Scale up of deep technologies

DOI: https://www.doi.org/10.53289/WVMS9680

The importance of scaling up from the seed stage

Amelia Armour

Amelia joined Amadeus Capital Partners in 2009 and is a Partner in the Early Stage Fund, leading investments in deeptech companies focussed on AI & Cybersecurity, Photonics & Quantum, Digital Health & MedTech and Novel Materials. She is a Director on several boards including Xampla, who have developed plant-based materials to replace single-use plastics; and joined the UK Government’s Semiconductor Advisory Panel in August 2023, established to deliver the National Semiconductor Strategy.

Summary

  • Deep tech companies take longer to scale up.
  • Two stumbling blocks in the UK are talent and funding to actually make a scale-up happen. 
  • Within Europe, the UK takes the greatest share of funding into deep tech companies after France, Sweden and Germany. We have a vibrant ‘seed stage’ list of investors.
  • Because we don't have this developed ecosystem of scaling companies to a later stage, we don't have the outpouring of talent that then comes back into the more junior companies.
  • The UK ecosystem for growth of companies is growing but more can be done.

I work with Amadeus who are an early stage deep tech investment fund and we've been around for 25 years. In that time we've invested in over 180 companies, have offices in Cambridge and London, and about 40% of our investments are in Cambridge spinouts. 

The reason why I am so excited about deep tech in the UK is because of the strong research and technology development that we are seeing at the universities here.

We have four of the top 10 global universities in the UK, seven out of the top 10 in Europe. So we're creating lots of amazing ideas and that's brilliant at the very early stage. However, what we come across is the problem of taking these tech ideas and scaling those up to companies which have amazing products. Where we see the real difficulties here in the UK, versus maybe other countries are in two areas. One of them is talent and the other is in funding to actually make a scale-up happen. 

Within Europe, the UK takes the greatest share of funding into deep tech companies after France, Sweden and Germany. And at the earliest stages, that's great. We have a vibrant ‘seed stage’ list of investors, we have angel investors, we have EIS investors. So per capita, we generate a significantly high number of startup companies, but what we find with deep tech companies is they take longer to scale. Compared to other technology companies- which don't have the strong IP breakthroughs- these companies take 25 to 40% longer between funding rounds, to get to those next milestones. That means that they need to raise more funding to get from stage to stage. At the earliest stages, that's fine, but we have problems later on down the line in getting enough capital to really grow these companies to the size that we would like. 

There are shoots and glimmers of things improving in the UK, and we're hopeful that some pension money will be released to support this asset class. We also see initiatives such as the Breakthrough fund, which was set up by the British Business Bank a few years ago. 

This has 375 million to invest in the types of companies that we're supporting, but there's more that we could do there. Even at the seed stage, we could take larger funding rounds to help UK companies get through these early milestones much more quickly. 

Then the second area which I think is important and where we could really do with more input in scaling these companies, is around talent. One example I can give is of an AI company I know. They are looking to grow their product function and really need to understand what the customer wants. They need to listen to the voice of those customers so that they can feed back into the product they're developing. They've hired multiple times in the UK, each time with failure. They haven't been able to find a strong enough person to lead their product function from within the UK, so they've had to go to the US to hire that person. Because we don't have a developed ecosystem of scaling companies to a later stage, we don't have the outpouring of talent that then comes back into the more junior companies. 

To give you a feel for the number of unicorns (start-up companies) that are in the UK versus the US: at the end of last year, there were just under 600 unicorns in the US, and just under 50 in the UK. Scale makes a real difference in attracting and retaining talent that can be used to support the junior companies. 

In conclusion, I do think this ecosystem is really developing. We looked at the amount of investment coming into deep tech over the last 10 years, and it's now moved from 10% of total venture capital (VC) investment in the UK to 20%. Things are growing, but there's a lot more that can be done.