 2013, slightly more than in the United
States. While this pattern played out among both pre-
revenue and revenue-generating businesses, the difference
was somewhat larger for pre-revenue businesses.
In a similar vein, only 6 percent of UK respondents say
they tried unsuccessfully to raise capital, compared with
13 percent in the US survey.
Of the businesses that successfully raised capital in
2013, UK businesses – at both pre-revenue and revenue-
generating stages – were much more likely to look
internationally than their US peers.
Twenty-one percent of UK executives say they raised
capital internationally, compared with just 8 percent in
the United States.
UK entrepreneurs also appear to manage with less debt.
Only 14 percent of UK respondents, compared with 24
percent of US respondents, say their business obtained
a loan or credit financing in 2013. Among pre-revenue
businesses, debt was relatively uncommon in both
geographies (9 percent in both the UK and US samples).
Among revenue-generating businesses, however, one-
third of US executives say they took on debt, compared
with only 14 percent of UK executives.
Overall, UK executives are significantly more accepting
of the fundraising environment than they were in 2013,
even though the number of venture capital deals closed
in the UK dropped slightly from 2012 to 2013 (from
367 to 347). The percentage of executives who say
the fundraising environment is extremely challenging
dropped by more than half, while the number saying it
is not very challenging more than doubled.
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CHAPTER 1
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In fact, UK executives who successfully raised capital in
2013 are less likely than those in the United States to say
the fundraising environment is extremely challenging,
and more likely to say it is either somewhat challenging
or not very challenging.
This UK-US distinction may reflect the fact that there are
so many software businesses in the UK sample. US
software executives are more positive about the fundraising
environment than the overall US sample. Considering the
views of revenue-generating software businesses in both
geographies with revenues below $25 million USD, for
example, the results are quite comparable.
One source of strength for the UK innovation economy
is an increasingly vibrant group of angel investors –
private individuals, many of whom have been part of
successful innovation economy businesses, who invest
in very early-stage start-ups. While angel investing is
substantial in both the United States and the UK, it
was the main source of early-stage investing for the UK
respondents in this year’s survey.
UK executives were also more likely to say they received
funding from a government grant and less likely to say
they received funding from private equity or corporate
investors. Looking forward, entrepreneurs plan to reduce
reliance on angel funding and government grants while
increasing use of other funding types. Fifteen percent of
respondents expect to rely on organic growth rather than
raising external capital.
CHAPTER 1
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CHAPTER 1
Looking forward, 15 percent of UK
executives say access to equity is their
top challenge in 2014.
Fifty-one percent of UK respondents raised equity capital in
2013, slightly more than in the US.
Executives’ view of the fundraising environment
◻ Not very challenging
◻ Somewhat challenging
◻ Extremely challenging
Access to equity: A top challenge
◻ UK
◻ US
Raising equity capital
◻ UK
◻ US
TRIED AND
FAILED
▼
▲
RAISED EQUITY
CAPITAL
UK executives who successfully raised capital in 2013
are less likely than those in the United States to say the
fundraising environment is extremely challenging.
51%
48%
21%
15%
61% 14%
24%
75%
UK 2014
57%
24%
19%
US 2014
81%
Find fundraising
somewhat
or extremely
challenging
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The innovation economy continues
as a powerful job creator. Eighty-four
percent of UK executives say their
business plans to grow in 2014. The
remaining 16 percent expect to keep
their workforce approximately the
same. None expect to shrink.
That is an even stronger showing than among US
executives, 76 percent of whom expect to grow.
The percentage increases for software sector and
pre-revenue businesses in the United States, which
are both heavily weighted in the UK sample. Thus,
the UK’s strong hiring outlook may reflect geographic
differences as well as the mix of the UK survey sample.
Nevertheless, the intention among UK businesses to
grow is an important measure of their vigour.
Growth means jobs
Growing in 2014?
