The Eastern opportunity FastGrowthSecrets Part 5
FastGrow
Fast Growth Sec is the culmination campaign where roundtable discus entrepreneurs at decision makers, various members work within the fa Our Fast Growth experiences of su investors to grow common pitfalls.
Page 1
Introduction
Page 2
The national picture
Page 4
Norwich Research Park: a hub of innovation and collaboration
Page 8
Fast Growth Secrets of tech founders
Page 13
Turning up the dial on your business
Page 15
Securing investments and avoiding the bear traps
Page 17
The next generation of science and tech entrepreneurs
Page 18
How to embed ESG into the DNA of your business
Page 22
How fast growth businesses use ESG for employee engagement and retention
Page 25
Embedding ESG into the DNA of fast growth technology businesses
Page 29
Silicon Fen and beyond: why fast growth tech businesses should choose the East of England
Page 31
How we can help
Introduction
Norwich is blessed with a warm and supportive tech community. Our historic city is rapidly transforming into a tech hotspot. Norwich’s creative, science, digital and tech industry is booming, with tech businesses at the heart of our region’s growing economy. The University of East Anglia, Norwich Research Park and Norwich University of the Arts play a big role in the success of this industry, as well as the dynamic, innovative and supportive tech community in the area.
A recent national study pinpointed Norwich as a ‘vibrant technology cluster’. With organisations such as Tech East, Hethel Innovation and Cambridge Norwich Tech Corridor existing to accelerate the growth and amplify the success of the tech ecosystem in the East of England, it’s no wonder our region is a bustling hub for science, technology and innovation.
Mills & Reeve is proud to be the legal advisers behind some of the region’s most successful and exciting organisations, including, Tropic, Optimise Media, Lotus, Epos Now and Artlist UK. Our tech expertise is complemented by our experience in related sectors, such as agritech, industrial biotechnology and fintech.
We work closely with local networks, recently supporting the East of England Tech Collaboration with University of East Anglia and Cambridge Tech Week and serving as a judge, for the second time, of Norwich Research Park’s Innovation Hothouse Competition. We also sponsor Eastern Promise and supported their recent conference at Norwich Research Park.
We also run a series of discussions with leaders, key players and “up and coming” specialists in the tech scene on how women can break into the industry, overcome challenges and forge a meaningful and successful career in tech. We’ve held two successful Inspiring Women in Tech events in our Norwich office, part of our national initiative to support and encourage women into the sector.
Craig Hodgson
Corporate Partner and Head of Norwich office, Mills & Reeve
Thenationalpicture
The UK has a terrific reputation for creating early-stage businesses, leading our European neighbours by some way, sitting just behind the US and China in the number of start-ups created.
UK entrepreneurs have built 144 unicorns, defined as having a value of US$1 billion and yet to list, but lag a long way behind the US where 712 unicorns have been created.
It raises two important questions: Is capital available for businesses to scale up in the UK?
1. And if not, what is needed to grow and scale up the investment community to meet that challenge?
2. It’s widely accepted that there is plenty of capital for early-stage businesses, with relatively easy access to seed and Series A funding. “The issue is when you want to raise £25-50 million.” Here, funding options are tight.
There are encouraging signs of change with capital beginning to filter through, albeit on a small scale. Innovate UK, a government agency, is receiving more capital to support later-stage research and development.
British Patient Capital, a venture capital investor and fund of funds, is also making a focused push on later-stage businesses with £2.5 billion to invest over 10 years in venture and venture growth capital looking to unlock an additional £5 billion of private capital to support UK companies with high growth potential. They’re not alone.
The US, however, proves a strong financial pull for UK businesses looking for scale-up funding. It’s a markedly different market, providing opportunities that are simply not available in the UK.
Take the example of drug discovery. Medicines that make it to market are “listed at much higher prices, driven by its insurance market”. Drugs that “sell for €3,000 in Germany or France can sell for US$35,000 in the US”. It has created “a lucrative market with US capital attracting businesses that want scale-up investment”. Pressure on companies to move to the US, participants agreed, is high.
It has been suggested that more, and easier, access to funding would keep UK scale-up businesses here, dissuading them from a transatlantic move. Our roundtable participants were unsure. For many businesses looking to operate on a global scale, the US market, being English language speaking and so much larger than that of the UK, is a natural territory for them to look to scale. The pulls are broader than simply access to capital.
A tight funding landscape does, however, “see UK entrepreneurs often able to do much more for less”, meaning that they “don’t need to raise the same levels of capital”. A US start-up needing early-stage funding is likely to look for “anywhere between £10-30 million in seed funding”, and that “looks high” when compared to UK businesses at a similar growth stage.
That can be a considerable competitive advantage when looking for investors. Investors too appreciate the UK culture of collaboration, with co-investors and management teams more likely to work together rather than, at times, at each other’s throats.
Institutionalfunding
A huge gap in the UK funding landscape is the lack of institutional investor participation. It is, participants agreed, why “we have a scale-up problem”.
It is partly a regulatory issue - until recently pension funds and insurers were excluded from making such investments - and partly a cultural issue. With UK start-ups running lean, and arguably “under-funded”, it leaves founders “spending a disproportionate amount of time fund-raising rather than running their business”. And that, participants agreed, can limit ambition.
That lack of ambition has a noticeable effect when businesses list on UK markets, with “muted share prices” and institutional investors often “seeking a safer dividend yield” provided by stock market stalwarts. The US, by comparison, has “the big ambition” and the funding ecosystem to support that. It’s perhaps understandable why an increasing number of UK businesses choose to list in New York over London. “There’s a danger we are making our domestic capital markets irrelevant.”
The recent ARM listing on the Nasdaq stock exchange was the biggest US share listing of the year. But that isn’t without its challenges; while a business may be happy to relocate, the talent behind them is often reluctant.
