From start-ups to scale-ups

Back in 2024, the Communications and Digital Committee of the House of Lords – the expert group of cross-party peers in the upper chamber of Britain’s Parliament – conducted an in-depth Inquiry into a recurring problem for UK innovators. Despite its world-leading record of hothousing start-ups in sectors such as AI, FinTech, quantum computing, space technology, robotics, and more, Britain often fails to scale them up to thriving unicorn enterprises.

Put simply, Britain has long been a great place to start a business, but not to grow it. The combination of a relatively small – and, post-Brexit, isolated – domestic market and a conservative, risk-averse investment culture has often seen start-ups fail to bridge the funding gap between early-stage investment and significant growth capital.

As a result, many flee to the US West Coast and its portfolio approach to venture funding, where a single success more than compensates for twenty failures. Or they decamp to mainland Europe and its integrated market of 27 states and half a billion citizens, or they fly to the Middle East.

British neobank and FinTech unicorn Revolut is a case in point. Though often claimed as a homegrown scale-up success, it took five years for the company to be granted a UK banking licence, and founder and CEO Nik Storonsky has been based in Dubai since 2024. (Forbes wrongly claimed that Storonsky quit the UK due to the removal of a tax break by the then Chancellor Rachel Reeves; in fact, he had already left.)

As a result of its scale-up challenges, Britain is in danger of becoming an “incubator economy” for less innovative nations, warned the Committee, especially in sectors such as AI. As Barney Hussey-Yeo, founder and CEO of Cleo AI, told the Inquiry in 2024 during its weeks of expert testimony:

We have no tech company listed on the London Stock Exchange [LSE] that is bigger than £10 billion in market cap. The US has five trillion-dollar companies [it now has nine and counting, and all are in tech]. NVIDIA is bigger than the whole LSE.

The US gets to build these foundational models because it has the CapEx, the talent, and the people who can invest in them.

It is hard to argue with that assessment, especially as this has been the story from UK founders since the mid-1990s. So, what has happened since the Lords Inquiry? And, on scale-up policy, what should the priorities be for Andy Burnham, Britain’s seventh Prime Minister since 2010 – a man who needs to scale his leadership of these issues much better than his predecessors did?

This was the focus for a recent Westminster Business Forum conference on scale-up policy. Chairing the first half of the event was Charlotte Martin, who is Head of Access to Finance in the new Department for Business, Innovation, Science and Trade. BIST was created in July 2026 by merging the Department for Business and Trade with the science and technology functions of the now defunct Department for Science, Innovation, and Technology (DSIT).

So, as well as continuing the UK Government’s recent approach of placing a non-neutral – though not actively partisan – figure in the chair of Westminster policy forums, the new department is itself an expression of change. Via BIST, tech governance is now absorbed into business policy, rather than dealt with as a discrete function.

But let’s be honest. This constant upheaval in Whitehall has long been part of the problem for British innovators. Responsibility for tech policy has been like an unclaimed suitcase on a baggage carousel – grabbed by one department and then another and another, only to be dumped back on the conveyor belt and left to circle. BIST is merely the latest hand to hold it, and it is unlikely to be the last.

What this tells us is that, since the dawn of the World Wide Web, Britain’s governments have had no idea how to deal with their tech entrepreneurs. Indeed, it is depressingly commonplace for policy wonks still to talk about ‘digital’ as though it is a recent invention or the latest craze rather than the status quo since Generation X was in junior school.

So, is the sector in the right hands now? All that can be said with confidence is that tech’s current home in a business-focused department makes more sense than it being lumped in with culture, media, and sport, as it once was, or treated as an isolated special case along with ‘science and innovation’, although BIST retains that focus, of course. That aside, Martin set out what she saw as a transformed funding landscape in 2026:

We have a range building out from Innovate UK through the British Business Bank, and now a specific kind of sectoral support through Sovereign AI for larger projects through the National Wealth Fund, and for exports through UK Export Finance.

One of the major interventions we've had in this space is a significant uplift across the capitalisation of those public financial institutions, particularly in the Industrial Strategy, where we had a £4 billion uplift specifically for the Industrial Strategy’s eight sectors, because that is where we see the highest growth potential.

Together, the eight technology areas identified in 2025’s Modern Industrial Strategy – Advanced Manufacturing, Clean Energy, Creative Industries, Defence, Digital and Technologies, Financial Services, Life Sciences, and Professional and Business Services – represent roughly one-third of Britain’s economy. Each has an accompanying Sector Plan, with a Jobs Plan already in place for Life Sciences, Clean Energy, and Financial Services.

