What does the year ahead hold in store for early-stage businesses and scale-ups? Will Clark and Sandy Reid of Mercia Ventures identify seven key trends.
Will Clark, Managing Director of Mercia Ventures, says:
- Scaling up will be harder
Raising follow-on investment will be one of the biggest challenges for early-stage companies in 2025. Scaling up has never been easy for UK businesses but it has become harder in the current market and we expect the situation to continue into the year ahead.
This will be particularly tough for capital-intensive businesses that have not yet reached breakeven. They will need to focus on capital efficiency and being innovative in finding the best route to market. Companies planning a Series A round or beyond should start conversations with investors early so that they understand what’s important to the investors in terms of proof points.
Having regular check-ins to brief those prospective investors as they tick off those achievements is a natural extension of this and a way of deepening the relationship.
2. Businesses need to watch the US
The US is a key market for many UK companies, particularly tech scale-ups, so they will need to keep abreast of any tariffs or other changes under the new Trump presidency. In any event, taking advice early is imperative, so as to best understand where to base a US subsidiary and how best to recruit local talent.
3. Upside of a downturn
The business climate may remain challenging in the year ahead but on a positive note, a downturn does force teams to focus on the business fundamentals – at some point, every business has to start to make money. A difficult market can also be a good time to start a business, as we have seen from previous cycles. Some great companies have emerged from previous recessions.
4. Benefits from reshoring
The geopolitical climate may also have some benefits for UK business, as companies reshore some of their operations. For example the US has restricted business with some Chinese companies on grounds of national security, and now some UK biotechs are moving operations back from China due to concerns over intellectual property.
Sandy Reid, Fund Principal at Mercia Ventures, adds:
5. Firms will bring forward Series A rounds
Start-up and early-stage activity is likely to continue much as before in the year ahead but businesses seeking Series A or larger rounds may bring forward their fundraising plans as they are likely to need the money sooner. Costs have risen all round due to inflation and the Budget, while the slowdown is hitting revenues for some companies.
6. IP-rich businesses will thrive
High-tech businesses and those with rich intellectual property are likely to flourish in the year ahead. This is good news for the Life Sciences sector, which is going from strength to strength, and we expect the emerging space industry will continue to gain momentum. The trend for all things AI will continue but identifying the real winners in this market will be critical.
7. Focus on profitability
The trend for pursuing ‘growth at all costs’, which we saw in the wake of the pandemic when tech valuations were high, is over. The focus is now on targeting profitability and the talk is of how soon a company will achieve breakeven. Mercia Ventures will remain active in the market and we are keen to support innovative businesses with their growth plans.