Ascienceandtechsuperpower
The government has pledged £3.5 billion in its efforts to position the UK as a science and tech ‘superpower’. It’ll see £100 million allocated to innovation accelerators in Glasgow, Greater Manchester and the West Midlands, funding for the creation of 12 investment zones, and £2.5 billion over 10 years in a National Quantum Strategy.
Additional funding is always welcome, but what businesses crave is consistency in government policy. Where Enterprise Investment Relief (EIS) and Seed Enterprise Investment Relief (SEIS) have remained constant and valued programmes, the recent changes to the Research and Development (R&D) tax credit regime are “extraordinarily inconsistent”. Participants rightly ask, “how can you plan when the landscape is always shifting?”
To realise the government’s science and technology ‘superpower’ ambition will need more than cash. Investment in a creaking energy supply network, water use and transport infrastructure, alongside an attractive immigration policy, are equally important and pose very real threats to that ambition.
NorwichResearchPark: ahubofinnovationand collaboration
We met with Roz Bird, CEO of Anglia Innovation Partnership LLP, the campus management organisation at Norwich Research Park to understand how it is growing a research and innovation community that is fit for the next generation of scientists, researchers and entrepreneurs that will help build the international profile of Norwich and the region, be an attractive proposition for inward investment and to create that jobs will play a significant role in growing the regional economy.
ThehistoryandvisionofNorwichResearchPark
Norwich Research Park, with its roots dating back to the 18th century, has become one of Europe's largest concentrations of research in agriculture, genomics, health and the environment. The Park was established in the mid-1980s as a collaboration between the John Innes Centre, the University of East Anglia (UEA) and the Norfolk and Norwich University Hospital (NNUH). That collaboration now extends to The Sainsbury Laboratory, Earlham Institute and the Quadram Institute who are all Partners of the Park. Its vision is to be a leading centre for research and innovation, attracting companies, supporting their growth and creating jobs benefitting the regional economy.
Fourglobalmarkets
The Park focuses on four global markets: industrial biotechnology, agritech, food tech and medtech. It has one of Europe’s largest clusters of microbiologists and genomics experts who work on solutions for climate change, food security, health span and environmental sustainability. The Park's research develops solutions that will help to grow more food that is nutritious in the face of climate change, improve people's health span and monitor and mitigate the effects of climate change.
Norwich Research Park has a number of exciting biotechnology companies including Leaf Expression Systems that extracts biomolecules used in the production of vaccines from plants, Colorifix that has developed a technology to create sustainable dyes for clothes from organisms rather than chemicals and Tropic that uses gene-editing techniques to create crops like bananas that can be made resistant to threatening diseases. And there are further examples of new spin-out and start-up companies that are using the knowledge gained through research to work on solutions to increase crop yields and create products of commercial and societal interest, such as personal care products, functional foods, new antibiotics and alternatives to current pesticides.
On the agritech side, researchers across the Park are using their knowledge of living systems and agricultural biotechnology to address global challenges around food production, climate change and improving human and animal health. Researchers at the John Innes Centre, Earlham Institute and Quadram Institute are all part of Biotechnology and Biological Sciences Research Council’s Designing Future Wheat Institute Strategic Programme which aims to develop new wheat germplasm (living genetic resources such as seeds or tissues).
Norwich Research Park is also globally known for its expertise in the food tech field. Its researchers are conducting ground-breaking investigative work into the potential impact it can have on improving worldwide food safety and security, food nutrition and future foods. A good example is start-up Ediform which, in collaboration with UEA, has developed 3D printed food which can be infused with nutrients to help hospital patients with their recovery and people with dementia to get the right nutrition to keep them healthy.
HowNorwichResearchParkisaddressingglobalchallenges
The Norfolk and Norwich University Hospital is an integral partner of Norwich Research Park. Its research staff can be performing up to 300 active studies at any one time ranging from small local studies to those conducted across the UK and the rest of the world. These activities take place in a range of purpose-built facilities including the 100,000 Genomes Project, which was launched to sequence 100,000 complete sets of DNA from patients with cancer and rare diseases, the Norfolk Diabetes Prevention Study which looks at ways of reducing the risk of diabetes through a new group exercise, diet, information and motivation programme and the Norfolk Arthritis Register which is the largest communitybased study in the world.
Roz said, “Our focus is to address global challenges that impact every facet of human life. Our campus is at the forefront of finding sustainable and innovative solutions to food shortages, climate change and chronic diseases”.
TheroleofAngliaInnovationPartnership
Anglia Innovation Partnership, led by Roz, is the campus management organisation responsible for attracting and supporting companies to the site, raising awareness of the Park’s facilities and services and leading the build programme for new office and lab facilities for start-up, spin-out and high growth companies to occupy. A key part of the Park’s DNA is collaboration and to help facilitate that Anglia Innovation Partnership runs a community programme that includes networking events, social activities, access to funding and enterprise support.
Roz said, “Our Enterprise Tuesday events showcase the range of research and development and commercialisation activities taking place at the Park. They are free to attend and people get to hear from our entrepreneurial researchers and ground-breaking businesses about the benefits of being part of our diverse community.”
It also hosts campus-wide groups that represent the LGBTQ+ and black, Asian and minority ethnic communities. The Park’s vision is to build and let 1.6 million square feet of new buildings to accommodate more companies and research activities. It is also working on creating a pipeline of start-up, spin-out and spin-in companies that can access the technology platforms, skills pool and seed funding that Anglia Innovation Partnership makes available.
Thefutureisbright
Norwich Research Park is a hub of innovation and collaboration, with a rich history and a bright future. Its research programmes are making a positive impact on global challenges and its plans for growth and development promise to continue this trend.
