Cambridge is a place that excels – and innovation scale-ups are at the centre of that movement

Insight | Paul Hughes, MD, life sciences and technology, at BDO LLP, discusses the scale-ups in the Cambridge cluster.

There are scale-ups - and then there are life sciences and tech scale-ups that are plentiful in the Cambridge ecosystem. This unique and exciting breed are fast growing, capital intensive, agile and growth focused. In order to scale at pace, they take on large amounts of investment, hiring the best talent and driving their ‘go-to-market’ strategies at frightening speed.

They fit perfectly in the ‘Cambridge Cluster’ – which includes companies located within a 20-mile radius of the city’s centre. It is home to more than 25,000 businesses, with a total turnover of £51billion, and employing nearly 220,000 people.

When you delve a little deeper into the data and explore those businesses that are growing at the quickest rate, unsurprisingly, life sciences and healthcare sits at the top of the list by turnover. However, what’s interesting is that scale-ups in life sciences and tech are not focused on near-term revenues, let alone profits. For them, it’s all about investing in establishing and scaling operations so they can seize global market opportunities at pace. With Cambridge’s burgeoning global reputation, there’s no better home.

As Tabitha Goldstaub, director of Innovate Cambridge, puts it: “The Cambridge ecosystem is unique, the people and the quality of ideas shape the world. To continue to truly capture the global value of the discoveries and ensure local sustainable growth, we must focus on supporting high-growth companies and foster collaboration nationally and internationally for success.”

As one of the world’s leading innovative ecosystems – a place that excels in life sciences, deep tech and interdisciplinary research – it’s little wonder that scale-ups of this variety are attracting both private and public funding to help drive growth.

Figures from Cambridge Tech Week, Beauhurst and The Bradfield Centre show that of the 766 high-growth tech companies within Cambridgeshire, 559 are equity-backed and received in excess of £8billion worth of funding between 2013 and 2022. This is in addition to £352million of grant funding.

The market is clearly attractive and, as such, its ambitions are being supported by growth capital investors that recognise the potential, are willing to ‘bet’ on the future, and buy into its forward-looking vision – one that is intent on delivering impact on a global scale.

What are the challenges that lie ahead?

Cambridge is a diverse and dynamic market, with a rich ecosystem of start-ups, scale-ups and major global companies. But, in order for it to continue to fulfil its potential, there are a number of factors at play, particularly among innovation scale-ups in the life sciences and tech markets. Yes, there is potential for significant returns, but in the near-term there are considerable growth hurdles to overcome.

For example, while there is ample capital for start-up and seed rounds in the life sciences sector, follow-on investments (in particular Series A fundraises) continue to face challenges. Many (particularly newer) venture capital investors are hesitating with deals as they are being driven to opportunities which have the possibility of delivering quicker exits.

Without faster returns, many smaller venture capital funds will struggle to raise new capital themselves. Early and growth-stage capital is increasingly being directed towards AI, chip and quantum, and climate ventures, which is a real boost for tech activity, but this also has the knock-on effect of making it a challenging backdrop for other sectors that fall outside these areas.

Access to public capital markets is also still a challenge. Although NASDAQ remains the preferred market for IPOs, there is still relatively limited activity on the LSE for tech and life science sectors despite its recent uptick in tech Iistings.

In addition, UK universities, crucial for scientific breakthroughs, have also faced significant funding challenges in recent years, impacting innovation and talent. Significant investment in academia is required to reinforce the UK's leadership in science and research (including spin-outs and talent retention).

What’s more, the changing political landscape will undoubtedly influence the growth journey for many in the coming months and years. Since the General Election, the UK is poised for potential new policies on taxes, incentives, and investments in growth businesses. Key areas of focus include corporation tax, possible changes to SEIS/EIS and EMI share incentives, the creation of the proposed National Wealth Fund, and pension industry investment reforms, as well as increased scrutiny of R&D.

Given that innovation scale-ups invest significantly in R&D – both domestically and internationally – this could impact their ability to raise funding and therefore the appetite to invest in innovation.

Ongoing growth

The growth trajectory of innovation scale-ups in the Cambridge Cluster is positive. While it’s not without its challenges, by empowering and supporting groundbreaking businesses and investing in the entrepreneurial endeavours that have made such an indelible mark on the region, we will continue to see a thriving innovation ecosystem that will bring value not just on a local scale, but globally.

But success cannot be achieved in isolation. Whether it’s greater collaboration, connectivity with other hubs, or higher-level support from central government, long-term, sustainable growth will need to be a joint effort.

Paul Hughes is managing director, life sciences and technology, at BDO LLP – ranked as the number one advisor for scale-ups by The ScaleUp Institute, supporting innovation scale-ups through its local, national and international network of experts. BDO is this year’s sponsor of the Scale-up of the Year category at the Cambridge Independent Business Awards.