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EY Fast Growth Tracker 2018 A survey of UK entrepreneurs December 2 EY Fast Growth Tracker 2018 1 EY Fast Growth Tracker 2018 Executive summary EY is pleased to share the second annual Fast Growth Tracker, a survey of the UK's leading entrepreneurs and startup founders. Entrepreneurs are vital contributors to innovation and growth in the UK and the cohort we surveyed in 2018 are no different. We're proud to present their views on the UK startup ecosystem and the issues they consider most important. Entrepreneurs play a vital role in the UK economy. The products and businesses they create drive innovation, economic growth and generate jobs. In 2018 we turned to entrepreneurs for their views on the startup ecosystem, surveying the business leaders of tomorrow to determine what comes next for UK founders. The 2018 Fast Growth Tracker proves that 'Fast Growth' companies can be found across the country and come in all shapes and sizes. The startups surveyed in 2018 Yj]qgmf_2-1 Yj]mf\]jfin]q]Yjkgd\&@go]n]jl`]k][gehYfa]k`Yn]ka_fafi[Yfl ambition. O v er 5 1% ex p ect to g row rev en u es b y 5 0% or m ore thi s y ear and 43% are planning to add 10 or more people to their team in the next 12 months. Our survey suggests that U K en trep ren eu rs hav e a stron g ap p eti te f or f u n d i n g as they l ook to f u el i n n ov ati on an d d el i v er on thei r am b i ti ou s g rowth targ ets. 66% expect to raise capital in the next 12 months and 70% of this group are planning to raise 1m or more. Crowdfunding and initial coin offerings A;Gk!g^^]jY[[]kklgf]ohggdkg^[YhalYd&@go]n]j^gj/- g^]flj]hj]f]mjk ljY\alagfYd]imalqfifYf[af_naYn]flmj][YhalYdfijekj]eYafkl`]hj]^]jj]\kgmj[] of funding. For the second year in a row the m aj ori ty of U K en trep ren eu rs are p l an n i n g to ex i t to an i n tern ati on al acq u i rer ( 5 3 % ) , wi th 6 7 % ex p ecti n g to ex i t wi thi n the next five years. This hints at a larger trend within the UK startup ecosystem, with many founders choosing to leverage the resources of a large parent organisation and accelerate growth rather than remain independent. There are of course challenges to entrepreneurial success. The 2018 survey highlighted two obstacles that are affecting startup founders: access to f u n d i n g ( 5 1% ) an d a tal en t shortag e ( 4 5 % ) rem ai n cri ti cal b arri ers to g rowth. This is consistent with the 2017 survey, implying that further work in the public and private sector is required to help resolve these issues. There is also evidence that m arket v ol ati l i ty an d u n certai n ty ov er the U K ' s f u tu re hav e started to i m p act the M & A l an d scap e. 29% of entrepreneurs plan to pursue M&A in the next 12 months and just 17% believe that now is a favourable time to exit. This appears to be, in part, attributable to Brexit. Over 75% of UK founders are [gf[]jf]\YZgmll`]aehY[lg^:j]palgfl`]ajZmkaf]kkYf\)0 a\]flafi]\alYkl`]aj biggest issue. Maintaining a supportive environment for entrepreneurs who want to start and build companies in the UK will be vitally important to the country's economic future. We live in a dynamic and fast-changing world. Innovation is at the heart of this and we're proud to provide a voice to the entrepreneurs across the country who are working to invent the future. R i chard Gool d Partner EY Fast Growth J oan n a S an ti n on Partner EY Entrepreneur Of The Year A n n a Fael ten Associate Partner EY Corporate Finance J n n S n i n n 2 EY Fast Growth Tracker 2018 Our annual survey of UK entrepreneurs offers an insight into the minds of the country's most innovative business leaders. We asked them about their priorities, frustrations