◻ We will grow our workforce
◻ We will stay flat
◻ We will reduce our workforce
UK 2014
US 2014
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In fact, most UK executives expect significant growth.
Two-thirds of the respondents who anticipate growing
in 2014 predict increases of more than 20 percent.
Sixteen percent expect to at least double in size. The
median expected growth rate is 50 percent in the UK
compared with 30 percent in the United States.
Executives at early-stage UK businesses that are not
yet earning revenue are the most upbeat. Nine in 10
say they expect to hire, a larger share of respondents
than for the two most growth-minded US categories:
pre-revenue and software businesses. Four in 10 of
these UK executives expect to at least double the size
of their workforce. In total, executives at pre-revenue
UK businesses project a median growth rate of 100
percent, identical to that of executives at pre-revenue
US businesses and about triple that of US software
executives overall.
Growth means jobs
CHAPTER 1
ALL RESPONDENTS: EXPECT WORKFORCE TO GROW BY
PRE-REVENUE: EXPECT WORKFORCE TO GROW BY
100%51%- 100%21%- 50%1%- 20%
31%
28%
25%
16%
UK
100%51%- 100%21%- 50%1%- 20%
10%
24%
29%
37%
UK
100%51%- 100%21%- 50%1%- 20%
36%
32%
18%
14%
US
100%51%- 100%21%- 50%1%- 20%
18%
27% 24%
30%
US
Expected workforce growth
In total, executives at pre-revenue UK businesses project a median growth rate
of 100 percent, identical to that of executives at pre-revenue US businesses and
about triple that of US software executives overall.
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Clearly, the foundation for a vibrant UK innovation economy is solid. The UK has a
critical mass of well-performing businesses. Executives are optimistic about the future
and are demonstrating their capacity to build businesses with the capital that is
available to them. Together, this means a strong pipeline for job creation.
The challenge now is to translate this potential
into stronger businesses that together create the
critical mass for a successful innovation economy.
UK innovation economy executives say their two biggest
challenges in 2014 are scaling their operations and
recruiting and managing talent. These are two of the
top three challenges most often cited by US executives
(access to equity is the third), but UK executives give
scaling operations and recruiting/managing talent even
greater emphasis. Because scaling operations involves
people, the core challenge is very much a matter of
finding and retaining talent.
Across the board, innovation economy executives say
hiring is a major problem, even more so than last year.
Ninety-four percent of UK respondents consider it
extremely or somewhat challenging to find the talent
they need to grow, the same as US software executives.
Across the survey, in the United States and globally, the
proportion is only slightly smaller, with 89 percent calling
the search for talent extremely or somewhat challenging.
Two familiar forces are driving this situation:
supply and demand.
On the supply side, innovation economy businesses,
particularly younger start-ups, draw heavily on people
with sciences, technology, engineering and maths (STEM)
skills. This talent pool has not grown rapidly enough
to meet increased demand. On the demand side, the
strength of the innovation economy – the large number
of start-ups being funded and the strong performance
among later-stage businesses – means competition
for talent is fierce.
Respondents cite skills and education as the most
challenging aspect of finding and retaining people to help
them grow their businesses. Experience comes second,
followed by salary and benefits.
The challenge: Scaling up
CHAPTER2
Silicon Valley Bank’s
Innovation Economy Outlook 2014 UK Report
CONTINUED ON 24
Top hiring challenges
◻ Skills and education
◻ Experience
◻ Salary and benefits
◻ Candidates prefer
businesses of a
different size
◻ Location
◻ Other
31%
27%
25%
5%
3%
9%
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CHAPTER 2
Greatest challenges in 2014: UK vs. US
UK innovation economy executives say their two biggest challenges in 2014
are scaling their operations and recruiting and managing talent.