Asked what she was proudest of at Norwich Research Park, Roz commented, “I started with a long list of workstreams to get through to take us to where we need to be. I’m really proud of how the AIP campus management team, and the AIP Board, has embraced the collective ambition, and worked hard, together, to start delivering the vision; producing some great early results and hopefully setting us up for great success in the future. The team have really embraced the ambition I have for the Park and have thrown themselves into some quite challenging situations to get some great results. Innovative deliveries such as our Enterprise Tuesday events and Explorer Forums required hard work, resilience and persistence to get off the ground but we are now reaping the rewards”.
Roz concluded, “Our science and innovation campus will become an exemplar model in how to maximise publicly funded research, creating jobs, attracting inward investment and inward location, fostering revolutionary discoveries and inspiring the scientists and entrepreneurs of tomorrow”.
FastGrowthSecretsoftech founders
Explore what tech founders wish they knew about IP protection and scaling up from a start-up.
Protectingyourintellectualproperty–everythingyou shouldknow
Intellectual property (IP) protection can be challenging to navigate. Here, you’ll find the basics of what every tech founder should know about the IP landscape. Insights are stemmed from a series of thought-provoking discussions, with savvy creators you’d want to learn from. Wish you had known about IP protection when starting your business? From start-up to scaleup, find out here how to protect your business innovations.
As a founder, you may well regard your IP as your most valuable asset. Though most founders are aware that IP is important, many don’t know how to protect it in the most commercially astute and cost-effective way possible.
This is understandable, given that the average founder is already juggling hundreds of competing responsibilities. But letting IP protection take a backseat as an early stage start-up can cause founders serious (but avoidable) problems further down the line when it comes to scaling, fundraising, or navigating an exit.
WhatdowemeanbyIP?
IP is often talked about as a single, monolithic concept. That’s misleading. There’s a huge range of intellectual property rights – copyright, patents, designs, trade marks and more. They provide different types of protection for (typically) different types of assets. Founders and their teams should think strategically about the different considerations that apply to each of these.
“As a founder, it’s a good idea to make a checklist of what you consider to be your IP as early as possible. You’ll probably come up with a list of intangible assets, each of which are most likely protectable by one or more intellectual property rights. You will then need to decide which of these assets are most valuable, what the available protection is, and whether the cost (if any) of obtaining it will be worth the investment. A good IP lawyer can help with this - but we would say that, wouldn’t we?”
Alex Newman Partner, Mills & Reeve
Whydofoundersfilepatents?
The patent is often seen as the ‘king’ of IP protection – particularly among founders in the tech and life sciences sectors. In a nutshell, a patent grants the holder the right to the exclusive use of a novel and inventive product or process. In theory, once a patent is granted, the holder has the right to prevent others from commercially exploiting their patented invention. Although, it’s not always that simple for early-stage start-ups (more on this later).
Protecting their innovations from unauthorised use isn’t the only reason that founders file patent applications. In our conversation with tech founders, they told us that filing patent applications also helped them to:
Build credibility
Win investment
Secure tax breaks
Exploit their IP rights for profit
Anexpensiveendeavour:isfilingapatentapplication alwaysworthit?
While many founders and their investors do see real value in obtaining patent protection, not everyone shares this mindset.
The first reason for this is the cost of the patent application process (ie, applying for a patent and overcoming patent office objections to get some patent protection granted). This can quickly become expensive – particularly for earlystage start-ups for whom every penny matters. And of course, the outcome is highly uncertain. Although the business may believe that it has invented a groundbreaking innovation, its patentability and the scope of the monopoly sought will be heavily scrutinised by patent office examiners. By the end of the patent application process, the business may not obtain patent protection of any genuine commercial value – or at all.
In addition, patents are territorial. This means they’re granted individually in different geographies, which all have their own unique rules. The application process (and associated cost) is repeated in each jurisdiction in which protection is sought, and not necessarily with the same outcome.
The second consideration is the potential cost of enforcement. Start-ups should consider whether they’re in a financial position to enforce their patent rights if they’re infringed, and to defend their patents against a validity challenge should one arise, which almost inevitably happens when a patent owner takes enforcement action. This can be a very expensive process, and the cost exposure can create sufficient risk to make enforcement action unrealistic for many businesses.
Finally, there is the cost of maintenance. Granted patents need to be renewed regularly at a cost, or they will lapse.
“I think having a patent has certainly helped the business raise venture funding. It’s helped to differentiate what we’ve done against lots of other people. Perhaps nowadays we’re seeing more of a pushback against patents in the SaaS space. But it certainly worked for us.”
“There’s a lot of ambiguity, I think. We have (what we consider to be) proprietary methodology. One lawyer would agree with us, another would disagree. So, we ended up deprioritising seeking patent protection entirely. Instead, we focused on finding customers and driving profit. Has it hurt us? No. Am I paranoid about someone copying us? Yes. Has anyone? No.”
Patentsvstradesecrets
If you decide not to file a patent application to protect your innovations, taking appropriate steps (both operationally and contractually) to maintain the confidentiality of trade secrets is a potential alternative. This will not work for all innovations.
Businesses should consider whether it’s possible to release an innovation’s commercial potential while also keeping it secret. It’s a tricky balance.
It's difficult to define “trade secret” in a way that works in every context. But put simply, a trade secret is any confidential information that gives businesses a competitive advantage. Trade secrets are not filed like patent applications. There is no formal public register for them. Businesses should instead keep a record of trade secrets internally and take basic steps to protect them – like being thorough in contracting and implementing good cyber hygiene.
What’stherightapproachforyourbusiness?
There’s no simple answer here, as every business is unique. In our conversations with founders, we heard a lot of differing views on the benefits of patents vs trade secrets – some of which might apply to your individual circumstances.
“When you first start, you’re desperate to share your vision and your story. You need to tell enough of that to get people excited – investors, customers, suppliers, employees. But not so much that you give away any secrets. Until our patent was actually granted, we’d always have a nervous debrief after every meeting. Did we go too far? Not far enough?”
