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Scaling Up for Success: 2024 Highlights and Legal Considerations
We can all agree that 2024 has been a tough year, both for investee companies looking to scale and for investors. Geo-political conditions, uncertainty across global markets and lack of exit activity have all had a part to play. However, as we reflect on the year gone by, there are nonetheless positive indicators to be drawn from 2024.
UK Scaleup Trends in 2024
Despite market challenges, the UK continues to offer a vibrant and supportive environment for scaling businesses. According to the ScaleUp Institute’s 2024 Annual Review, the UK has over 34,000 scaleups, generating over £1.2 trillion for the UK economy and employing millions of people. This year witnessed a continued focus on fostering scaleup growth through various initiatives:
- Available Investment: Overall investment has been falling in the UK since 2021, which peaked at £28.4 billion over 7,872 investment deals, according to data consultancy firm, Beauhurst. However, in Scotland, although the volume of deals may be down, the total value of deals in 2024 is on track to surpass that of 2023. This is thanks to certain key investors in the Scottish market, such as the Scottish National Investment Bank, established 4 years ago and which has since committed over £662m and crowded in over £1.4 billion to the Scottish economy across 37 diverse sectors. We have also seen increased collaborative investments with more investors sharing the risk and reward.
- Focus on Innovation: Innovation remains a key driver of scaleup success. Planned initiatives such as the UK Government's British Growth Partnership to be established by the British Business Bank will seek to encourage more UK pension fund investment into the UK’s fastest growing, innovative companies. During the Autumn Statement, the UK government also confirmed the invaluable extension of the EIS and VCT sunset clauses to 2035, noting that the Government ‘remains committed to ensuring early-stage, innovative companies have access to the investment they need to grow and develop’.
- Networking and Support: Collaboration and knowledge-sharing are crucial for scaleups. Conferences like ‘Invest2Scale’ create valuable connections between businesses, investors, and the wider ecosystem. MBM is proud to be a founding partner of Invest2Scale, connecting people and driving growth for our clients.
- Gender diversity: It has been hugely encouraging to see the wave of support behind the Pathways Report, with numerous investors and ecosystem partners becoming Pathways Pledge Partners. 2024 also saw SIS Ventures and Pathways Forward bring “Show Her the Money” to Edinburgh in May, with the inaugural Female Founders Growth Summit taking place in September (to name but a few events this year putting a focus on female founders trying to scale their businesses). This is just the beginning and it will be crucial to capitalise on the current momentum, but it is certainly positive to see more investors making gender diversity a priority within their portfolios.
- Emerging Sectors: Over the last 12 – 18 months we have seen AI and CleanTech emerge as clear sector favourites. Both are expected to remain hot areas for investment in 2025.
Preparing to Scale – Legal Considerations
We understand the unique challenges and opportunities faced by scaling businesses, including access to talent, markets and funding. Securing funding and raising investment is a crucial step for any business looking to scale and at MBM, we have extensive experience advising and supporting both founders and investors from pre-seed through to exit.
When gearing up to engage with potential investors, taking a few simple steps can help to anticipate issues, manage expectations and ultimately make a difference to your success in securing investment.
- Set Expectations: Think about how much money you would like or need to raise for successful growth of the business. There will be unexpected costs and raising the next round may take longer than you think. Carefully consider the company’s valuation – and ensure this is supported with clear evidence – which will help steer these aspirations.
- Know Your Numbers: expect increased scrutiny of a company’s path to profitability. Investors really want to understand the projected market, customer base and expectations around growth and profitability on a deep level.
- Housekeeping: Ensure aspects such as the structure of the business and record keeping are all in order and up to date and a share capital table has been prepared which sets out the current shareholders as well as the expected post-investment position (both on a diluted basis and a fully diluted basis).
- Review IP and Key Contracts: Review and confirm ownership of key intellectual property rights and ensure material contracts with employees, suppliers and leases are all in order. Doing so can help to speed up the due diligence process, which can often be the lengthiest part of the investment process. It’s also important pre-exit planning, helping to identify potential issues which could devalue the business in the eyes of a potential acquirer, and giving you time to take remedial action.
- Retaining Key Employees: Make use of tax efficient share incentive schemes for key employees and officers to ensure they remain engaged and incentivized.
- Think Globally: Scaling a business involves taking it to new markets. Be ambitious in your plans but careful in your execution. Our in-house team of US attorneys help many of our clients expand into, and raise funding in, the States. Our World Tech Legal network of like-minded entrepreneurial lawyers allows us to support our clients on a global scale.
Looking Ahead
2024 has been a challenging year for scaling businesses in the UK, but we remain optimistic for a rebound in 2025. By understanding the key trends, leveraging available support, and addressing legal considerations, ambitious businesses can put themselves in a strong position to raise scale up funding and expand into new markets.
