How the north can drive a resurgence of VC investment in 2024
Investment in the North remains resilient
As part of the development of Brabners’ True North | Defining Northern Ambition report last year, we held a series of conversations with experts in the region, focused on exploring the opportunities to maximise region-wide potential and deliver on the ambitions of its entrepreneurs and startups.
We found that, while the North boasts world-class academic institutions, ground-breaking research assets and incredibly innovative businesses, concerted effort and better access to venture capital is required to scale more of our enterprises to compete on the global stage.
This transition, from startup to scale-up, is a long-standing challenge for many founders in the UK. Only 1% of UK SMEs are defined as scale-ups, however they contribute to more than a fifth of total SME turnover – demonstrating their vital importance to the UK economy.
As a result, a UK-wide slowdown in year-on-year VC deal volume and value – as seen in 2023 – could have significant economic ramifications if it were to become a long-term trend. This slowdown was one that we anticipated at the start of the year, with Brabners' Northern Investment Index describing investor intentions as “subdued”. Only a third of investors we spoke to said they planned to increase their activity in the UK in 2023, compared to 55% the previous year.
However, to counter that, our study highlighted that 88% of UK-based investors said they would maintain or grow their investment in businesses headquartered in the North during 2023, as did 82% of US-based investors.
As a result, the level of investment in Northern businesses remained resilient in 2023, with data from HSBC Innovation Banking and Dealroom suggesting that $10 billion was invested outside London. Driven by significant growth in VC funding over the past five years, most notably in Birmingham (+1183%), Liverpool (+657%), Sheffield (+595%) and Glasgow (+525%).
UK investment: new year bounce or back on track?
With fast growth anticipated outside the capital, for UK investors, 2024 is projected to be “the year of recovery”, with $1.6 billion of VC funding already secured by ‘pre-seed to unicorn’ businesses as of the end of January 2024.
This reflects a positive start to the year and one that is hopefully not a case of the “January effect” – the term given to the immediate new year bounce in stock prices and ventures – as funders look towards fresh ideas and investments at the start of the year.
Looking at the data in more detail, though, we can see positive patterns emerging.
The start of 2023 was a relatively slow period for deals, that lasted into the summer, however the last four months of the year showed signs of improvement, with the value of deals in each of September, November and December exceeding those in the early months of the year – especially in November and December where the volume of deals exceeded $2 billion in each month.
To proceed on this path, we need to examine the sectors that are ripe for investment in 2024.
The North’s sectoral strengths
Climate-tech and AI startups are the obvious place to start, having raised $10.7 billion combined last year – representing almost half of the total amount invested across all sectors and bucking many investment trends.
Our True North | Defining Northern Ambition report confirmed that these sectors are among those driving growth across the North. As highlighted by The Data City’s Kelly Weston, four of the UK’s five fastest growing cities – Liverpool and Sheffield (again), as well as Bradford and Manchester – have benefited from significant investments in the circular economy and technological innovation.
As Kelly explains, Sheffield and Bradford have been particularly focused on energy storage and sustainable ‘green growth’ practices, positioning the Yorkshire economy for green growth. This is supported by a rise in green energy generation companies, as well as the roles of the Translational Energy Centre and Nuclear Advanced Manufacturing Research Centre.
In AI, initiatives such as the Greater Manchester AI Foundry and the Bradford-Renduchintala Centre for Space AI, as well as companies including PeakAI and InTechnica, have established the North as at the forefront of the UK’s AI innovation.
Investing with confidence
A further vote of confidence in the region’s innovation landscape was achieved at the end of last year by the establishment of a new £100 million venture fund from Edinburgh-based VC, Par Equity, aimed at scaling high growth tech companies in the North.
The B Corp certified fund works with early-stage businesses innovating in the high potential sectors identified by HSBC Innovation Bank and Dealroom, including climate-tech and AI, as well as health tech and industrial tech.
Par Equity partner Andrew Noble highlighted the economic potential of the North, worth around $1 trillion in GDP, saying: “It would be the eighth largest economy in Europe but is still largely overlooked by investors.”
This year might be the turning point, as the beneficial effect of the investment zones that were announced in 2023 starts to take hold.
Investment zones: clusters of innovation
Investment zones are described as an “ambitious plan for growth and prosperity, rooted in boosting the UK’s potential as an innovation nation, growing strengths in key industries to support national priorities.”
What makes investment zones unique is their place-based approach, focused on a number of high-potential clusters – places with specific characteristics and local sector strengths, talent and networks.
It is why South Yorkshire and Greater Manchester have been selected to drive progress in advanced manufacturing and materials, and Liverpool City Region and West Yorkshire to boost life sciences and health teach innovation.
Investment zones offer a significant opportunity to the regional economy, with the four Northern clusters announced so far forecast to create more than 45,000 jobs combined by 2030 and unlock almost £3 billion in private sector investment.
They also align with ‘economic cluster’ models seen commonly in Germany, Sweden and Spain, which the Institute for Public Policy Research (IPPR) highlighted in its 2023 ‘State of the North’ report.
That report called for the UK to learn from its international partners and provide a sustained public investment offer for places, while establishing a clearer economic tie between people and the places they live or come from, and a deeper and irreversible shift to local tiers of government.
Investment zones take valuable steps towards addressing each of these recommendations and with it, closing the gap in what the IPPR describes as “the most regionally unbalanced large, advanced economy”.
The idea of specialist sector clustering in this way was also one that 30% of investors surveyed for the Northern Investment Index raised as a positive factor for directing their capital into the region, on the basis that their capital is not invested in a silo but placed in an ecosystem of innovation and talent.
Taking Northern success national
We believe that if you are seeking out the VC Investment recovery in 2024, the North is a good place to start. By channelling resources into sectors of strategic importance — as investment zones seek to do – the region can leverage the individual strengths of its parts for the benefit of the North as a whole and, thereby, play a leading part in fuelling the entire UK economy.
There is a real opportunity through existing strengths in climate-tech and AI; significant votes of confidence in Northern innovation, such as Par Equity’s Investment Fund; and through the establishment of investment zones, for success to breed success.
As funding increases and jobs are created, we hope that we will witness even more talent and investment make its way into these Northern innovation hubs and their surrounding areas.
This is precisely the kind of effect that True North aims to create between the members of our network – many of whom are leading innovations and projects that investors will be interested in supporting with VC funding.
Our aim is to play our part in connecting these purpose-driven leaders and innovative ideas with the investors that can help them scale, both their businesses and their impact. Together, we can scale the North’s ambition and attract the capital we need to deliver sustainable, inclusive growth for the whole region.
If you are an investor with a focus on the North, or a startup with ambitions to grow and scale your business, then we would be delighted to welcome you to the True North Network now.