“Investment is often a motivator for patents. Probably less so now, but certainly in the past, investors valued patents for reasons they couldn’t quite understand. As a start-up, being able to make the case that your technology is patentable was a good thing. And of course, when going into venture capital and series A, patents are literally valued.”
“Make sure you’re robust in your contracting. Otherwise, when it comes to securing investment or navigating your exit, you could face a complex period of unravelling terms.”
“Keep a database of trade secrets from day one. Treat it just as seriously as your patent strategy. Think about who has access to the knowledge. It’s not hard to do. But amazingly most people don’t do it.”
“Often people’s understanding of patents goes back to what they studied at university. If you’re from a scientific or an engineering background, you might be more aware of them, as they’re a holy grail for the profs. There’s this idea that patents are great for the institution, even if they’re not realistically usable in any form.”
“There’s a culture of thinking that more patents are always better. But trade secrets can also be incredibly powerful. The reality is that some knowledge is better suited to patents, and some knowledge is more suited to trade secrets. But no one will tell most founders that when they’re starting out.”
Theimportanceofbrand
If we asked you to name three industry-defining patents, would you be able to? Probably not. But if you had to do the same for brands, you could probably come up with a list longer than your arm. Securing exclusive rights to the use of your brand name in your field is one of the most important steps you can take to protect your IP as an early-stage startup. So, remember to think about brand as a highly valuable component of your intellectual property.
“One area of IP protection that’s super important is trade marks. It demonstrates that you’ve thought about how you can stand out, and how to protect that. Often, people think it’s all about the patent. But that’s not true.”
SecuringROIfromIPprotection
We know ROI (return on investment) is a top priority for every activity in earlystage start-ups. And IP protection is no exception.
Here are some commercial considerations to bear in mind:
Decide what you can enforce and defend
Don’t lose sight of what’s important
Make the most of exploiting your IP
1.Decidewhatyoucanenforceanddefend
It’s crucial for start-ups to look beyond the initial cost of protecting their IP in the form filing patents or trade marks. What if someone infringes your IP, or you’re hit with a validity challenge? Enforcing your IP, maintaining it in the context of a validity challenge, can be costly and time-consuming. So, make sure you consider this before starting your IP protection journey.
2.Don’tlosesightofwhat’simportant
This is particularly true for patents. When businesses first file a patent, most aim for wide ranging protection for their invention. But as the process continues, this often becomes significantly narrower. The narrower protection you receive may not even contain the important elements you wanted to protect in the first place. Make sure you don’t lose sight of this and be prepared to cut your losses early if it doesn’t work out.
3.MakethemostofexploitingyourIP
As you set out an IP protection strategy, think about how you might want to exploit your intellectual property in the future. Many businesses do this either through licensing or by transferring ownership of their IP rights (essentially selling their IP completely).
Thebottomline
IP isn’t a monolithic entity – ensure you understand the various forms and how each relates to, and has the potential to protect, your intangible assets. Don’t forget to protect your brand – this can be just as important as protecting your technical inventions.
Think about all the costs of application, enforcement, and maintenance before going down the patent route.
Above all, make sure you’ve got your house in order first through smart operational management, record-keeping and robust contracting. Then, a lot of IP protection should take care of itself.
Turningupthedialonyour business
Moving from start-up to scale-up mode can be a tough adjustment. When do you push the ‘scale’ button? Should you seek external funding, or continue to bootstrap? And if you do look for external investment, how do you know which investors are the right fit?
With a multitude of competing factors to manage, it’s no surprise that many startups experience growing pains when scaling. So, we asked our group of founders and investors for their top tips for managing the notoriously tricky transition and here’s what they have to say…
Adjustingyourmindsetfromstart-uptoscale-up:
“In seed stage, it’s really about exploring markets and products. Before you go into scaling, you need to be sure that you have a product-market fit in a big enough market to make it worthwhile. Founders often fail to test their hypotheses before scaling. Doing this in the seed stage is crucial. Because at the scaling stage everything becomes about efficiency, flexibility and bringing people on board who have done it before.”
Decidingwhentostartscaling:
“Start-ups can make the mistake of funding activity, not productivity or value creation. For me, the point at which you hit the scale button should be once you’ve proved you’ve got a productive model, not before.”
Bootstrappingvsseek
This is no doubt one of the most contested questions in entrepreneurship. Should founders go it alone, or bring in external investment to support their business goals?
Clearly, for DeepTech businesses with five-to-seven-year development cycles, seeking external funding is a necessity rather than a choice. But many tech businesses (particularly in the SaaS space) have a comparatively quick time to market – and therefore revenue. For these businesses, the decision to seek external funding isn’t always so clear-cut.
Weighingupthebenef
Bootstrapping
Retaining full control of your business and vision
Avoiding dilution
Minimising debt
Fundraising
Supercharging growth
Outpacing competitors
Benefitting from investors’ advice and experience
Stillundecided?
Here are some questions all founders should ponder when deciding whether to seek external investment.
Have you got tunnel vision pursuing a single goal?
“Ask yourself, can I make the money quicker from going after customers, or going after the investors?”
Do you want to apply for innovation grants?
“Remember, if you’ve spent over half the VC money you’ve had invested into you, you’re not eligible for certain grants anymore. No one tells you that.”
How do you feel about relinquishing some control over your business?
“Yes I’m a bit of a control freak. But I’m proud of the fact that we don’t owe a penny to anyone. And we don’t have to answer to any impatient investors.”
Do you need to move quickly?
“The reason we decided to do series B funding was to enable us to move faster. We were starting to see more traction and closing some significant contracts, but we’re in a super competitive space and needed to accelerate.”
Theperfectmatch?Whattolookforinaninvestor
There’s a lot of conversation around what start-ups can do to attract investment. But this is a two-way street, and founders should be confident that the investors they bring on board are the right fit – whether they’re a VC, private equity or angel investor.
