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Scale or Fail: Should UK founders look East to scale up?

by LLT Editor
22nd Jul 22 12:54 am

Last month, Labour announced a review of startup funding for UK firms, with an aim to make Britain ‘the best place in the world to start and grow a business’. This comes as the catalysing effects of a looming economic recession, a reduction in IPOs and a stock market rout have severely stunted the growth of businesses across the nation.

Now, the SME landscape is facing its own implications of “stagflation”, with worldwide VC confidence and funding taking a subsequent hit. As a result, funding opportunities have become increasingly scarce across the UK, in what has been one of the worst withdrawals since the 2008 global financial crisis.

The United Nations Conference on Trade and Development’s 2022 World Investment Report has revealed that whilst the flow of Foreign Direct Investment (FDI) benefited all countries post-pandemic, flows to developing economies rose by 30% – the highest level ever recorded – largely due to contributions from Asia. India presented as one of the top 10 economies in terms of FDI inflows in 2021, and the country has continued to break records in business activity in the past year alone. Earlier this month, India recorded a record $82.3bn in mergers and acquisitions in the last quarter, despite global volume being down 8.7% – according to Bloomberg. The appetite of strategic investors from India has continued to fuel the nation’s economy and now, UK businesses have also taken notice of their significant pool of capital, which could help in providing valuable scale-up opportunities.

Some of Britain’s largest and most well-known conglomerates have already begun looking East to achieve rapid growth, with Reliance Industries recently announcing a franchise partnership with Pret A Manger to launch and build the British chain across India. This comes after the Indian firm also made a binding bid with American corporation, Apollo Global Management, to acquire high street chemist, Boots.

India – dubbed as Asia’s Silicon Valley – has proven to be an anchor for firms looking to expand, however don’t have the means of capital to do so. Their young and dynamic population has given birth to some of the world’s most successful CEOs, and a relationship between both countries will likely be integral to lift Britain out of the current economic slump.

As British businesses rethink their options for funding, instead shifting to an international route to bolster chances of expansion and growth, new research from JPIN demonstrates that investors from the UK are also taking an interest in emerging markets. Indicative of the East’s exponential growth in the last decade, the data reveals that over a quarter (26%) of British investors are prioritising investment opportunities in these areas, primarily when it comes to green and sustainable companies, biotech/medtech and fintech.

Key stats:

  • 45% of British investors are looking to invest in green companies in emerging markets rather than the UK
  • 36% want to invest in stocks and shares in emerging markets rather than the UK
  • 35% are looking to invest in biotech/medtech in emerging markets rather than the UK
  • 29% want to invest in fintech in emerging markets rather than the UK

Nayan Gala, founder of JPIN, explains why UK businesses are beginning to look East for investment opportunities to expand: “India has continued to show signs of real development with record growth in exports and foreign investment. Pret A Manger’s expansion to the country is a great example of this, and I expect to see many more companies following suit in the coming months and years.

“With the pandemic having created a unique and arguably, challenging landscape for British businesses, India presents itself as a key driver in providing a sufficient means of capital for firms looking for opportunities to scale up.

“India’s record-breaking quarter for M&A activity clearly illustrates the country’s wealth in investment opportunities. As one of the leading hubs of IT and technology, I expect to see an increasing number of startups turning East in search of funding opportunities that can assist with their scale-up efforts in such a bleak socio-economic landscape.”

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