and plans for the future. In 2018 we received 380 responses from startup executives and founders ... About the 2018 Fast Growth Tracker Total resp on d en ts 380 34% 14% 52% 1% Venture Growth Seed Exited C hart 1: R esp on d en ts b y g rowth stag e C hart 4 : R esp on d en ts b y i n d u stry sector C hart 5 : R esp on d en ts b y l ocati on C hart 2: C om p an y ag e 19% 19% 40% 21% < 2 years 25 years > 10 years 510 years C hart 3 : P ri or y ear rev en u e 56% 24% 8% 8% 3% 1% < 1mn 5mn10mn 50mn250mn 1mn5mn 10mn50mn 250mn+ 6% 5% 5% 5% 14% 30% 35% Other Media & Telecoms Leisure & Entertainment Retail Industrials Business & Professional Services Technology 2% 3% 6% 6% 6% 6% 6% 15% 16% 34% Other South West North West Wales Northern Ireland Midlands North East South East Scotland London 3 EY Fast Growth Tracker 2018 Perspectives on growth U K en trep ren eu rs rem ai n op ti m i sti c ab ou t thei r f u tu re g rowth p rosp ects O v er 4 4 % of en trep ren eu rs were ab l e to g row rev en u es b y 5 0% or m ore l ast y ear and this is expected to increase over the next twelve months. Thi s b u l l i sh ou tl ook i s p arti cu l arl y stron g i n the techn ol og y sector where 59% of respondents expect revenue growth to exceed 50% this year. L on d on an d the S ou th East are the m ost op ti m i sti c reg i on s, with 56% and 60% of entrepreneurs respectively expecting to grow j]n]fm]Zq-( gjegj]&@go]n]j$o`ad]l`] overall outlook remains bullish there is evidence to suggest that growth expectations in other parts of the country are starting to soften. 38% of respondents in Scotland expect to grow revenues by 50% or more this year compared to 56% in 2017. Moreover, growth forecasts in Wales have followed a similar trend with the number of entrepreneurs expecting >50% growth falling from 67% to 38%. C hart 6 : W hat rev en u e g rowth d o y ou ex p ect to achi ev e thi s y ear? 12% 46% 25% 17% North East 4% 32% 41% 23% Northern Ireland 33% 10% 19% 38% Wales 20% 22% 20% 38% Scotland 28% 29% 43% North West 8% 23% 23% 46% South West 26% 26% 48% Midlands 18% 9% 17% 56% London 2% 10% 2% 28% 60% South East < 10% 10%20% 20% 50% 50%+ 4 EY Fast Growth Tracker 2018 Startups are looking to fill sal es an d d i g i tal rol es i n ord er to f u el g rowth As entrepreneurs continue to scale their companies access to tal en t b ecom es ev en m ore cri ti cal . Responses to the 2018 survey suggest that some of the biggest gaps exist in sales and digital roles. 60% of entrepreneurs surveyed are currently looking to expand their sales team and 58% are actively seeking to improve their digital capabilities. Hiring and talent C hart 7 : H ow m an y p eop l e d o y ou ex p ect to ad d to y ou r team i n the n ex t 12 m on ths? C hart 8: W hi ch areas of y ou r b u si n ess are y ou l ooki n g to hi re f or? 26% 32% 25% 11% 6% 22% 35% 21% 14% 8% < 5 510 1020 2050 50 + 2018 2017 13% 26% 50% 51% 56% 58% 60% Other Finance Support & admin staff Marketing & communications Business development Digital capabilities Sales Note: Respondents able to select multiple answers 5 EY Fast Growth Tracker 2018 V en tu re cap i tal rem ai n s the p ref erred sou rce of f u n d i n g f or U K en trep ren eu rs The pools of capital available to entrepreneurs `Yn]af[j]Yk]\ka_fafi[Yfldqafj][]flq]Yjk& Startups can now explore crowdfunding and initial coin offerings (ICOs) in addition to ljY\alagfYd]imalqYf\\]ZlfifYf[]&@go]n]j^gj 75% of entrepreneurs venture capital remains the primary source of funding. In a similar manner to 2017, team d i stracti on s and the identification of suitable investors remain the most difficult part of fundraising i n 2018. Although undoubtedly challenging, our experience is that