Summary of Beauhurst’s 2018 – ‘The Scaleup Index’ Report

Each year Beahurst compose a report on the developments of scale up company’s in the UK. We thought it would be useful to create a short summary of the most important findings in the report. We hope you find the following helpful.

A scaleup is defined in the UK as a company that both meets the OECD definition of a high-growth firm and files full accounts at Companies house. To further clarify; the OECD definition of a high-growth firm is an enterprise with average annualised growth that is greater than 20% per annum, over a three-year period, with at least ten employees at the start of the observation. UK Companies are also required to disclose their turnover if two of the following are true:

  • Annual turnover exceeds £10.2m
  • Assets exceed £5.1m
  • More than 50 employees

Now that these formalities are out of the way, this report summary will be structured as such; first I will discuss a summary of the past years scaleup activity, then look at Investment over the past year, growth rate demographics and grants.

Summary of the past year’s activity 

Beahurst reports that the number of visible scaleups has increased from 3,856 to 4,420, a rise of 15%. Of this total 245 are registered both at Companies House and listed on AIM. Furthermore, there was a record level of investment in scaleups in 2017, reaching almost £2.75bn. The British Growth Fund (BGF) remained the top investor with 72 equity deals. 

The majority of scaleups within the report are in non-tech sectors, including professional services, industrials and leisure & entertainment. In terms of geography, scaleups are found throughout the UK, with a concentration in London, the South East, Leeds and Manchester. 

Key takeaway statistics from this report are:

  • Property/land development is the top sector by number of visible scaleups
  • The South East holds the top LEPs by number of visible scaleups
  • Finally, BestWay Wholesale holds the accolade for the top visible scale up by employee count (25,122) and by turnover (£2,948m)

Investment

2017 saw record levels of investment into scaleups, which is mostly down to the 14 megadeals (deals over £50m) that took place. The total amount invested in 2017 was £2,747m compared to 2014’s record year of £1,256m raised. However, 2014 still holds the record for number of deals, 89, compared to 2017’s 66 deals. 

Investment levels increased in all sectors apart from Built Environment, which fell from £130m in 2016 to just £9m in 2017. The top three scaleups, by total amount of equity raised, in 2017 were ‘BGL group’ a consumer banking and insurance services company who raised £675m. ‘Farfetch’ a fashion and E-Commerce company which raised £313m and ‘Hyperion’ another insurance services company who raised £298m.

The fall in the total number of deals is due to the increase in funding per deal. Deals worth more than £50m account for the majority of the amount of investment into scaleups.

BGF remains the top investor into the UK’s visible scaleups with 72 investments in 2017, with Draper Espirit second with 19 deals and Index Ventures a close second with 17 deals completed. Eight Roads Ventures and Livingbridge are new entrants to the rankings. 

BGF has invested 25% of its portfolio of scaleups in London and 17% of those in the East Midlands. Scotland is another heavily invested region, with 9 deals in total and £107.6m invested.

This year’s index once again shows that scaleups are found in every sector and every region of the UK. It is critical to build on this nationwide approach with more investment needed on the ground and a renewed focus on making Patient Capital a reality by crowding in institutional funds to support Britain’s scaleups.

Stephen Welton, CEO, BGF

Growth rate demographics

In general, companies growing their turnover at faster rates are more likely to have used equity financing. The use of equity finance is also correlated with higher employee growth rates, up to 100% growth. Firms growing their employee count are more than 100% are rare. The more equity investment a company receives, the more likely it will be growing its turnover by over 100% a year. 

Grants

Grants are an important aspect of the scaleup environment. Since 2011 £74m worth of Innovate UK grants have been awarded to scaleups. Innovate UK will further support scaleups through Innovation Loans, which are being piloted this year. 

The key figures from the Beahurst report are that 345 grants to visible scaleups were awarded since 2011, with an average grant size of £214k.

Four of the top five sub-sectors that received the most Innovate UK grants were in the Industrial sector. In total, Industrial Scaleups received 79 grants. With the sub-sector ‘Misc. manufacturing & engineering’ receiving the biggest number of grants. By value, scaleups in the Midlands received a third of all Innovate UK grants to scaleups. Scaleups in the East of England received over £20m of support. 

Focussing on the Midlands, 2017 saw the largest value of Innovate UK grants ever awarded to this region, £9.1m received in one year, compared to the second highest amount of £6.2m in 2015. A large number of industrial scaleups are located in the Birmingham metropolitan area data shows. The sector has been supported by £18m in Innovate UK grants. 


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