Making the North East the UK’s best place for business scale-up

With a back catalogue stretching numerous centuries, the North East is an acclaimed innovation hotbed.

But to remain at the forefront of change, and to continue building on its forebearers’ successes, it must ensure present-day breakout firms are suitably supported to scale.

A roundtable discussion, hosted by North East Times Magazine alongside the Entrepreneurs’ Forum, RTC North, Raymond James, Monument and Northumbria University, analysed the situation in detail, laying out action points for growth.

WHAT DOES THE PRESENT NORTH EAST SCALE-UP LANDSCAPE LOOK LIKE?

From the world’s first steam locomotive railway to Joseph Swan’s literal lightbulb moment, ingenuity permeates through centuries of North East history.

And the lessons of yesteryear continue to hold great influence today, with a vibrant innovation ecosystem hothousing seeds of commercial ideas into blossoming business ventures. 

But, said Lisa Eaton, founder and chief executive of Newcastle-based marketing training firm Fabric Academy, for all the inventiveness, company progress, particularly around those seeking to scale their endeavours, remains somewhat checked.

She said: “The North East leads the way on entrepreneurial support. 

“There is a very encouraging community for growing businesses, with the Entrepreneurs’ Forum, for example, having been a part of many stories for a long time.

“But while the support is there, the cash is not.”

 

HOW SIGNIFICANT IS THIS LACK OF FUNDING SUPPORT TO SCALE-UP GROWTH? 

For too many firms, said Mark Harrison, scale-up partner at Sunderland-headquartered business support organisation RTC North, the journey towards success is hampered by a piecemeal approach.

Citing the lack of venture capital trusts (VCT) in the region, he called for a radical reworking of existing mechanisms to stop firms walking in a perpetual circle.

He said: “People never get out of the fundraising cycle, which makes it very difficult to be successful.

“If a business gets £250,000, for example, by the time it pays suppliers, having previously run out of money to do so, and then paid those who helped raise the cash, it’s probably got £150,000.

“That kind of figure means it has six months left, so it is out raising money again.

“We put too little money into too many companies; we should put more into less and be more selective.”

Ian Richards, a director at Newcastle-based investment house Northstar Ventures, acknowledged Mark’s argument, highlighting the contrasting successes regional firms have in raising as much as £500,000 against their ability to attract larger-scale syndicate sustenance.

He also pointed to a past reliance on European Regional Development Fund support.

Using Northstar Ventures’ experiences with the flagship scheme, he said: “Part of taking that money is that you must fund a lot of businesses. 

“For example, stakeholders wanted a large number of businesses invested in, and that makes it hard to have the necessary funds in the businesses that scale.”

Gary Fawcett, branch principal of wealth manager Raymond James’ recently-opened Monument office, in Newcastle, pointed to the catalysing effect a new angel-based funding stream could have on start-ups’ progress.

He said: “I get really frustrated that a lot of investment comes from London to the North East, but leaves when there is an exit event.

“And if the North East supported its own, with something like a pot into which angel investors could put liquid wealth, that would mean money staying here while making a massive difference to business growth.”

Jonny Catto, managing director of Gateshead-based food and pharmaceutical packaging maker Ipac, provided an alternative angle, praising the support his family business has received since its 2016 founding.

He said: “We very quickly tapped into the Let’s Grow scheme, which helped us with day one capital, and built on that through our accountants UNW, who put us in touch with Maven Capital Partners.

“We’ve now been through three fundraisings, and found it relatively easy. 

“In fact, our second came from Maven approaching us, and we’re now setting up a second site in Durham, which has been partially driven by accessing the Finance Durham Fund through Maven.”

 

DO ENOUGH ENTREPRENEURS KNOW HOW TO SOURCE THE RIGHT FUNDING?

Entrepreneurs, by their very nature, exist because of a moment of enlightenment.

But too many, said Elaine Stroud, chief executive at the Entrepreneurs’ Forum, continue to grope in the dark when it comes to accessing funding support.

She said: “A lot of people struggle with which direction to turn, particularly in the £500,000 to           £5 million funding bracket.

“There is a knowledge gap, and better awareness on who to talk to would definitely help.”

Lisa agreed, citing the protracted – and almost serendipitous – journey she encountered when trying to locate angel investor support.

She said: “After bootstrapping the business, building the technology and taking it to market, the big challenge was finding high-net worth individuals. 

“All six of my funders happened to be angel investors from the North East.

“But I didn’t approach one of them knowing that is what they were; I went to them in an attempt to build out an advisory board.

“Finding the right people took forever, and that time would have been cut if there was a voice in the region – like there is in Leeds, Liverpool and Manchester – to direct people towards clusters of high net-worth individuals.”

Colin Bell, business growth director at the North East Local Enterprise Partnership, signposted the potential of the new North East Mayoral Combined Authority – which will begin operations next year under an elected regeneration boss – in helping entrepreneurs better understand the funding framework.

