2024 - what’s on the horizon for founders and their businesses?

Hot on the heels of a global pandemic, innovative fast growth businesses have been operating in a challenging economic environment, with high inflation impacting borrowing and instability due to conflicts across the globe. Last year VC investment into fast growth UK businesses fell by 45% amidst a backdrop of geopolitical and macroeconomic challenges and a parched exit environment and the next 12 months could be equally as challenging given a potential general election, which has left investors taking a cautious review of the market.

But here’s the silver lining…there is still finance available for scaleup businesses looking for growth. Being able to demonstrate that you have a strong business model, with robust governance and management team will be vital in securing investors as the economic challenges continue. Venture Capital investors in particular are shifting their mindsets from a 'growth at all costs' model to prioritising innovative companies with robust unit economics. This new focus on strong gross margins and effective customer acquisition strategies underscores a balanced approach in risk management and value creation, favouring sustainable growth and financial stability over rapid cash burn and scale.

The value of founders and their innovation to the UK economy has been in the spotlight since the pandemic and the Government has put innovation and fast growth British businesses, as a central plank of their economic plan.  In this election year the focus on driving innovation in order to grow the UK economy is likely to take centre stage. The Chancellor announced in the autumn statement that £20 million is to be used specifically to foster more university spinout companies, £50 million in additional funding is to go towards the British Business Bank’s Future Fund and a new growth fund is also to be established within the British Business Bank (BBB), to complement private investment vehicles. Whilst it’s difficult to predict what the Chancellor will announce in the Spring Budget, fast growth businesses and their founders will be looking for announcements around significant strategic investments, customised support programmes, easy and simplified access to capital, and initiatives designed to help businesses attract and retain skilled staff on 6^th March. In particular, founders will be hoping for the Chancellor has taken time to reconsider upcoming changes to angel investor thresholds from the end of this month, which potentially hits female and underrepresented founders the hardest.

The startup sector in the UK is constantly evolving, with new trends emerging all the time. We’re likely to see some of the key trends that are currently shaping the future of the UK startup continue throughout 2024. They include:

• The road to net zero: new technology and innovations are playing a key role as the world looks to meet rapidly approaching net zero targets. Sustainability is becoming increasingly important in the UK startup ecosystem, with a growing number of startups developing products and services that are designed to reduce environmental impact. This trend is being driven by a number of factors, including the increasing awareness of climate change, the growing demand for sustainable products and services, and the government's commitment to net zero emissions by 2050. Healthtech, Greentech Agritech, renewable fuels and ESG related innovation will continue to areas of focus for investors and policy makers over the coming year and is an area in which the UK can really take a lead.
• Rise of the sharing economy: The sharing economy is a growing trend in the UK, with a number of startups offering services that allow people to share resources and assets. This trend is being driven by a number of factors, including the increasing cost of living, the growing awareness of environmental issues, and the changing nature of work.
• Increased use of artificial intelligence (AI): AI again front and centre for investors and corporates and the biggest trend of the moment. This trend is being driven by a number of factors, including the increasing availability of AI tools and resources, the growing demand for AI-powered solutions, and the government's commitment to investing in AI research and development. Investments in AI were vast and varied during 2023, spanning a wide cross section of industries and service offerings. AI attracted many of the largest deals globally with generative AI solutions particularly hot amongst growing interest from corporates where C-suite executives are making it a focal point in their businesses, and this will continue to grow over the next 12 months.
• AI changes our relationship with data, and its not purely about addressing routine automation processes, but is quickly becoming a catalyst which enhances their human workforce and drive efficiencies and can be game changing for startups themselves. Prevalent AI solutions in the market right now range from autonomous vehicles to cleantech and biotech, in addition to being used to easily analyse customer data to uncover insights to offer personalised experiences.

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