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Eighteen months on from the Brexit vote, the UK remains a strong pillar for innovation in the EU. Despite uncertainty about what a breakup may look like, startups are successfully raising capital and a large majority plan to hire. They are, however, concerned about access to talent, cybersecurity and international trade.
Business Conditions |
Public Policy |
Hiring & Talent |
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Given the backdrop of political and economic uncertainty, UK entrepreneurs are notably confident, with 49 percent of leaders saying that business conditions in the coming year will be better. An already confident group of respondents is feeling more optimistic, with fewer than 10 percent predicting that conditions will worsen in 2018.
With Brexit negotiations under way, startups are making preparations. While half say they don’t plan to expand outside Britain, one in four is thinking of establishing a European outpost, up from one in five last year. Fintech businesses in particular are looking to expand to Europe to facilitate passporting.
“Brexit is complicating hiring. We are a global firm with a global team; we need them to be able to travel and relocate easily.”
—Co-founder/CEO, software company, London
Access to talent has become more of a concern over the past year for technology and healthcare businesses. Ongoing Brexit negotiations are causing uncertainty around the future of immigration and international trade, startups say. Cybersecurity and consumer privacy are also growing concerns. New EU regulations designed to protect individual privacy – the General Data Protection Regulation (GDPR) – are scheduled to take effect in late May 2018. The measure has largely been welcomed by the industry, though many startups cite the extra strain on time and budget to comply with the new legislation.
“Lay out a clear path on immigration that keeps the UK open to the sort of technical folks who have made the UK sector such a success.”
—CEO, security software company, Guildford
Note: Respondents could choose up to three responses.
With access to capital getting easier, forecasts for hiring remain robust. Eight in 10 startups plan to expand their workforces in 2018, matching hiring plans of US startups.
Each year for the past six years, Startup Outlook has reported that huge majorities of entrepreneurs find it somewhat challenging or extremely challenging to find workers with the skills needed to grow their businesses. Though respondents say Brexit is complicating hiring, a lack of talent is a bigger, longer-term issue.
“Innovative startups already face huge barriers; the ability to hire great talent should not be one of those. Companies should be able to hire from anywhere in the world with as little friction as possible.”
—CFO, software company, London
In an interesting turn, more UK startups report having women in C-level positions than in prior years. Far fewer have women on their boards of directors. Thirty-eight percent of startups say they have programs in place to increase the number of women in their leadership ranks.
Nearly 80 percent of startups successfully raised capital, and of those 28 percent say the current fundraising environment is not challenging. This is a significant change from the year before, when 19 percent said it was not challenging. The share of those who say it is extremely challenging (11 percent) is about half of what was reported in 2015.
“Government should provide entrepreneurs with better tax breaks for funding support whilst they are building their businesses.”
—Founder/CEO, venture capital company, London
Seventy percent of startups believe that the outlook for fundraising internationally will stay the same or improve in 2018; 30 percent believe that access to international capital will worsen. Since the Brexit vote, the UK hasn’t experienced a negative impact on the number or size of deals. That said, the industry is concerned about a potential funding gap should the European Investment Bank withdraw capital from the UK.
“Replace the European Investment Bank capital with UK funding to maintain the UK's leading position.”
—CEO, fintech company, London
While venture capital remains the go-to funding source by a hefty margin, corporate investors are gaining as a source of funding.
Note: Asked of private companies that successfully raised capital. Other sources of funding include bank debt, IPO, merger, government grants and crowd funding and represented 26% in 2016, 9% in 2017 and 12% in 2018.
Half of startups expect to be acquired, though there is a small bump in the percentage that say going public is a realistic goal. Entrepreneurs say the outlook for acquisitions in 2018 is good.
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