Regulatory/political
environment
New products
or markets
Access to creditBusiness conditions in
existing markets
CompetitionAccess to equityRecruiting employees
and managing talent
Scaling operations
27%
22%24%
15%
30%
25%
20%
15 %
10 %
5 %
0 %
UK US
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CHAPTER 2
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When it comes to top challenges in hiring — skills,
education and experience — UK respondents, like US
software respondents, put skills and education at the
top of the list. The broader US population reverses the
order, listing experience as the greatest challenge.
In terms of skills and experience, UK executives —
like their US counterparts — tend to focus primarily
on experienced workers with STEM skills. Yet finding
workers with experience is especially difficult in the
relatively younger UK innovation economy, where the
talent pool has had less time to develop and there are
fewer large innovation economy businesses to spin off
experienced employees.
As the charts show, UK executives are more likely to seek
entry-level employees than their peers in the United
States. This may be a response to the relative shortage
of experienced employees with relevant skills (since, as
in the United States, immigration restrictions make it
challenging to hire foreign employees, even those with
experience). It may also be a way to protect the bottom
line – by relying on entry-level employees, businesses
can spend scarce pounds more efficiently.
The emphasis on experienced workers with STEM
skills wanes as businesses mature and need broader
capabilities. But even at this later stage, most of the
jobs will go to experienced workers with STEM skills.
Is finding talent challenging?
Ninety-four percent of UK respondents consider it extremely
or somewhat challenging to find the talent they need to grow.
2013 SURVEY
51%Somewhat challenging
38%
Extremely challenging 11%
Not very challenging
2014 SURVEY
69%Somewhat challenging
25%
Extremely challenging
6%
Not very challenging
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CHAPTER 2
UK REVENUE-GENERATING
41%Experienced STEM
15%
Entry-level STEM
36%
Experienced non-STEM
8%
Entry-level non-STEM
UK ALL
46%Experienced STEM
(53% US)
14%
Entry level STEM
(9% US)
28%
(30% US)
12%
(8% US)
UK PRE-REVENUE
62%Experienced STEM
10%
Entry-level STEM
10%
18%
Jobs and hiringHiring: Looking for experience, looking for STEM skills
UK US
Non-STEM STEM
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
SKILL SETS IN HIGHEST DEMAND IN 2014
Entry-level Experienced
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
ENTRY-LEVEL VS. EXPERIENCE
UK executives are more likely to seek
entry-level employees than their peers
in the United States.
60%
74%
40%
26%
BACK NEXT

Because scaling operations
involves people, the core
challenge is very much a matter
of finding and retaining talent.
BACK NEXT

UK innovation economy businesses want to make their mark at home. At the same
time, they see the benefits of extending their reach more broadly by tapping into large
sales markets abroad (particularly the United States), accessing new pools of skilled
employees and augmenting the capital available domestically in the UK.
To envision the shape of the UK innovation economy in
the future, consider the words of Thomas Friedman:
“The world is flat.”
In all aspects of their business, UK innovation businesses
are more internationally focused than their US peers.
Although a majority of UK businesses expect most of
their 2014 revenue growth to come from within the UK,
41 percent are looking beyond their shores for growth,
and virtually all of those (88 percent) are looking to the
United States.
When it comes to hiring, UK businesses look primarily at
home for talent, but 9 percent say they expect to hire in
the United States in 2014.
Looking forward, UK innovation businesses plan to
extend their reach in 2014, increasing the gap between
UK businesses and their US counterparts. For both sales
and service, UK executives are 20 percent more likely to
say their business is now active abroad, or will be in the
next 12 months, compared with US executives.
What international locations are most appealing to UK
entrepreneurs for doing business internationally?
Asia may come to mind first, but the United States
remains the primary draw for sales growth and talent.
This makes good business sense for UK executives,
given the size of the US market, common language and
relatively comparable business environments.
Connecting to the global
innovation economy
CHAPTER3 Silicon Valley Bank’s
Innovation Economy Outlook 2014 U.K. Report
3 2 S E I Z I N G T H E
O P P O R T U N I T Y
A T H A N D
CONTINUED ON 28
CONTINUED ON 28
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Many UK executives also are considering service centres
in the United States to support their sales.