Different types of investors tend to have unique traits that they bring to the table. Here are some tips for finding the right fit.
Look for investors who are in it for the long haul
“As an early stage founder, you will quickly realise that what you need are strategic investors who are going to be with you on your entire journey.”
Gauge whether they share your passion for your product
I’m always turned off when an investor doesn’t want to understand the product. You want to get to a term sheet without actually looking inside our platform? No thank you.”
Look for investors’ value-add
“Really good VCs keep you mindful of the market and how it’s changing. Where’s the next wave of market leadership coming from? And how can you ensure your business remains relevant?”
Do your background research
“Be very careful that the investor you’re talking to has experience in your space. This requires a little bit of research. Yes, they might be curious about your business. But is this investor realistically going to commit? It can be easy for founders to waste a lot of time talking to investors who are simply trying to educate themselves.”
Securinginvestmentsand avoidingthebeartraps
In the early days, unless you’re a business in a darling sector trailed to be the next unicorn, survival is about bootstrapping and capital efficiency. Alongside raising equity finance, supplement this with capital raised from non-diluting sources –grant funding, R&D tax credits and, of course, customer revenue.
When fundraising, consider whether your investors are looking for tax relief (SEIS, EIS or VCT). If so, your funding round must enable them to secure this.
You’ll need experienced advisers on board to help. Investments under these regimes have numerous bear traps, and it’s all too easy to fall into one.
Tax relief – what do all the acronyms mean?
SEIS – Seed enterprise investment relief
EIS – Enterprise investment relief
VCT – Venture capital trusts
R&D – Research and development
The purpose of all the above is to encourage investment in UK unquoted (which includes AIM listed) trading companies by offering generous tax relief to investors.
The income and capital gains tax benefits are attractive, but considerable care is needed to obtain them, and a range of conditions must be fulfilled by both the company issuing the shares and the investor.
Thebottomline
Scaling requires founders to adopt a new mindset that prioritises efficiency and flexibility – failing to adapt can prove fatal.
Make sure you’ve found a robust product-market fit before scaling – the best way to do this is through exploration.
Seeking external investment isn’t the right route for everyone but it can prove transformational.
Remember, investors can offer much more than just a cheque – look for an investor who’s the right strategic fit.
"Once the funding round has closed, bring your investors into the fold. Have honest and frank conversations with them and keep them informed and engaged with the business. If investors and the management team develop a strong trust relationship, it's likely that your investors will back you even if things don't go to plan".
Zickie Lim Partner and Head of VC and Investments, Mills & Reeve
Thenextgenerationof scienceandtech entrepreneurs
Despite the successes of UK science and technology businesses, the constant challenge of inspiring tomorrow’s tech entrepreneurs remains.
There is, of course, the need to encourage more children to take an interest in STEM subjects at school and university, but that alone won’t be enough. Underrepresented groups need greater support and encouragement, particularly young women. It’s a serious indictment that just “4% of tech founders are female”.
Business and academia have an important role to play.
The perception, wrongly, remains that being a scientist is what you do for the love of science. There’s a need to engage undergraduates and “help them understand what options are open to them outside of education”. It is, participants agreed, possible to still be involved in cutting-edge science in a commercial environment and deliver tangible results.
There is life outside of academia, it’s just that academia isn’t very good at highlighting the options available. Academia shouldn’t be embarrassed by the wealth successful entrepreneurs can make. There is much, it was suggested, we can learn from the worlds of sport and media.
The example was shared of the head of a faculty at one of the universities who on founding a drug discovery company and successfully raising “eight figures” in funding, reportedly said that “his ambition is to see someone pull into the university car park in a yellow Porsche” demonstrating that “this is what you get as a reward for entrepreneurship”.
Yet, while money is undoubtedly important, it’s the possibility of what science and technology can achieve that remains a powerful motivator. “Those in academia, even when they move into a more commercial environment, don’t leave academia entirely at the door. They still want to solve the problems we continue to face.”
Theroleofbusiness
Successful entrepreneurs have an important role to play in nurturing tomorrow’s talent. The Dyson model was highlighted as a first-class example of how this can work and should be replicated.
There’s a risk that we’re too obsessed with the academic route and fail to recognise that there’s much to gain from vocational learning. There are many routes into the sciences, with apprenticeships offering a valuable alternative, particularly for under-represented and hard-to-reach groups. “We should be aspiring to and supporting that.”
There’s a real need to open up and demystify the role of universities, bringing young people into the workplace before we lose them. Cambridge Unlocked is making notable headway, offering one-week work placements for sixth form students from disadvantaged backgrounds. It has been embraced by the city’s businesses. The advisory ecosystem has an important role to play too.
We shouldn’t, however, underestimate the drive and motivation the next generation have. They may not follow the same career model as their parents, but the drive is there. They aren’t afraid of hard work, and they understand that reward follows hard work. The entrepreneurial world is genuinely meritocratic.
HowtoembedESGintothe DNAofyourbusiness
ESG is more than a marketing or tick-box exercise. It is the bedrock of corporate culture, shaping the way business is conducted, the relationship it has with stakeholders, and driving a real and measurable competitive advantage.
Yet those drivers are complex and varied. ESG compliance is often required to work with national governments and by high-profile businesses substantiating their own ESG credentials. Increasingly, being transparent about your ESG performance is demanded by customers and employees (current and future).
It is no longer possible to just say ‘we do ESG’ and move on. It needs to be part of an organisation’s DNA, implemented in a demonstratable way, with employees empowered to act. And for good reason.
Technology businesses that do not meet the ESG demands of their customers or regulators will find themselves sidelined. To work with large real estate businesses in London, for example, businesses need to show how they are actively reducing their Scope 3 emissions. In public sector procurement, evidence of social value is “a must” accounting for up to 10% of criteria.
