Bure Valley Group is an investment introducer platform which links successful investors with exciting, innovative UK startups seeking funding. This content is for information purposes only and should not be taken as financial or investment advice.
One of the most exciting phases of a business’s lifecycle is the “scale-up” stage. This is when the company has already achieved many crucial milestones from their first rounds of funding, and are ready to take things to the next level. A “bootstrapping” company typically reaches this stage at around 500k of revenue – when profits are being invested back into the business.
A scale-up differs in many ways from a startup. The former usually has more defined roles for team members (rather than requiring people to wear multiple “hats”) and a more defined leadership hierarchy. It is also usually more averse to risk, now that there are proven products and an established customer base. However, on this latter point, scale-ups are not immune to risks. In fact, there are at least four common risks facing UK scale-ups in 2022.
Below, our investment team at Bure Valley Group outlines what these four risks are, how they affect different verticals and how investors can account for these in their portfolios. We hope you find this content useful. To find out more about our EIS and other investment opportunities, visit our portfolio page here. To enquire regarding our latest projects and funding (for investors and founders, respectively), you can reach us via:
+44 160 334 0827
#1 Currency instability
The UK pound (GBP) has faced some uncertainty in recent years – particularly since the Brexit referendum. It used to sit at €1.4 Euro to £1, but fell as low as €1.09 to £1 once it became clear that the UK was committed to leaving the EU.
Today, the forex landscape sits closer to €1.09 to £1. However, the lower GBP value compared to historical levels means that UK scale-ups are more limited in their purchasing power when buying resources (for products) in Europe.
One potential upside, however, is that a lower GBP means that UK scale-ups which export their goods may be more attractive to overseas importers. Investors may wish to factor this into the scale-up investments they consider for their portfolios.
#2 The pandemic
COVID-19 is still not over, even though the pandemic is less at the forefront of the public’s mind following millions of vaccinations – and, recent news about Russia invading Ukraine. However, uncertainty remains over whether new variants might emerge in the near future – bringing back lockdown measures, and the business uncertainty and interruption that comes with this.
Regardless of whether this transpires, COVID-19 has radically changed consumer behaviour and business operations. “Meet and greets” now happen more online, for instance. Scale-ups would do well to ensure they have a strong digital strategy for their marketing, brand and sales pipelines in the years ahead – to help ensure their business model is “pandemic proof”.
#3 UK-EU tensions
The UK is currently standing in greater solidarity with the EU following the recent invasion of Ukraine by Russian forces. However, UK-EU tensions still exist in the background.
UK scale-ups can no longer access the EU’s Single Market as easily as they once did. Many EU-based business and political leaders are still “sore” about the UK leaving the Union, and may not be as open to conducting business with UK scale-ups as they once were.
However, not all scale-ups operate in the EU or have EU-based customers. Others might do, but operate in sectors that are more vulnerable to instabilities in international relations. Before Brexit, for instance, UK financial firms could operate in the EU under the “passporting” system, but today the UK–EU Trade and Cooperation Agreement (TCA) contains few provisions on financial services. Instead, trade is managed via mutual unilateral equivalence decisions – with the EU currently reluctant to make equivalence decisions for the UK.
#4 Inflation
As the UK emerged from months of COVID-19 lockdown in summer 2021, the reopening of the UK economy drove a rise in prices. Inflation was further pushed up by a rise in global energy prices, leading to Ofgem – the UK’s energy regulator – raising the cap in October 2021, and has said it will be raised further in April 2022.
It has become clear that this recent inflation (now at a 30-year high) is not “transitory” and will likely be here for months – if not years. This means higher input costs for UK scale-ups, which may need to pass the costs on to their customers. Those operating a competitive advantage based on price, therefore, may struggle more to compete with established market players.
UK consumers may also be less inclined to spend on consumer discretionary sectors as UK interest rates rise (to try and “cool down” the economy), and more people choose to put their money into savings. Higher interest rates also have an effect on the housing market as variable mortgages go up in monthly price. This leaves less disposable income for consumers to spend, which can create a harsher market landscape for UK scale-ups to operate in.
Given these macroeconomic challenges, scale-ups which may have an edge include those that attempt to make life’s necessities “easier” and “cheaper” for consumers.
Invitation
Interested in finding out more about the exciting startup projects we have on offer to investors here at Bure Valley Group? Get in touch today to start a conversation with our team and discuss some of the great investment memorandums we have available here:
+44 160 334 0827