Hopefully, more Jobs Plans will follow as all the evidence suggests that AI is having a negative impact on youth employment, as organisations pull up the opportunity ladder behind experienced workers and hand entry-level tasks to AI in a grab for transactional gains that, invariably, fail to appear (see diginomica, passim). Martin continued:

Since then, the National Wealth Fund and the British Business Bank have published their five-year plans, which are doubling down on that ambition to drive growth, including in those sectors. More recently, we've had the Chancellor of the Exchequer announcing in his September speech a £150 million British Business Bank commitment for scale-ups in the north of England. And we've also seen the intent announced for a £1 billion scale-up fund, which would be a consortium of pension investors with the support of the British Business Bank, and the Office for Investment.

All of this is welcome news, especially the arrival of pension funds in the scale-up investment game – something founders have long been arguing for. Britain’s institutional investors need to back its technology entrepreneurs if we are to nurture real home-grown successes.

But it is worth noting two things. First, that is still modest funding for the world’s fifth largest economy, especially when China has invested nearly a trillion dollars in AI, data centers, robotics, and quantum computing over the past ten years, and plans investments of a further $295 billion in its AI infrastructure.

And second, a decade ago, Britain’s previous Industrial Strategy also identified eight technology areas that were critical for the country’s future prosperity. But in general terms, that focus did not create many thriving new economic sectors, partly due to the lacklustre, underpowered, piecemeal nature of the investments involved. Though it is fair to say that Brexit, austerity, and the COVID pandemic all played a part in an underwhelming outcome.

The key point is this: if it is to punch above its weight, then Britain needs to stop pulling those punches with tentative investments.

On a related point, beyond the Strategy’s vague target of backing for ‘advanced manufacturing’, robotics is not called out in the Modern Industrial Strategy at all. And yet the world is currently seeing a boom in Physical AI and humanoid development for industrial applications. So, robotics’ absence from the Strategy seems more like an oversight – a failure to read the market – than a strategic change of heart.

That aside, Martin added that the UK’s scale-up plans are supported by enabling activity across “all of the pro-business environment levers” the government has at its disposal, including regulation and procurement. That is more good news.

So, what did the morning’s keynote speaker have to say? Irene Graham is CEO of London-based non-profit the ScaleUp Institute, which aims to make Britain the best place in the world to grow a business: a bold aim indeed, when set against the track record of the US and China this century. She told delegates:

One can't address the challenge unless the ecosystem of government, entrepreneurs, large corporate investors, and educators is really leaning in towards the scale-up economy.

Graham explained that simply having a good idea or an excellent product is not an indicator of success, or of a capacity to grow:

First, the innovation culture that's embedded into a business right from the start, it's not just innovating in new products and services, but it's also innovating in how they do business, in using all the tools that are now available in AI, big data, and all the infrastructure that can support that. A constant innovation culture should be part and parcel of that business mindset from the get-go, and it is a predictor of a company that is exporting and going global. It is a key indicator of a business that is highly likely to scale. […] 0.8% of businesses are generating over 50% of the SME and mid-market economy.

That's a revealing statistic, given that 99% of British companies are SMEs. So how is the UK doing today? There are certainly some positive signs, she said:

When we first were observing this [in 2014], there were around 26,000 scale-ups in the UK. And now we have 44,000, and a healthy pipeline of around 20,000 scaling businesses that are getting to that level of scale-up velocity. Importantly and critically, this is a regional and cross-country story. Sixty-five percent of those ventures are based outside London and the South East.

So, what are the critical elements in a start-up’s ability to scale? There are three core factors and several ancillary ones, Graham argued:

Access to skilled talents, the building of clusters and hubs, and access to growth equity – not traditional bank debts. And then how collaboration is happening in the local environment and how active the university is in the system of engagement with these businesses. As a country we do need to focus on local engagement.

When we first looked at this in 2014, there were five critical challenges that came across: talent and leadership, markets, accessing customers at home and abroad, access to funding, and infrastructure. But when we talk about infrastructure, the space to grow came across most strongly, and the ability to plan for that growth. When we look at that today, we see particularly that access to markets and talent are critical areas for the whole scale-up economy.

Indeed, and this is yet another reason for Brexit having been a terrible, self-defeating idea.

But there are signs that Mr Burnham may be the first Prime Minister to publicly recognize that fact.