these obstacles can be overcome through careful planning and preparation in advance of a fundraise. Raising capital C hart 9 : D o y ou ex p ect to rai se f u n d s i n the n ex t 12 m on ths? C hart 11: W hi ch sou rces of f u n d i n g are y ou con si d eri n g ? C hart 12: W hat was the tou g hest p art of y ou r l ast f u n d rai se? C hart 10: H ow m u ch are y ou p l an n i n g to rai se? 66% 34% Yes No 30% 51% 6% 13% < 1mn 1mn5mn 5mn10mn 10mn+ 3% 13% 16% 19% 20% 75% ICO Other Invoice finance or debt finance Bank financing Crowdfunding Venture capital 9% 12% 39% 40% 7% 18% 37% 38% Investor information requirements Agreeing terms Finding suitable investors Distraction for your team 2018 2017 Note: Respondents able to select multiple answers 6 EY Fast Growth Tracker 2018 Sector focus: Technology Despite confidence in their own g rowth p rosp ects, tech en trep ren eu rs are p l an n i n g f or an ex i t L][`]flj]hj]f]mjkj]eYaf[gffi\]flafl`]aj ability to scale their businesses. Nearly 60% of the technology companies we surveyed in 2018 expect to grow revenue by 50% or more this year. The majority plan to fuel this growth by raising more money. 7 6 % of en trep ren eu rs b el i ev e that v al u ati on s i n the techn ol og y sector are i m p rov i n g and they plan to capitalise on that by launching a funding round in the next 12 months. Despite the optimism surrounding their own companies tech entrepreneurs aren't convinced that the UK start up ecosystem will support more 'unicorns'. 58% agree that the UK entrepreneurial environment is currently not conducive to producing 'unicorn' technology companies. Moreover, 7 2% p l an to ex i t thei r b u si n ess wi thi n the n ex t 5 y ears an d 25 % i n u n d er 3 . In a similar manner to the 2018 Fast Growth Tracker cohort, an exit to an international corporate is the most attractive option for 60% of tech entrepreneurs. C hart 13 : W hat rev en u e g rowth d o y ou ex p ect to achi ev e thi s y ear? C hart 14 : D o y ou ex p ect to rai se f u n d s i n the n ex t 12 m on ths? C hart 15 : W hat are y ou r ex p ectati on s f or v al u ati on s of b u si n esses l i ke y ou rs? 7% 13% 21% 59% 50%+ 20%50% 10%20% < 10% 77% 23% No Yes 3% 21% 76% Worsening Stable Improving 7 EY Fast Growth Tracker 2018 Preparing for an exit For the secon d y ear ru n n i n g an acq u i si ti on b y an i n tern ati on al corp orate i s the p ref erred ex i t rou te f or U K f ou n d ers 6 7 % of en trep ren eu rs ex p ect to ex i t thei r business within five years. This is consistent with the 2017 Fast Growth Tracker, however just 22% expect the exit to come under three years compared to 30% in 2017. Thi s i m p l i es that som e en trep ren eu rs are starti n g to rev i se thei r own ex i t ti m etab l e , with near term events like Brexit creating market uncertainty. An exit to an international corporate remains the preferred exit route for 60% of entrepreneurs, a seven percentage point decrease from 2017. In comparison just 11% of startup founders are considering listing on an international stock exchange and 14% plan to exit to private equity. C hart 16 : W hen d o y ou ex p ect to ex i t? C hart 17 : H ow are y ou p l an n i n g to ex i t? 2% 20% 45% 13% 20% 2% 28% 34% 14% 22% < 1 year 13 years 35 years > 5 years No plans to exit 2018 2017 53% 19% 14% 11% 3% 60% 14% 11% 15% Sale to an international corporate Sale to a domestic corporate Sale to private equity Listing on a stock exchange Other 2018 2017 8 EY Fast Growth Tracker 2018 The challenges ahead S tru ctu ral chal l en g es i n the U K con ti n u e to create b arri ers to en trep ren eu ri al su ccess Perhaps unsurprisingly Brexit remains a pressing concern for UK entrepreneurs, with 