He said: “There will soon be a programme launched through the North of Tyne Combined Authority, which will be taken forward into the North East Mayoral Combined Authority.

“Part of it will be investment readiness support, and there will be an investor relations function, which will make connections inside and outside the region, to help build things like funding syndicates.”

 

HOW DAMAGING IS SUCH LACK OF KNOWLEDGE ON NORTH EAST SCALE-UP BUSINESS’ PROGRESS?

To bastardise an idiom, when ignorance enters the room, fear is never too far behind.

And when it comes to institutional investment, Steve Rawlingson, founder and group chief executive of Newcastle-headquartered renewable energy, technology and rail recruitment firm Samuel Knight International, said many entrepreneurs are almost stupefied by half-truths and misapprehensions.

Highlighting how Gresham House Ventures’ backing has helped transform his start-up endeavour into an   £18 million global operation, he said: “The business is a lot more structured and I’m surrounded by some of the best people I’ve ever worked with.

“There can be a lot of scaremongering, with some people thinking, ‘if I raise institutional investment, they may remove me from the company’.

“But the support I’ve received has been amazing; the business has scaled because of it, it hasn’t scaled because of me.”

Steve’s experiences were acknowledged by Sophie Milliken, founder and chief executive of Newcastle-based PR agency Moja Group, which amplifies entrepreneur and senior executive profiles, and business coach and Entrepreneurs’ Forum Scale-up Leaders’ Academy coach Ian Kinnery.

Sophie said: “The way to dispel such fear is to hear more about successes.

“Telling Steve’s story and saying, ‘you can do it too’, would really give people reassurance.”

Ian added: “The story is so important; if we had four or five other companies saying the same thing as Steve, it would become more acceptable.”

Dr Emily Buchnea, an associate professor in Northumbria University’s Newcastle Business School, agreed.

She said: “There has been a problem with ownership dispersion over the last 50 years, particularly from international investors and how it has damaged organisational culture.

“And I think a fear about selling equity remains ingrained from that. 

“But it’s a different story when it comes to regionally-based SMEs.”

 

EQUITY IN BUSINESS, OF COURSE, MEANS MORE THAN A SHARE IN A COMPANY. BUT IS THE FUNDING LANDSCAPE PROVIDING ENOUGH SUPPORT FOR FEMALE ENTREPRENEURS?

In a word, said Sophie, no.

Drawing on her experiences of co-founding SRS Recruitment and Employability Experts a decade ago, and its subsequent acquisition in 2019, she called for a step-change in attitudes.

She said: “There is definitely a gap around knowledge and what is available from a female perspective.

“We all know that awful stat of one penny in the pound going to female entrepreneurs, and research I’ve conducted shows barriers to progress include a lack of risk appetite from female founders going for investment,” said Sophie, who is also chair at Smart Works Newcastle, which helps women into employment through interview clothing and coaching.

She added: “I do a lot of work outside the region, where conversations around supporting people with their options happen all the time, and we need more people from the North East to get out and develop their understanding.”

WHAT ABOUT THE SCALE-UP BUSINESSES THAT STRUGGLE TO ACCESS SUPPORT BECAUSE OF THE SECTOR IN WHICH THEY OPERATE?

Often one of the first to fall during an economic downturn, and one of the last to resume operations when the dust has settled, the construction sector is notoriously precarious.

But, said Dan Parker, founder and managing director of Newton Aycliffe-based cladding and roofing firm Aspect Facades, the industry includes many strong operators, which – if added to an investor’s index – could achieve great things.

He said: “It often makes me laugh how people, despite technology firms going years without making any profit, continue throwing millions of pounds at them.

“We’ve been profitable from day one, but nobody will throw us a penny.

“And that extends to the bank; we’re an £18 million business, yet our overdraft is £25,000.”

Josh Robson, head of external affairs at the ScaleUp Institute, said a narrative would help alleviate funder unease, particularly around less well understood sectors.

He said: “Innovation is at the heart of scale-up business growth, but without a clear view of how new products will get to market, or how new industries and sectors may evolve, it can be hard to build a track record. 

“Net-zero is now a well understood term, but new technologies can still struggle to attract investment.

“It had no such profile ten years ago, because there wasn’t any proven understanding of the technology.”

 

DELIVERING SUCH POTENTIAL REQUIRES A ROBUST SKILLS FRAMEWORK. BUT IS THE REGION’S EDUCATION SECTOR READY TO PROVIDE THE WORKERS FOR TOMORROW’S WORLD?

To cast its net wider, roundtable members said the North East must ensure its talent lines are tightly bound.

However, Lisa said learning provision is somewhat disconnected from business needs. 

She said: “Education is a little out of touch with trends and technologies; the universities are brilliant, but their curriculums are not evolving quickly enough.

“By involving industry in curriculum shaping and delivery, we would open up huge potential.”

Dan agreed, pointing to a fragmentation between courses and career reality.

He said: “There is no academic qualification for estimators, who are the most critical people in my business.

