Entering the Worldwide Scale-up Ecosystem

BusinessCloud Breakfast: What does Manchester need to court?

LogDate 17th February 2017. Sitting down to the BusinessCloud breakfast, I awaited the range of panel discussions on Manchester’s tech scene. Representatives from Manchester’s Business Growth Hub, TechNorth and local entrepreneurs who’ve scaled up their businesses, generously shared their experiences of the Manchester and northern startup ecosystems and their opinion of what the next steps should be for the north of the country.

Intro

Chaired by Chris McGuire, who provided some lively entertainment, shoe-mocking and banter, the morning gathered founders of multi-million pound companies together with entrepreneurs and local professional organisation bodies, gathered to speak to an audience of around 70 people on some of the challenges that await Manchester in it’s move to step up to scale-up capital.

For those unfamiliar with Manchester’s prowess, you may be forgiven for thinking “Who?” though I appreciate that this may be rare. Having been in Canada a month ago, if they know both Manchester’s football and music, then the city has a good international base from which to springboard. The question is now, how? Three factors came to the fore.

1. Skills

The problem Manchester has isn’t the abundance of skills. In my experience, the level of world class tech skills in Manchester is higher per capita than anywhere else in the UK. The issue, as expressed by members of the panel, is paying them to stay.

I was surprised to learn from Katie Peate of Business Growth Hub that salaries of senior tech folk in the north are £39,000… because they are not. They’re £50,000+ with most of the top-end tech roles, the people who have enough breadth to go with their depth, topping £80,000. Indeed, when I was a permy many moons ago, there was only one time in my career I earned less than £39,000. So I have to admit to raising an eyebrow on that number. Yet, this makes the problem somewhat worse for tech founders in the city.

2. Investment

This one gives me a bit of a bee in my bonnet. Manchester is often overlooked as a city for investment. Part of that is our own fault. We don’t shout enough about what the city can do. Part of it is the way figures from bodies such as Nesta seem to rule us out in a completely arbitrary way. I’ll rehash a previous article and paste…

The truth is Manchester is doing a serious amount of stuff, with some of the worst investment amounts in EU major cities. Compare the £138 million total investment with £31.3bn in revenue it generates. That is an ROI of 22,581%…

…I think that number is worth repeating. 22,581% Return on Investment.

From this data, London has £8.32bn investment and revenue of £207bn. ROI of 2,388% ROI (one tenth that of Manchester). Berlin, £3.13bn investment revenue of £45.5bn, which is an ROI of 1,354%. Munich £630 million, revenue £26.5bn, an ROI of 4,160%.

So the truth of the matter is that even London isn’t close to as effective with the money as Munich is, so can’t can’t touch Manchester in that regard. The panel discussion that kicked off #SEWeek16 wanted to make the case that it shouldn’t be necessary for startups to move to London and it’s true. The reality of the cost of living hike will wipe you out anyway, but even without that, the real ROI is not in really in London. Only people are.

(full article here)

The Manchester region has had a 30% hike in GVA in only 3 years. I just want to let that sink in for a bit. It was second only to London when the 3 year period started, but continued that growth until around June, when I last checked. The city makes more per pound of investment than anywhere else in Europe, including London. The issue isn’t getting a return on the investment, it’s getting the investment in the first place.

“You can make a billion in parts, although you do go through the failure mill several times more. However, it is often better to continue to scale a company offering past the point of the first purchase, as long as you have a unique offering that isn’t likely to be copied any time soon. Otherwise you find yourself looking for that needle in a haystack all over again.”

3. Holding Nerves

It has been said that UK and northern startups in particular have been guilty of not making it to unicorn because they cash out too early. However, in reality, the numbers aren’t on your side.

CB insights mapped the number of early stage funding (seed and series A) that the goes on to become a Unicorn company, worth more than $1 billion.

Don’t read too much into the later figures from 2010 onward, since the companies that achieved lower series funding in those years, may still be on their way. However, in a 5 year period, the number of companies becoming Unicorns has been reducing. Though this is an amalgamation of several effects including, but not limited to:

• more companies are being founded and sold early
• higher competition in any one marketplace
• higher indirect competition
• greater focus on latter stage funding

In that sort of market, it should not come as a surprise that companies seriously consider cashing out. Being a serial startup entrepreneur isn’t necessarily a bad thing.

You can certainly make a billion in parts, although you do go through the failure mill several times more and this is why it is often better to continue to scale a company offering past the point of the first purchase, as long as you have a unique offering that isn’t likely to be copied any time soon. Otherwise you find yourself looking for that needle in a haystack all over again. After all, the number of unicorns aren’t as rare as they used to be, though it is often hard to find out how many investments were made in total.

The stories of the entrepreneurs were quite enlightening. Many sought and achieved funding from London. Others were scaling up in the USA. The reality is that we need to keep a lot of these companies here in Manchester if not the UK. Brexit is going to make it harder to scale in Europe, which levels the balancing act for investment. The USA or even Canada will become more attractive to UK investors and companies wanting a safe haven and opportunity to grow. Some of this is quite sensible, though it does take revenue, taxation and jobs outside the UK, even if it returns at some point in the future.

Manchester has always almost been there. The question now seems to be, when, not if.

E