The UK’s Modern Industrial Strategy 2025 has outlined a 10-year plan for economic growth by enhancing supply-side strengths and the business environment in eight growth-driving sectors. Start-ups are crucial to fulfilling this growth mission, contributing in three ways: innovation, job creation, and market competition. In a new policy brief, Nghi Nguyen and Diane Coyle examine the strengths and weaknesses of the UK’s start-up ecosystem.
The recent Industrial Strategy White Paper stated the government’s ambition to “deliver strong, secure, and sustainable economic growth to boost living standards for working people in every part of the UK”. Start-ups are crucial to fulfilling this growth mission, contributing in three ways: innovation, job creation, and market competition. In this era of geopolitical upheaval, supporting domestic companies to grow and scale is a strategic imperative in order to strengthen national supply chains and ensure economic resilience.
In this policy brief, we discuss the United Kingdom’s (UK) start-ups and scale-ups landscape in the UK, focusing on three factors contributing to the development of a start-up ecosystem (markets, talent, knowledge clusters and network); funding opportunities; and exits and scaling up strategies.
The UK’s start-up ecosystem faces several challenges, such as a domestic market constrained by slow real wage growth, or the limited late-stage funding.
While the domestic market’s size might incentivise UK start-ups to internationalise early, Brexit and shifting US trade policies complicate this.
Talent recruitment remains difficult despite a strong graduate pipeline. Knowledge clusters—such as those in London, Oxford, and Cambridge—play a key role in fostering innovation through collaboration and network effects, though they are smaller than American counterparts.
UK venture capital funding is proportionally strong but largely foreign and potentially volatile. The policy brief discusses potential factors contributing to the funding gap with the US, including market size, capital allocation, risk appetite, and the cost of failure associated with employment protection law.
To summarise, this policy brief argues that encouraging the start-up and scale-up landscape in the UK needs to be thought of in terms of developing and strengthening ecosystems, centred around different specialisms and knowledge bases. There also needs to be a broad view about distinctive financing needs, market structures and opportunities, talent pools, specialised support services and so on. This implies not just a need to focus on specific policies but also the need for greater policy coordination than has characterised the UK in the past.
