New research has revealed that the UK needs to invest £1.5 trillion into high growth companies in the next twenty years to plug the financing gap and triple the UK’s GDP.
According to the UK Financing Gap report, published by European venture capital firm Lakestar, by scaling up 10,000 new growth firms by 2040, the UK would create £5-7trn of value and triple GDP growth to 2-3 per cent. This includes betting on new and emerging industries, including biotech and space.
Indeed, while the UK has the highest number of unicorns, none of today’s top ten UK firms were founded or scaled in the last 20 years. This figure can be paralleled to the US, where seven of the top ten companies were in the last twenty years.
Commenting on this disparity, venture partner at Lakestar and former BEIS minister Sam Gyimah told City A.M.: “Unlocking pension fund investment for growth capital is just one simple way the UK can make the environment more competitive for businesses, and help raise the capital needed to finance business growth”.
He explained commercial lenders aren’t “stepping up” because the regulatory framework doesn’t allow them to finance companies that are hyper-scaling, still loss-making and characterised by intangible assets.
Klaus Hommels, founder and chairman of Lakestar, which has backed the likes of Spotify and Revolut, said the UK already has a “vibrant startup ecosystem”, and scaling up growth companies would help the UK win “battleground sectors” and “retain digital sovereignty”.
As previously reported by City A.M., European tech lending boomed to $14.77bn last year as startups looked beyond equity finance to fuel growth.
According to the tech investment firm GP Bullhound, the debt market for European startups more than doubled from $6.85bn in 2020, as debt financing rounds jumped to 246 from 149 in 2020.
Analysts at the firm said that while the UK currently led the way with 32 per cent of overall tech lending, European markets were catching up fast. This becomes even more pressing for the UK as tech ecosystems across the continent mature.