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Tech ecosystems
and their role

 

 
 
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Benefits of high-growth ecosystems in the UK

Increased success

Alongside ambitious companies, high-growth ecosystems are supported by incubators, accelerators, investors and universities. When a new business is surrounded by a healthy network of resources as well as opportunities for funding and partnerships, it stands a better chance of surviving and growing rapidly. Founders of high-growth businesses may then go on to become angel investors or mentors for seed-stage businesses, leading to circular success in the ecosystem. The UK’s reputation of a strong ecosystem for innovative startups also attracts founders from Europe and beyond, bringing in further entrepreneurs, ideas, jobs and economic benefits.


Economic growth

A major benefit of a high-growth ecosystem is national and regional economic growth. The ecosystem supports businesses to grow quickly with increased revenues. Over 7,500 high-growth businesses in the UK reported turnover of more than £5m in their most recent accounts. Innovative businesses with a secure revenue are also more likely to attract investors, increasing the flow of funding. High-growth tech companies raised £57b in equity investment between 2011 and 2020. Fast-growing startups also have the economic benefits of stimulating local economies, by using office space, offering jobs, making partnerships and providing healthy competition to encourage continual innovation.


Increased employment

A healthy ecosystem allows business to grow quickly, which can help create jobs — sometimes at a faster rate than large established firms. High-growth companies in the tech sector alone currently employ more than 300,000 workers in the UK. Startups usually offer skilled jobs or take on graduates into training programmes, creating more talent in the workforce. High-growth companies launching outside the UK’s current major employment areas, such as London, encourage professionals to move to other regions which stimulates local development. Over the longer term, a strong ecosystem supports the retaining of top talent in the country and may even attract further talent from overseas.


Technological innovation

High-growth businesses are usually innovative and look to invest time and funding into new ideas. An ecosystem surrounding young agile businesses can encourage development of cutting-edge technologies and novel products, with means of support such as financial investment, access to costly tools and equipment, access to office space, or simply mentoring and advice. A strong high-growth ecosystem means companies can pave the way to new markets, bringing huge potential value to the economy through positive disruption. New products and services can hugely benefit society, whether that is a pioneering medical technology to treat individuals, or new software that helps another young high-growth business to evolve and expand.

Impact on local economies

The number of high-growth companies has a strong positive association with the Gross Value Added (GVA) that is generated in a local authority area. GVA is a measure of the goods and services produced in an area and is a key metric for local authorities. The number of active high-growth companies in a local authority area has a correlation coefficient of 0.88 with the Government’s latest figures for local authority GVA (Office for National Statistics 2018). This suggests that there is strong positive relationship between the two measures.

In more concrete terms, local authority areas that are home to 100 or more high-growth companies have an average GVA per head of population of £138k compared to £22k for local authority areas with less than 100 high-growth companies. This demonstrates that the presence of a local tech and high-growth company ecosystem can help to drive the creation of signification value, both through the sale of high-value products and through high salaries.


The relationship between GVA and the number of high-growth companies by local authorities outside London
 

 

 
 

Local authorities by number of high-growth companies (2021)
 

 

 


Local authorities by total investment received by high-growth companies (2011–2020)
 

 

 


Local authorities by number of high-growth companies per 1,000 people (2021)
 

 

 


Local authorities by fundraising received by high-growth companies per 1,000 people
 

 
triangle with all three sides equal
 

Accelerators and incubators

Nesta’s report, The impact of business accelerators and incubators in the UK, was produced in collaboration with the Department for Business, Energy and Industrial Strategy in 2019. It found that 73% of companies that attended an incubator said it was significant or vital to their success. Of those that attended an accelerator, 64% said it was significant or vital to their success.

The report found that participation in accelerator programmes was positively correlated with higher survival rates, growth in employee numbers and more funding raised. It also suggested that there are likely knock-on benefits to having such support programmes in place even to companies that do not directly access them. Research showed that there was a significant increase in the number and value of venture capital investments in non-accelerated companies following the launch of an accelerator in
the area.

Nesta’s research, combined with the examples included in the report, strongly suggest that accelerators and incubators play an anchoring role for technology and high-growth ecosystems. These support systems encourage young companies and their founding teams to adopt best-practices and other behaviours linked to positive outcomes. Ensuring that accelerators and incubators are present in a community is an important step in starting or growing a technology ecosystem.

Public, private and academic partnerships

Local government, businesses and academic institutions all stand to benefit from a thriving technology ecosystem and can work together to achieve this goal. Local governments can create more higher paid jobs for the people that live in their community. Businesses benefit from a local technology ecosystem by gaining access to fast-growing companies that could be suppliers, customers or partners. Academic institutions supported by a thriving technology ecosystem find it easier to launch and support spinouts and student startups.

Collaboration between these three groups is a logical way to kickstart or enhance a technology ecosystem. Local government can often play the role of convenor—making sure that right people at different organisations can connect. As discussed in Chapter 2, partnerships with local government at their core play a vital role in technology ecosystems. Initiatives likes the Edinburgh BioQuarter and the Manchester Sciences Partnership are a testament
to this.

Unlocking Growth:
Creating Tech Ecosystems to Stimulate Local Economies report
 

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