One of the challenges facing businesses is understanding the drivers behind the ESG strategies of clients and customers. Where strategies are not aligned there is the very real risk of “tactical greenwashing”.
A clearer regulatory ESG framework will help. In its absence, it is very difficult to control ESG strategies” and that is likely to “catch businesses out”.
Investors are also alive to the risks of greenwashing, with investors now saying they require evidence of how companies cover their [ESG] claims before any investment is made. In the UK, the Advertising Standards Authority will investigate and take action against sustainability claims that are misleading and cannot be proven. In the US greenwashing is increasingly becoming the target of class actions.
Those that successfully defended themselves have the technology and the data to prove their claims. But first you have to collect the data.
Intense investor scrutiny is understandable, with a recent McKinsey study suggesting businesses can expect a 2% revenue boost from strong ESG credentials, with multiple sustainability claims having an amplifying effect. ESG delivers more than just a competitive advantage.
Data,data,data
Whilst a lot of attention is on sustainability and, in particular, Scope 3 emissions, businesses continue to question just what they should be measuring. For larger businesses, it may well be possible to address a wide range of measures across the ESG spectrum, but for smaller businesses that is rarely possible or advisable. Trying to do too much can dilute what can be achieved or worse still, risk exaggerating their ESG creds, exposing them to allegations of greenwashing.
Businesses should look to what regulations and standards require and, importantly, what customers and staff demand. Capture the data that is needed and present that in accessible ways.
Data too can build “social equity”, with disruptive scale-up businesses using strong ESG credentials to build trust and social acceptance carrying customers and employees with them on their journey. That too can be a source of competitive advantage.
Yet, for many investors, the data offered by high-growth potential tech businesses is “sketchy”. It is focused not on operations but on “perception” and does not always reflect what is actually going on.
And this is a missed opportunity. A major competitive advantage of ESG is looking at how well you run your business. Producing something good for the world does not mean that a business is well run, mused a panellist.
There are, of course, many measures of how well a business may be run, but diversity in its leadership team and delivery partners is increasingly top of the list.
The British Business Bank looks for diversity in decision-making bodies because it believes that leads to better decision-making. It is not a nice to have or a sort of halo effect, it is core business in how capital is deployed.
But bluntly we want tech businesses to measure ESG credentials, because what gets measured gets done.
ESGambition
ESG reporting has increased significantly since the 2020 global pandemic, yet a lack of ambition in that reporting was highlighted with businesses failing to set targets and, where targets are set, failing to report on progress.
All too often the conversation is “…by 2025 we will have done X, Y and Z. And then there is just silence.”
Businesses with strong ESG commitments need a transition plan – how will we get from today to tomorrow. Reporting does drive behaviour, explained a former auditor and panellist and “that is why forward-looking information is important.”
Reporting will, however, unearth uncomfortable truths. It will highlight areas where improvement is badly needed. Businesses should not be afraid to show gaps in their ESG approach, using reporting to explain their journey and how those gaps will be closed.
One example has been the reporting of diversity metrics in venture capital over the past decade, showing a marked decline. Board diversity in business has undoubtedly improved, but closer scrutiny suggests that has been achieved largely by non-exec appointments. This was likely to be easier than improving diversity around key executive positions (CEOs and CFOs).
Reporting – and delivering – on ambition will impact future sale values of technology businesses. A strong, data-driven, ambitious, and achievable ESGfocused business will get better values on a future exit.
Entrepreneurs need to demonstrate that they are doing more than building a business that will succeed in the relatively benign conditions the world has enjoyed over recent decades. To reap greater rewards, entrepreneurs need to build businesses that can prosper in the unknown, with strong ESG credentials embedded in corporate culture.
Businesses that have ESG in their DNA, that fulfil a useful function for society, operating to high environmental and social standards will prosper.
Aggregateconfusion
Whilst progress is undoubtedly being made, current ESG reporting remains confused, too often focused on the wrong stuff. The G, governance, in ESG is all overlooked in favour of the E, environment and S, social.
ESG reporting needs to be grounded in materiality – the measures that are important to your business. Yet time and time again, reporting falls short. It is homogenised, optimising the wrong stuff and isn’t a good indicator of ESG as part of corporate DNA. It is very much in its infancy, with a recent MIT study categorising it as aggregate confusion. We can expect considerable progress in coming years.
If the G were to lead ESG strategies everything else would follow. A business that is serious about the E or the S will reflect that in its governance structure. If you are serious about diversity and mental health, reporting of those measures will follow from the G.
Perhaps the driver for better reporting will come from the investor community. Raising money from VCs without good ESG integration will be challenging, if not impossible. Add to that the investments made by some governments, where investments are made not for profit but for development reasons, ESG is no longer a tabletop exercise.
It means that “if you want to be in the game, you have to reach a level of ESG that you will not get credit for…and to get better advantage, you need to go further”.
“ESG compliance is at the top of boardroom agendas and whilst the pressure to do business differently may be daunting, fast growth tech businesses are in an ideal position to embed ESG into their culture and practices from the start. They’re unencumbered by the retrofit issues which are facing more established companies.
Businesses should work out what is important to them and their customers, maximise accurate data collection across their operations, and be transparent in their measuring and reporting. ESG should be viewed as an opportunity to drive value and longerterm resilience and prosperity – doing nothing is the much greater risk.”
Alison Ross Eckford Commercial Partner, Mills & Reeve
Howfast-growthbusinesses useESGforemployee engagementandretention
The labour market in the UK continues to be tight, and even more so in the technology sector. For many, competing on salary alone is not enough or possible. A business needs a purpose, more so than ever, to compete for the best of talent.
Purpose is one of the most discussed – and divisive - aspects of the ESG agenda despite its ability to engage and motivate a more mobile workforce.