“And it’s very similar for draughts people because there is only one university – Bristol – in the country that does a façade design degree.”

Josh said: “It isn’t that universities don’t want to do the right things, it’s that they are not necessarily incentivised to build the right things because of the way they are funded.”

Emily acknowledged the mixed picture, referencing past experiences of curriculums being designed by academics, while also highlighting measures Northumbria University is taking to redraw the landscape.

She said: “Our business school places huge emphasis on experiential learning, and companies can take placement students in their third year, with some often returning to those organisations. 

“Our business clinic also allows firms to pitch problems and get advice from students, which creates scope for potential hires, and we have long offered knowledge transfer partnerships.”

Turning the discussion to primary and secondary education, Gary said he was experiencing a sense of déjà vu.

He said: “I went to an event on the Quayside about skills shortages ten or more years ago – and it feels like not much has changed today.

“The idea at the time was to go into schools and tell students what jobs and sectors would be here in the next ten or 15 years. 

“But nobody seems to be actively talking to the schools or the teenagers thinking about A-levels and university.”

However, Ian Kinnery said the rapidly changing commercial landscape makes it difficult to be so precise. 

Instead, he encouraged education providers to develop students with skills that can transcend sectors and scenarios.

He said: “When I was on the Tees Valley Local Enterprise Partnership board, I used to think, ‘wouldn’t it be great if we could highlight to young folk what they needed?’

“But I’ve since heard people say, ‘what I learned at college or university had passed by the time I got to work’.

“Businesses want people that can demonstrate excellence, and the ability to learn and develop a growth mindset, and we need to take that and prepare people to be adaptable.”

Steve concurred, highlighting a Samuel Knight International endeavour that encourages STEM-focused employers to access talent beyond conventional academic profiles.

He said: “In the US, we are encouraging clients to take on graduates that perhaps haven’t done a degree in engineering, for example, but have studied something similar. 

“And if they do, we give a proportion of our recruitment fee to a diversity and inclusivity charity that helps people get qualifications.

“There is nothing like that in the UK.”

 

HAVING STUDENTS FLOW THROUGH THE REGION’S EDUCATION PIPELINE IS ONE THING, BUT ENSURING THEY REMAIN IN THE NORTH EAST IS QUITE THE OTHER. HOW CAN THE AREA RETAIN – AND ATTRACT – GRADUATES AND FELLOW SKILLED CONTEMPORARIES?

For years, high-level studies and expert opinion have implored fresh thinking to bring an end to North East graduates swirling down the metaphorical talent plughole to the City or medical sector innovation ‘golden triangle’ of Cambridge, London and Oxford.

To stem the flow, Elaine said the region must take proactive steps to ensure it is a headline option, rather than a footnote, on any job search.

She said: “We need to make sure people are aware of the breadth of exciting opportunities at scale-up level here.

“And we must also showcase the many different things that make the North East what it is, to make people want to come and live here.”

Elaine found support from Ian Richards, who said companies must provide workers with different experiences.

He said: “We have to provide people with something they’re not getting from bigger employers, like better working conditions and pay, and other things like being closer to decision-makers.”

Colin again highlighted the impending impact of the North East Mayoral Combined Authority, which officials say has potential to deliver as much as £60 million a year for adult education and skills training.

He said: “Ultimately, it will put the region in a position where it can adopt longer term thinking and better plan for success.”

Jonny turned the discussion around, pointing to the difficulties employers face at the opposite end of the skills spectrum.

He added: “Our business is all about high-paced manufacture and boots on the ground.

“And one of our biggest scale-up challenges is getting people to do the lower skilled roles.

“It’s the same up and down our supply chain; from scaling to day-to-day operations, every company is suffering the same problem.”

 

WHERE ELSE DOES THE REGION NEED TO IMPROVE? MUST IT SHOUT MORE LOUDLY ABOUT ITS ACHIEVEMENTS TO CREATE GREATER EXPOSURE?

The North East is a wonderful paradox.

Despite being the place where shipyards crafted vessels for global waters, where steel was fashioned for international structures and where deep coalfields powered pioneering industrial advances, its achievements have always come with a dose of introversion.

But Josh said the bashful approach must be replaced by a more boastful outlook.

He said: “When you’re looking to unlock investment, understanding an opportunity and how money will be supported through its lifetime comes down to the perception of a region and the story it is telling the outside world.”

Colin agreed, saying the North East must harness headline recent developments to create a narrative investors simply cannot ignore.

He said: “If you think about emerging markets, whether they be digital, pharmaceutical manufacture, net-zero, heat networks, healthcare, offshore energy or vehicle electrification, we are really well positioned.”

Elaine added: “Sometimes people are a little shy to say they are good at their job – but that doesn’t resonate with investors.

“As a region, we need to shout more loudly.

“And if we do, it will increase our chances of inspiring the next generation and keep the entrepreneurial spirit flowing, which in turn will strengthen the region’s scale-up environment.”