76% concerned about its impact on their companies and 18% identifying it as their biggest concern. In addition, 49% of the founders surveyed do not believe that the current environment in the UK is conducive to producing a 'unicorn' company. This implies that there is more work do be done by the public and private sector to support UK entrepreneurs. Maintaining the UK 's status as an attractive market to build a company will be of vital importance if the economy is to thrive in the future. C hart 18: A re y ou con cern ed ab ou t the i m p act of B rex i t on y ou r b u si n ess? C hart 20: ' The U K en trep ren eu ri al en v i ron m en t i s cu rren tl y n ot con d u ci v e to p rod u ci n g ' u n i corn ' techn ol og y com p an i es. ' 58% 24% 18% Yes, but I have more pressing concerns No Yes, it is my biggest concern C hart 19 : W hat d o y ou b el i ev e are the m aj or b arri ers to f em al e en trep ren eu r su ccess ( i f an y ) ? 39% 20% 9% 9% 23% None (equal opportunity) Lack of relevant role models Women prioritise a work/ life balance Limited access to funding Other 2% 14% 35% 33% 16% Strongly agree Agree Neither agree nor disagree Disagree Strongly disagree 9 EY Fast Growth Tracker 2018 Key contacts R i chard Gool d Partner Fast Growth Platform + 44 20 7951 0603 rgoold@uk.ey.com J oan n a S an ti n on Partner Entrepreneur Of The Year +44 20 7951 5510 jsantinon@uk.ey.com A n n a Fael ten Associate Partner Corporate Finance + 44 20 7951 3063 afaelten@uk.ey.com C on tri b u tors The EY Fast Growth P l atf orm The EY Fast Growth Platform provides a tailored suite of professional services and support to fast growing tech companies. For more information, visit www. ey . com / u k/ FastGrowthP l atf orm EY En trep ren eu r O f The Year EY Entrepreneur Of The Year has been celebrating, supporting and [gff][laf_]flj]hj]f]mjkkaf[]alfijkldYmf[`]\afl`]MCegj]l`Yf*(q]Yjk ago. The programme recognises successful entrepreneurs making a positive impact on their society and the economy, and the legacies they're building. For more information and to enter next year's competition, visit www. eoy . co. uk B eau hu rst Beauhurst provides research and insight on the UK's high-growth companies. The data platform allows professionals to discover and track Britain's most ambitious businesses in unrivalled detail. For more information, visit www. b eau hu rst. com About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services o]\]dan]j`]dhZmad\ljmklYf\[gffi\]f[]afl`][YhalYdeYjc]lkYf\af][gfgea]kl`]ogjd\gn]j&O]\]n]dgh outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. =Qj]^]jklgl`]_dgZYdgj_YfarYlagf$Yf\eYqj]^]jlggf]gjegj]$g^l`]e]eZ]jfijekg^=jfkl Qgmf_ Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. Ernst & Young LLP The UK firm Ernst & Young LLP is a limited liability partnership registered in England and Wales with registered number OC300001 and is a member firm of Ernst & Young Global Limited. Ernst & Young LLP, 1 More London Place, London, SE1 2AF. 2018 Ernst & Young LLP. Published in the UK. All Rights Reserved. ED None EY-000081087.indd (UK) 12/18. Artwork by Creative Services Group London. In line with EY's commitment to minimise its impact on the environment, this document has been printed on paper with a high recycled content. Information in this publication is intended to provide only a general outline of the subjects covered. It should neither be regarded as comprehensive nor sufficient for making decisions, nor should it be used in place of professional advice. Ernst & Young LLP accepts no responsibility for any loss arising from any action taken or not taken by anyone using this material. ey.com/uk EY | Assurance | Tax | Transactions | Advisory