But where does purpose sit within the ESG agenda, and can purpose even be considered part of ESG?
Just because a business has strong ESG credentials it doesn’t mean your business is any good. There are some segments in the economy where you have businesses whose ESG performance is incredibly strong but who supply goods or services which may, depending on your social, moral and ethical perspective, be seen negatively, such as certain fast-food businesses. The uncomfortable question surrounding ESG is that it is possible to perform well and still do bad stuff. It is also uncomfortable assessing whether a company is good.
It is recognised that for some businesses the ESG agenda is often less about impact and more how it is run. Yet impact captured in purpose and ESG performance are unquestionably and inextricably linked – the push factors on ESG compliance work hand in hand with the pull factors from talent.
Purpose-led businesses do attract people who share or empathise with that purpose, and that does orientate ESG strategies. It is increasingly difficult to separate purpose and ESG, with the strong reporting of ESG achievements a powerful way to demonstrate progress towards that purpose.
Businesses that ignore purpose may well find themselves trailing in talent acquisition. A younger and well-educated workforce, especially the generation in their early 20s, now entering the workplace today, want to work for organisations that make a difference.
Overlookedopportunity
This ambition presents interesting opportunities for businesses – ones that are often overlooked. How can businesses leverage change from this movement?
It is often small steps that lead to big changes, for example, an employee-led campaign for businesses to publish their maternity pay policies to better retain and keep top female talent. It’s not the aspirational or the big things that necessarily make a difference. Businesses are doing lots of little things…and they end up having a bounce.
Building a more sustainable business is a huge change-management project and needs top-down and bottom-up engagement from every employee. It often needs a big stick to get things started but will quickly gather momentum.
Businesses may be tempted to link the big stick of executive pay with ESG delivery. It is, it was agreed, perhaps too blunt to be effective. Yes, when bonuses are tied to ESG performance, leadership teams are more likely to give people the space to deliver, but it also risks optimising the things that don’t really matter to the business.
Communitymatters
Amazing people and communities can be found in most organisations. They are an asset that businesses should leverage to drive change at a faster pace, but they need to be given the time and space to do so.
At Sky, an individual having returned from maternity leave wished to create a community to help new mums return to the workplace. Sky’s leadership team gave her the space to do so, with a programme created across the organisation with champions supporting new parents returning to work.
It begs the question, should people policies be a fundamental part of an ESG programme?
Authenticity in purpose is, however, fundamental. For a law firm, like Mills & Reeve, that looks at how we support under-represented people in their careers, diversity and inclusion, through to the types of clients we choose to work with.
This, of course, will vary from business to business and, interestingly, needs not to be “100% fixed before it delivers competitive advantage”. A demonstrable authentic purpose stands businesses apart from each other, attracting both likeminded employees and customers.
In reality, a broad range of measures are needed to give businesses a competitive advantage in talent strategies. Purpose will gain greater currency, but pay, fairness and transparency remain fundamental.
“Being able to articulate business values is increasingly key for retaining, engaging and attracting the best talent. Since values can be hard to articulate, it can be simpler and easier for companies to be able to demonstrate who they are and what they stand for via their ESG proposition. It follows that the business which can most authentically show how it measures and rewards staff based not simply on financial/output goals but on value or ESG could steal a march on its competitors.”
Andrew Secker Employment Partner, Mills & Reeve
EmbeddingESGintotheDNA offastgrowthtechnology businesses
The profound shift in stakeholder expectations and the recognition of ESG factors as drivers of both opportunity and risk is driving momentum on corporate action on sustainability. With sustainable investing firmly in the mainstream, investors are considering ESG performance as a key factor in deciding whether or not to invest in a business. For start-ups and fast growth companies this presents both unique challenges and opportunities.
Start-ups have the advantage of agility to make change happen quickly that larger organisations lack. Embedding ESG principles early on can therefore avoid the complexities of retrofitting these principles into established business models. Excelling in ESG can mitigate risks and drive value – from access to capital and business efficiency, to brand and competitive advantage and winning the war for talent.
In addition to the voices presented in this report, we have learned from supporting clients across various sectors on their ESG journey. To inspire you to discover your own ESG potential, here are five key tips:
1.Putpurposebeforestrategy
Purpose is a more than branding and PR. By laying this foundation early, founders and CEOs can establish a clear business agenda focused on positive societal contributions, fair employee compensation, customer value and respect for the communities and the environment in which it operates. This purpose should act as a beacon guiding decision-making and trade-offs in critical moments.
2.IdentifymaterialrisksandunderstandwhyESGmatters toyourbusiness
Your ESG strategy must be proportionate to the size and scale of your organisation, the sector you operate in and meet the needs of your key stakeholders. A materiality assessment, engaging stakeholders, is crucial in identifying key risks material to the business. Frameworks such as Sustainable Accounting Standards Board (SASB), Task Force on Climate-related Financial Disclosures (TCFD) and Global Reporting Initiative (GRI) provide industry specific guidance and disclosure standards on fundamental ESG issues. By focusing on materiality, you can achieve buy-in and allocate resources more effectively to address priority issues.
For start-ups, this could mean covering basics like setting climate targets on E, a strong social contract including ‘living’ wage, building an inclusive culture and supporting wellbeing on S and robust governance and rock-solid data security and privacy processes on G.
3.Integratesustainabilityintocorebusinessoperations
Sustainability should be a collective goal as ultimately everyone in your organisation is responsible for helping to deliver sustainability. Senior leadership support and a cross-functional approach involving departments like legal, risk, HR, finance and marketing ensure shared ownership of ESG goals. This integration fosters a holistic approach to managing inter-connected ESG issues.
4.Implementyourstrategy
Begin with setting clear ESG goals and objectives. Develop a roadmap for achieving these goals and ensure regular monitoring and reporting of progress. Engage employees at all levels in sustainability initiatives and seek feedback from stakeholders to continuously improve ESG practices.