For production, Europe and Asia garner the greatest
interest, led by Eastern Europe (20 percent) and China
(17 percent). The United States and India tie for third
place, at 7 percent each. Perhaps most notably, a full
third of UK executives have no preference (compared
with only 14 percent of US executives).
For many executives, research and development
represents the crown jewel of the innovation economy.
For this, however, a preponderance of UK respondents
have no geographical preference.
Of those who do, most prefer to stay closer to home. US
executives are much more likely to express a preference
and twice as likely to look to Asia (especially India) for
research and development.
Connecting to the global innovation economy
CHAPTER 3
2014 projected revenue
growth: UK businesses
◻ UK
◻ US
◻ Asia
◻ Europe
Top hiring locations
◻ UK
◻ US
◻ Western Europe
◻ Eastern Europe
3%2%
9% 1% 1%
36%
59%
89%
CONTINUED FROM 27
CONTINUED FROM 27
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CHAPTER 3
International footprint by activity
UK
◻ Currently
◻ Next 12 months
US
◻ Currently
◻ Next 12 months
Research and development Production, including coding and
manufacturing
Service locations Sales
80%
70%
60%
50%
40%
30%
20%
10%
0%
35%39%
11%
8%
14%
4%
6%
8%
14%
47%
53%
39%
36%
44%
52%
25%
UK executives are 20 percent more likely than their
US counterparts to say their business is now active abroad
or will be in the next 12 months.
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To envision the shape of the
UK innovation economy,
consider the words of
Thomas Friedman:
“The world is flat.”
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CHAPTER 3
Most appealing international locations by activity
◻ US
◻ Europe
◻ Asia
◻ No preference 50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
50%48%
37%
39%
SalesResearch and development Production Service
Other Americas and Middle East categories were omitted from the chart as they were less than 5% in any measure.
BACK NEXT

The UK at last has the makings of a vibrant
innovation economy. Entrepreneurs are
turning their passion and ingenuity into
breakout businesses. The innovation
ecosystem is fueling their success by
providing early-stage funding and
global opportunities. Businesses are
making the most of this momentum
through careful management of financial
resources – and expectations.
The next steps include continuing to make smart
choices about where and how to grow. By thinking
about growth using a “both-and” mind-set, UK
entrepreneurs can maximize their potential. They can
draw upon an increasingly vibrant local scene. And
when it makes sense, they can look farther afield to
drive top-line revenue growth or find the talent and
later-stage capital they need to succeed. Doing so will
generate and support the continued economic and
jobs growth that makes the global innovation economy
such a powerful phenomenon.
Seizing the opportunity at hand
BACK NEXT

Entrepreneurs are
turning their passion
and ingenuity into
breakout businesses.
BACK NEXT

The Innovation Economy Outlook 2014 is Silicon Valley Bank’s fifth annual
report based on its survey of executives in the innovation economy.
When we launched the survey and report in
2010, we focused on United States start-ups –
businesses with up to $50 million USD in revenue and
fewer than 500 employees. Not surprisingly, given our
focus, we named our findings Startup Outlook.
As SVB has grown by serving entrepreneurs and
high-growth businesses of all sizes around the world,
so has our survey. Last year, we added start-ups in
the UK. This year, we expanded the survey to include
executives covering the full depth and breadth of
the markets we serve, including executives in larger
businesses and from around the world. In light of
our expanded focus, we have renamed our report the
Innovation Economy Outlook.
This report focuses on the innovation economy in
the UK. In light of the deep connections between
the United States and UK markets, we also compare
the views of UK respondents with those of their
counterparts in the United States.
This is a companion to two other reports based
on survey findings: one focused on the United
States and the other offering a global overview. In
each, we examine the views of executives on the
business environment, the outlook for 2014 and the
opportunities and challenges ahead.
