techUK submits evidence on scaling AI and creative industries firms

The Lord's Digital and Communications Committee launched an inquiry into scaling up AI and creative tech. The main aim of this inquiry was to identify key barriers to SMEs scaling in AI and creative technology and recommend practical changes to the Government and industry practices over the next five years.

You can read key points from techUK's response below, or in full here.

On the economic potential for improving the UK's scale-up landscape...

In our response, techUK recognised that doubling down on efforts to make the UK an even more attractive environment for scaling firms will deliver substantial returns, given their crucial role in driving future prosperity. Ranking third worldwide and first in Europe for AI innovation and venture capital (VC) investment, this success is underpinned by a thriving start-up ecosystem and a robust foundation for high-growth firms, including world-class scientific research.

But not capitalising on this growth potential is clear, and research shows that around 60% of UK businesses fail within their first three years. Within the tech ecosystem, the average age of SMEs is 7.5 years, indicating a diverse range of companies at various stages of growth, many of which have the potential to scale further.

As global competition intensifies and the EU market grows more attractive, the UK government must close the support gap for scaling firms. Providing these businesses with growth resources will secure the UK’s competitive edge and safeguard its economic future.

On specific barriers that SMEs facing when seeking to scale, and further measures to address barriers to scale in AI and creative technology...

techUK, working closely with our Scale-Up Council and wider membership, representing AI and creative technology scale-ups, identified key challenges for firms to scale in the UK. Through conversations with our members, we conclude that, while there are some challenges unique to the respective sectors of AI and creative technology, the main barriers for these firms to scale are cross cutting and not unique. Our response to this question is therefore formulated this way.

Scale-ups primary barriers when seeking to scale are on accessing, attracting and retaining talent, accessing domestic and international markets and securing growth capital. Along with ensuring a level playing field for procurement and ensuring the availability of local infrastructure for scaling.

First, on accessing, attracting and retaining talent, specific schemes, like the Enterprise Management Incentive scheme, are therefore a vital channel for addressing this challenge. The incentive supports scale-ups by allowing smaller, higher-risk companies to offer tax-advantaged share purchase schemes and aid recruitment and retention of employees.

Second, scaling firms often have the challenge of accessing domestic and international markets. Actions to support this include enhancing the in-house International Trade Advisor service. techUK, for instance, follow the ScaleUp Institute recommendation for a 'ScaleUp Desk' within all overseas embassies and innovation agencies to provide scaleups with vital local market insights. Alongside this, Scale-up-focused trade missions should be integral to local growth strategies. The Mayor’s International Business Programme in London and Manchester’s Global Scaleup Programme provide examples of this.

Third, scaling firms struggle to secure growth capital, interventions such as the Seed Enterprise Investment Scheme (SEIS), Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) scheme have supported firms to start and then scale in the UK. But there are some limits to the schemes in supporting deep-tech and R&D intensive scale-ups.

Fourth, the level playing for procurement is often a challenge for scaling firms, techUK call for reform to public procurement to further drive social value and support the UK's scale-ups and create a scale-up category in public sector procurement. Support the UK's innovative scale-up companies by streamlining public procurement to remove entry barriers and take advantage of competition to drive meaningful social value and economic growth.

Fifth, the UK’s scale-up ecosystem is often fragmented, and it can be hard for firms looking to scale to know which networks to involve themselves in. A better ecosystem, led by the UK Government who can play a role as the convenor, bringing together scaling firms with their customers, investors and Government stakeholders would help solve this challenge. On this, techUK call for developing a scale-up support service that would also help address the UK’s scale-up funding gap.

This should prioritise navigating the support and funding out there, and a relationship management system to more effectively deal with scale-ups enquiries. techUK members anecdotally cite an account management style system with direct relationship into Government would support in addressing regulatory or policy challenges and how changes may impact their business.

For AI firms specifically, barriers for firms to scale in the UK include infrastructure, data availability and quality, the AI skills gaps and copyrighted material. On infrastructure, organisations often struggle with integrating AI into legacy systems and face technological and compliance uncertainties.

On what the UK can learn from overseas...

There are key lessons that can be learnt from the success of the US to create an environment favourable for firms to scale. For instance, the US is also home to a large and mature venture capital industry, which provides a significant source of funding for technology startups.

One techUK member specifically outlined Singapore’s trade missions as an area that has significantly helped their business to scale. They note that Singapore’s model instilled match making with customers and facilitated introductions throughout the mission. Other aspects, including the generative AI sandbox for SMEs.

Anecdotally cited by our members and the wider ecosystem, Estonia has gained significant recognition among scaling firms for its success in providing robust and active support for scaling firms. Estonia’s scale-up visa makes it easier to attract international talent by enabling scaling firms to sponsor non-EU nationals without being subject to immigration quota and unemployment fund permission.

On the role of academic institutions to boost commercial links with AI and creative technologies...

techUK believes that academic institutions support and enable research to generate world-leading IP in science and technology.

As well as supporting to nurture technical talent, academic institutions play a key role as a facilitator and convening stakeholders in the local ecosystem. An example of this in practice, built in collaboration with Imperial College London, Scale Space White City is a 23-acre platform dedicated to innovation and entrepreneurship. It allows for companies, SMEs, start-ups and entrepreneurs to work alongside the University at stages of their growth and development.

techUK have long called for the Government to create a Connected Hubs programme, similar to the scheme run in Ireland, opening remote and co-working locations across the UK. A primary economic benefit is their role in job creation and creating professional networking opportunities, often outside of major cities. An option could be to ensure these Hubs are linked to academic institutions, facilitating further commercial links.

You can read techUK's full response here.

techUK look forward to continuing to work with the Government on this policy area and we continue to do so through the guidance of our Scale-Up Council and wider membership of scale-ups.

Mia Haffety

Policy Manager - Digital Economy, techUK

Samiah Anderson

Head of Digital Economy, techUK

Neil Ross

Associate Director, Policy, techUK

Authors

Mia Haffety

Policy Manager - Digital Economy, techUK

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