The UK’s support network of hubs helps young companies grow

Last year was tough for start-ups, globally, as the funds raised by venture capital groups — the main investors in fledgling companies — fell sharply because of rising interest rates, high inflation, and economic uncertainty.

In the UK — the biggest tech market in Europe — venture capital groups worldwide invested approximately $20bn in 2023, compared with about $37bn in 2022, according to an analysis of global VC funding published by professional services firm KPMG.

The tech industry more broadly suffered, too, as more than 250,000 jobs were cut across the sector, marking an end to its pandemic era boom.

As a result, the climate for UK investment in start-ups is “cooler” than in the past couple of years, but “not freezing”, says Garri Jones, co-head of a team at investment bank Lazard connecting investors with start-ups.

In the UK, there is still a well-established support network of start-up hubs to help young companies survive changes in the economic climate.

These hubs — geographic areas combining office space, research and development facilities, venture capital connections, and sources of advice — aim to provide the ideal conditions to help clusters of start-up companies grow.

Common programmes within hubs include three-month “accelerators”, to prepare a start-up for investment, or “incubators”, to nurture a young company over a couple of years. “Start-up hubs are getting better at what they do,” says Jones.

Good hubs are where businesses can network and swap advice

Campus-style hubs often rely on a pipeline of innovation from nearby universities, which create spin-off commercial ventures for promising science and technology research. But the structure of UK start-up hubs varies. Some are run not-for-profit by universities and other public-sector organisations, and others by investment companies.

However, successful hubs appear to have one factor in common: a facility for young businesses to network and swap advice.

“Most of the companies [in hubs] . . . [are] not direct competitors . . . so they’re not afraid to share their knowledge and actually team up with other companies and find common solutions,” explains Maksim Belitski, professor of entrepreneurship and innovation at Henley Business School.

This collegiate approach is taken by SETsquared — the top-start-up hub in the FT-Statista ranking of UK and Irish hubs, and number three in Europe. It is run by six universities — Bath, Bristol, Cardiff, Exeter, Southampton and Surrey — in south-west and south-east England.

“We’re probably slightly different to some of the cookie-cutter style accelerators as we have a very patient model,” says Marty Reid, interim executive director at SETsquared.

“Probably owing to the fact that our origin is from universities and [the fact we] rely on a mix of public funding as well as private funding . . . we don’t have a model of pushing companies through, and out, the door.”

Even so, the low-pressure approach has delivered high financial returns. Since 2002, SETsquared says it has helped thousands of entrepreneurs raise £4.4bn in investment.

Among them is PsiQuantum, a quantum computing company spun out from research at the University of Bristol. In 2021, the company was valued at $3.15bn.

However, in spite of “huge” start-up potential, some of the region’s start-ups face a “funding gap” as they grow, says Harry Alexander, investment manager at QantX, a venture capital group based in south-west England.

Hubs such as SETsquared, which QantX works with, try to overcome this by connecting investors with start-ups in one place, saving time. Experts say this can be especially useful for overseas investors who fly into a city for a day or two to meet promising businesses.

“[SETsquared has] very good programmes to get investors like us to work with . . . and in front of, those companies,” says Alexander.

The hub helps start-ups understand their market and hone their marketing message, helping them become “investor ready” , he adds.

But attracting investors and building future tech giants is only part of being a good start-up hub. Equally important is having strong community links and a clear social purpose, beyond financial returns.

Catalyst, a non-profit science and technology hub headquartered in a 25-acre site in Belfast, Northern Ireland, is number 11 in the FT-Statista UK and Ireland table.

The hub, formerly a science park, was created in 1999 as part of the Good Friday Agreement peace deal that ended decades of conflict in Northern Ireland. It works with local schools, teaching entrepreneurial skills including “innovation” and problem solving.

“Those skills are powerful, no matter what industry you’re going into,” says Fiona Bennington, director of entrepreneurship at Catalyst.

Catalyst is keen to encourage a more ethnically and socio-economically diverse range of people to work in start-ups, she adds. “Often, people view science parks [as only] somewhere where people in white coats live. I want this to be a place where anyone can come and feel supported.”

Investors also value the principles that are promoted by hubs, as well as their promising start-ups.

As Hal Wilson, partner at Techstart Ventures, a Belfast VC group that has worked with Catalyst, explains: “We give our time to these places because we like the people, and trust the people, who are running [the hubs].”