5.Authenticandtransparentcommunication
Build trust and credibility with stakeholders through authentic communications on your website, sustainability reports, social media and other platforms. Beware of greenwashing as any organisation that overstates its ESG achievements will get found out quickly, risk being “cancelled” on social media and being called out by both stakeholders and regulators. Back up your claims with tangible actions and progress. Ensure a holistic approach to avoid overlooking any of the ESG dimensions. Third-party certifications like B Corp and alignment with the globally recognised UN Sustainable Development Goals will further validate your ESG performance.
“Integrating ESG into your company’s strategy not only attracts talent and helps to differentiate you in the marketplace, but it also opens up opportunities for growth and innovation.”
Judith Houston, Corporate Associate, Mills & Reeve
“By proactively building purpose and ESG into their DNA from the start, fastgrowth technology companies will not only mitigate risks, but also unlock opportunities to build reputation and foster sustainable growth. Start-ups have the advantage of agility and flexibility to make change happen quickly. Getting on board with ESG as early as possible by creating the right culture and mindset from the outset means that it will scale with you as you grow.”
Surjit Deuer Senior ESG Manager, Mills & Reeve
SiliconFenandbeyond: whyfastgrowthtechbusinesses shouldchoosetheEastofEngland
We met with Chris Sargisson, CEO of Hethel Innovation and Chair of the Delivery Board for the Cambridge Norwich Tech Corridor, to explain more about these roles and why fast growth tech businesses should choose the East of England.
HethelInnovation
As a limited company with a single shareholder – Norfolk County Council – Hethel Innovation has a very clear purpose. We provide fundamental support to the region’s economic growth, given that a significant proportion of this growth comes from innovating businesses. We provide a service that can include a space for innovation, but equally a programme and culture of support. Any innovating business can connect to this support – not just those that operate in the sites we manage. The nature of innovation, particularly in tech and advanced manufacturing, is that you’re doing something that hasn’t been done before – the ‘new new’. Our programme enables organisations to access information at their request but we also provide information to organisations on the ‘unknowns’ they may not have thought about. We have a clear mandate and culture – we aren’t here to sell anything and we are absolutely invested in the success of the businesses we work with.
The second purpose of Hethel Innovation is to create clusters through our connections and sites. There are numerous businesses that have scaled and grown in the region because they are actively working with other organisations. One innovation spawns another and clusters around a particular sector or need. Part of our role is to make sure these clusters align with the economic development plan for the region. For example, an emerging area of focus for us is clean energy, where you have a cluster forming from clean energy production, battery storage etc.
As CEO, my role is to lead our own innovation, our growth story. Our five-year strategy is about performance and growth – how do we take this concept that we’ve been developing for the last 15 years and really accelerate ourselves through innovation.
Chris Sargisson CEO, Hethel Innovation
CambridgeNorwichTechCorridor(CNTC)partnership
The initial role of the CNTC was to bring together key stakeholders, including the local authorities that the corridor passes through, in order to build the infrastructure and programmes needed for businesses to access and grow into. My role, as Chair, was to consider what those innovating businesses needed, ensure these elements were in place and then how to broadcast the benefits of the CNTC.
The role of the CNTC today is to think about what organisations should be here and to share the exciting things happening here – for example in insurer tech, fintech and biotech – that other organisations will want to be associated with.
Part of that, for me, is selling the ‘Norfolk story’ – the real benefits of the region, aside from access to skills and talent.
WhyfastgrowthtechbusinessesshouldchoosetheEastof England
Speaking from a Norwich perspective, you have a very healthy talent base that forms around two creative, productive universities – UEA and Norwich University of the Arts. Talent emerging from those institutions combine science and engineering, the arts, digital development in the arts etc. With that talent pool on your doorstep, you’ve got an environment which you can really nurture.
The other point to make is the proliferation of SMEs, which offers a fertile ground for growth – fast growth tech businesses are very well supported in starting up, scaling and growing their businesses. The challenge, which organisations like Hethel Innovation Ltd aim to address, is to continue to provide the infrastructure that supports growing businesses to remain in the region.
Norwich is a small city, but it packs a punch. There’s plenty of space and opportunities for fast growth tech businesses to grow and business owners can combine this with an excellent lifestyle. It’s the perfect set of ingredients for organisations to succeed and be supported whilst they succeed.
Howwecanhelp
We’re centred on achieving more for our clients, their businesses and the wider communities we serve. Mills & Reeve, a full-service law firm, is the legal adviser behind some of the UK’s most successful technology businesses. We act for entrepreneurs leading fast-growth technology start-ups and spin-outs through to IPO, and work closely with global technology giants and their investors. With seven offices across the UK, our specialist team provide the full range of legal services that you need, always with a focus on your objectives.
Getintouch
Craig Hodgson
Corporate Partner and Head of Norwich office craig.hodgson@mills-reeve.com
Rebecca Cockerill Principal Associate rebecca.cockerill@mills-reeve.com
Christina O’Brien Principal Associate christina.obrien@mills-reeve.com
Surjit Deuer
Senior ESG Engagement Manager surjit.deuer@mills-reeve.com
Judith Houston Senior Associate, Corporate judith.houston@mills-reeve.com
Zickie Lim Partner, Head of VC and Investments zickie.lim@mills-reeve.com
Douglas McDonald
Partner, Head of Technology sector douglas.mcdonald@mills-reeve.com
Alex Newman Partner, Intellectual property alex.newman@mills-reeve.com
Mark Pearce Partner, Intellectual property mark.pearce@mills-reeve.com
Thilo Schneider Partner, Corporate thilo.schneider@mills-reeve.com
Andrew Secker Partner, Employment law andrew.secker@mills-reeve.com
Alison Ross Eckford Partner, Corporate alison.rosseckford@mills-reeve.com 31