Unlocking Growth: Defining local tech ecosystems
An ecosystem is more than the sum of its parts, yet it is the parts that allow emergent behaviours like cooperation and competition to occur.
13 October 2021 • 5 minute read
In the case of a technology ecosystem, there are a number of components that seem to be necessary to support growth businesses. These include the availability of investors and investment; support structures like universities, accelerators and incubators; and good local governance that takes active steps to grow the ecosystem through partnerships and other initiatives.
This report examines the components that characterise high-growth technology ecosystems in the UK. The first chapter takes a high-level look at key ecosystem components, while Defining Local Tech Ecosystems takes a deeper dive into two key UK tech ecosystems, Edinburgh and Manchester. These two cities are home to the largest populations of high-growth technology businesses in the UK outside of London. The Role of Tech Ecosystems summarises tech ecosystems and their role in supporting high-growth businesses, including the impact of tech ecosystems on local economies and how ecosystems can be fostered and improved.
Ecosystem components: Investors
Innovative businesses need capital, meaning investment is an essential support mechanism for the high-growth ecosystem. There are several types of funding a business could secure investment deals with. Private equity firms invest into unlisted private companies that are reasonably established to make significant returns. Venture capital funds are a form of private equity focused on early-stage businesses with high potential. These investments are high-risk, meaning venture capital firms are looking for extremely high profits for their investors.
Other fund types include corporate venture funds run by a corporate in order to make strategic investments, funds using public money backed either by central or devolved government, or funding programmes backed by universities and non-profit organisations.
Some high-growth businesses also choose the route of crowdfunding, either alongside or instead of more traditional equity finance methods. Crowdfunding platforms operate largely online, allowing lots of investors to participate on a smaller scale.
Angels
Usually individuals with a high net-worth, angel investors undertake discretionary investments into ambitious startups and early-stage businesses. Angels often offer investment at a stage when other investors are not yet willing to provide financial backing.
Compared to funds, angel investing can have a more personal component, with many angels having made their money through the success of their own startups, meaning they can offer skills and experience as a source of support to a high-potential business and their founders.
Angel networks
Angel networks are investment groups of angel investors that enjoy the benefits of sharing investment opportunities and introductions. They typically syndicate funds to make joint investments, meaning they are able to make larger investments.
These networks help entrepreneurs with fast-growing companies connect with multiple angels to find the right investor. This means companies can benefit from more than one perspective as well as
more funding.
Angels and angel networks play an important role in supporting the growth of very early-stage companies.
Ecosystem components: Support
Universities
Academic spinout refers to a company that has been spun out of a UK university or higher education institution. These types of company are often highly innovative, benefitting from the intensive research and development done at leading UK institutions.
Academic spinouts often receive support from the universities they came from, perhaps in the form of capital from the university or a linked venture fund, continued access to workspaces and cutting-edge tools and technology, and extended support and knowledge-sharing. Investors, grant-awarding bodies and policymakers pay attention to spinouts due to their innovative nature.
With ongoing university support as well as specialised expertise and research backgrounds, spinouts are unsurprisingly mostly technology businesses in areas such as pharmaceuticals, research tools and reagents, clinical diagnostics, medical devices, artificial intelligence, software-as-a-service and materials technology.
Accelerators
Business accelerator programmes are designed to help startup businesses grow and develop, usually in return for an equity stake. Types of support vary between different accelerators, but may include early funding, tailored mentoring, access to potential investors or customers, working spaces and facilities or specialised skill development.
Accelerators may be funded by government or large corporates and sometimes have very competitive selection processes. Programmes are time-bound and run in cohorts, and some may also be selective by sector or region.
Incubators
Like accelerators, incubators hope to offer support to aid business advancement. Rather than ‘accelerate’ business growth in a set programme, incubators are more
open-ended and help to develop and refine innovative ideas over a longer period.
Working spaces, networking and ideas sharing, workshops and access to products and services at reduced cost may be offered as part of incubator support.
Incubators are less likely to offer funding as a perk than accelerators, but they are often non-profit, do not take equity andrun by universities or economic development organisations.
Ecosystem components: Local government interactions
Local Enterprise Partnerships (LEPs)
Local enterprise partnerships, commonly referred to as LEPs, are partnerships between local authorities and businesses. The initiative was launched in 2011 by the Department for Business, Innovation and Skills. The 38 LEPs across England support economic development and job creation within the communities they serve by running events and supporting inward investment. LEPs deliver business support to the multiple local authority areas they cover; many are currently focused on helping businesses to recover from the pandemic and associated lockdowns.
Growth hubs
Run by LEPs, Growth Hubs are specifically focused on providing business support. This can range from advice on how to start a business to assisting with fundraising strategy or starting to export. Some Growth Hubs such as the Manchester Business Growth Hub offer targeted support for key local industries. Many can also assist with helping to recruit and train employees and provide advice on related matters like apprenticeships.
Local government partnerships
In Wales, Scotland and Northern Ireland, local government partnerships play a similar role to those of LEPs and Growth Hubs in supporting businesses and facilitating economic development. For example, Scotland’s Business Gateway programme has local offices across the country that provide business advice, local workshops and access to online resources. Business Gateway also works with economic development organisations at a national and regional level to help businesses access financial support and funding.
Top tech ecosystems
As the map shows below, the UK has strong technology and high-growth ecosystems across the country. Outside of the London local authorities, Edinburgh, Manchester and Leeds have the highest population of technology and high-growth companies. The remainder of this report focuses on Edinburgh and Manchester and the combination of organisations and resources, including investment, that support the local technology ecosystem in each city.
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