Europe's severe creative drought - strategies for revival
The vibrant business landscape of the UK is facing a unique challenge, as leaders of some of the UK's most dynamic companies have publicly declared that they would not consider listing on London's exchanges. This trend, according to experts, is due to a lack of new companies with cutting-edge technologies rising in the economy, a problem also prevalent in Europe.
Mario Draghi, the former president of the European Central Bank, recently released a report highlighting Europe's poor innovation record. The UK, however, has managed to carve out a strong position in the global venture capital (VC) market, currently standing as the third-largest venture capital market in the world, behind only the US and China.
The UK has overtaken India to claim the position of the largest venture capital market in Europe. Last year, UK companies raised £72 billion in total venture capital investment, a significant figure that underscores the country's potential. However, the UK's failing capital markets could undermine its status as a global financial hub and hinder its growth prospects for decades.
To address these challenges, experts propose a multi-faceted approach. This includes expanding and diversifying VC funds, especially for late-stage and deep tech startups, encouraging geographic diversification beyond London and leading hubs, targeting sectors with high growth potential such as AI, fintech, health tech, cleantech, and dual-use technologies, streamlining regulatory bottlenecks, and fostering greater collaboration and co-investment between corporates, VCs, governments, and startups.
The UK is bolstered by government-backed schemes like SEIS/EIS and institutional capital, which bolster late-stage scaling. Innovative financial models like IP-backed financing and non-dilutive hybrid instruments can help address the funding gap for capital-intensive, high-risk deep tech ventures that traditional VC models don’t fit well.
Despite a recent dip in Q2 2025, sectors like AI, health tech, and fintech remain strong, with large deals ongoing and investor confidence beginning to rebound. By combining these strategic funding innovations, regional ecosystem development, regulatory reforms, and targeted sector focus, Europe and the UK can boost the creation and scaling of globally successful technology companies.
However, the challenge of scaling up smaller-cap growth stocks in the UK tech sector remains. The article highlights the challenge of extending the lifespan of British companies, with few remaining in the market for an extended period of time. This issue is further emphasized when compared to the six US companies with valuations above €1 trillion, all of which have been created within the past few decades.
The Tony Blair Institute and the centre-right think tank Onward recently released a joint report, criticizing the City of London for contributing to the UK's long-term innovation record issues. The report suggests expanding and enhancing the capacity of the UK's investment sector with £1 billion of funding for five growth-focused venture funds.
Ken Wotton of fund manager Gresham House believes the financial support system for innovation in the UK has been transformed over the past 15 years, with a burgeoning angel and early-stage VC sector. However, investment in early-stage firms in the UK has fallen to a six-year low in the three months to September 2022.
Wotton argues that the current cyclical funding environment is weak, but not that the solution is to kill off Aim, the alternative market. Instead, he proposes giving incentives to business leaders, such as value creation equity schemes, to encourage entrepreneurs and quality managers to choose PLC entities over US businesses or private equity-backed concerns.
By focusing on more venture capital investing in high-risk projects, streamlining bureaucracy, and fostering collaboration, Europe and the UK can improve their VC investment and innovation ecosystems, ultimately boosting the creation and scaling of globally successful technology companies.
- To enhance the UK's tech sector and promote the longevity of British companies, the Tony Blair Institute and Onward's joint report suggest investing £1 billion into five growth-focused venture funds.
- Ken Wotton of fund manager Gresham House advises providing incentives, like value creation equity schemes, to encourage entrepreneurs to choose PLC entities over US businesses or private equity-backed concerns, thereby increasing venture capital investments in high-risk projects.
- The UK could improve its VC investment and innovation ecosystems, and boost the creation and scaling of globally successful technology companies, by focusing on more venture capital investing in high-risk projects, streamlining bureaucracy, and fostering collaboration.