In addition to the three comprehensive reports, we are
issuing targeted reports that look at executives’ views
by industry sector, business stage and geography.
We will also examine key public policy issues, the
representation of women in the innovation economy
and the ties across geographies that link innovation
economy businesses.
We are grateful to the 1,200 executives around the
world who took the time to answer this year’s survey.
Through them, we hope we will encourage others to
see how much the future has to offer to those willing to
do the hard work that drives the innovation economy.
BACKGROUND
About Silicon Valley Bank’s
Innovation Economy Outlook 2014
All reports are available
at www.svb.com
3 6 A S N A P S H O T
O F S U R V E Y
R E S P O N D E N T S
V I E W R E P O R T S
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“2014 is the year my company will
develop a working prototype. There
is immense interest in the company
from established players but we are
not ready for them.”
— CEO, MEDICAL DEVICE BUSINESS
“We hope to renew our financing
facilities with SVB this year and expect
to increase the level of our FX hedging.”
— CFO, ENTERPRISE SOFTWARE BUSINESS
“Overall very positive – we’re predicting
around 80 percent growth.”
— CFO, ENTERPRISE SOFTWARE BUSINESS
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SNAPSHOT UK survey respondents
The 2014 survey reflects the views of 100 executives with
UK-based high-growth technology and healthcare businesses.
More than half of the respondents are CEOs, and 85 percent
are C-level executives (CEO, COO, CTO or CFO), comparable
numbers to the much larger US survey.
An overwhelming majority of UK respondents come from the software
sector. We see more parity in sector distribution than is reflected here
and believe healthcare businesses in particular are underrepresented
in this year’s sample. A larger sample size would likely produce a more
balanced distribution of industry representation in the UK economy.
In general, the US sample (1,004 executives) draws more broadly from
different sectors and includes a somewhat greater proportion of larger
businesses. Since software executives tend to be more optimistic, and
younger businesses face different opportunities and challenges than
mature ones, these differences are important in understanding the
survey responses.
UK US
PERCENTAGE OF
RESPONDENTS BY SECTOR
◻ Software
◻ Hardware
◻ Healthcare
◻ Other
7%
82%
9%
2%
1000+500-999250-499100-249Fewer than 10 10-24 25-49 50-99
50%
39%
21
10
1%
4%
2%
9%8%9%
17%
15%
13% 11% 13%
5%
2% 2%
Company size based on number of employees
MEDIAN NUMBER
OF EMPLOYEES: US
MEDIAN NUMBER
OF EMPLOYEES: UK
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A snapshot of UK survey respondents
SNAPSHOT
Publicly traded vs. privately held
100%
$1.9M
$7.0M
US
◻ Profitable
◻ Not yet profitable
Percentage of profitable businesses
UK
◻ Profitable
◻ Not yet profitable
UK US
60
Pre-revenue
Less than
$5M USD
$5M -
$24.9M
$50M+
Business size based on revenue
$25M -
$49.9M
25%
31%
32%
53%
MEDIAN UK
REVENUES (USD)
MEDIAN US
REVENUES (USD)
21%
10%
6%
4%
10%
8%
46%43%
57%
54%
Privately held
96%Privately held
4%
Publicly traded
BACK NEXT

Special thanks to dcIQ for your collaboration on this study. Thank you for your support:
Entrepreneur First
Level 39
Techhub
Seedcamp
Techstars
Startupbootcamp
Acknowledgments
©2014 SVB Financial Group. All rights reserved. Silicon Valley Bank is a member of FDIC and Federal Reserve System. SVB, SVBFind a way, SVB Financial Group, and Silicon Valley Bank are registered trademarks.
A third-party firm, QA Research, conducted the survey online on our behalf from January 8 through January 29, 2014.
Silicon Valley Bank is registered in England and Wales at 41 Lothbury, London, EC2R 7HF, UK under No. FC029579. Silicon Valley Bank is authorised and regulated by the California Department of Financial
Institutions 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.
BACK

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