NorthInvest Investment Director and Senior Enterprise Manager at KPMG, Lizzie Smith, spoke with The Business Desk to discuss Leeds regional economy, market conditions, bridging the investment divide, and why the perfect time for tech startups is now.
This article was originally published on The Business Desk.
Innovative, tech-enabled businesses have long prospered in the UK regardless of market conditions, with politicians, investors and business leaders widely recognising their importance to our global positioning and the development of the digital economy. But with storm clouds gathering over the UK economy in Q2, our own analysis indicated that growth in the high-flying tech sector has begun to slow for the first time in the best part of a decade.
As much as the sector tends to buck economic trends, there are limits to which it can decouple from the rest of UK industry and, after seven successive years of growth, it’s important that we continue to back start-ups, scale-ups and potential unicorns during these turbulent times.
The Digital Powerhouse
This sentiment rings no truer than here in the North, where market forecasts suggest that our regional economy could benefit to the tune of an additional £5.7billion if we were to raise tech worker productivity to be in line with the national average[1].
Increasing the rate of tech self-employment to national levels would also see the creation of almost 10,000 new businesses. But these businesses need sustained investment and, as is evident, much earlier in their life cycle than in other sectors to ensure they can develop proofs of concept and a business model to take those concepts forward.ADVERTISING
The positive news is that there is still significant appetite among investors looking to unearth the next big thing. In fact, the value of venture capital (VC) investment in the North in the last quarter increased by more than 50 per cent, with backers freeing up almost £85million for investment in the region’s start-ups.
While, anecdotally, we’re not seeing the implications of Brexit dampening the spirits of those looking to start a business, the number of VC deals in Q2 dropped significantly both on a quarterly and year-on-year basis. The story, it seems, is that investors are cautious, but still willing to back the best opportunities and assets.
Given that seed and angel investment only accounted for £29million of VC funding in the same quarter nationally, we should perhaps be wary of interest sliding too far in the balance of larger scale-ups, stemming the flow of innovation in the long-term.
Angels of the North
Ensuring early stage start-ups continue to have access to investment in the coming months and years is therefore essential. In my experience, it’s clear that many northern entrepreneurs struggle to identify where support is available, often depending on introductions via their own personal networks.
In Leeds specifically, we’re working with The Massachusetts Institute of Technology (MIT) to address this issue among others to accelerate growth for start-ups. The city is part of MIT’s Regional Entrepreneurship Acceleration Programme, which has previously supported the likes of Beijing, Tokyo and Qatar to shape economic growth and social change in their respective regions.
But while the programme will identify gaps in the city region’s ecosystem at a strategic level, there are existing opportunities to connect start-ups with early-stage investment.
Organisations like NorthInvest, set up by angel investor and entrepreneur Professor Adam Beaumont, are acting as a bridge between businesses and early-stage investors to boost the performance of the tech sector in the North. Not only do these organisations provide access to investor networks but they also provide the critical tutelage to ensure businesses are investment-ready. Speaking to tech entrepreneurs in Yorkshire, many need that expert guidance and challenge to help them articulate clearly their business model and route to market strategy so that they are robust and can better stand up to the scrutiny of investors.
With the quality of research and development being originated in the North’s universities capable of fuelling growth amid stormy seas, now is the time to make the connections between ideas and investment. Only then will we be able to build both resilience and prosperity in our region’s economy.
Have a question for Lizzie? Get in touch.
