CEO survey results: International expansion, economic climate, and exit pressures
Emerging Growth Insights and the Fast 50
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Emerging Growth Insights and the Fast 50
We surveyed CEOs and other top executives from companies in the UK’s high‑growth technology sector about future growth plans, preferred methods of raising capital, and exit strategies.
International expansion
Markets business leaders aim to expand into in the next 1‑2 years
The US market remains top choice for UK businesses looking to go abroad. The survey reveals varied interests in global markets among businesses. The US stands out as the primary target, with 62.5% of respondents planning to expand there in the next 1‑2 years.
Entering the US market can significantly enhance a company’s growthand visibility. The US represents a larger pool of capital and investors, offering greater liquidity and potential for businesses looking to expand their reach and business capabilities. For businesses looking to expand their size and market opportunities, selling into the US can help them expand their market size, increase their revenue potential, and attract additional investment.
International expansion into Europe, including the Nordics, follows the US at 53.8%. Europe’s appeal can be attributed to its geographical proximity to the UK. Proximity is often considered an important driver in knowledge creation and innovation. As a result of geographical closeness, UK business leaders may have better access to information and opportunities in certain European countries, contributing to its attractiveness as an area of expansion.
The Middle East and Asia‑Pacific are each considered by 32.7% of respondents as attractive areas for expansion, indicating significant interest in these regions.
The Middle East has attracted attention in recent years due to its growing economic diversification and significant infrastructure investments, particularly in sectors like energy and transport. According to UBS, the Middle East’s digital economy is projected to grow more than four‑fold to around US$780b by 2030.
Economic climate
Measures companies are applying to deal with the changing economic environment
Difficult market conditions have led to high growth companies favouring profitability over growth at all costs, and extending their exit runways.
In response to a more challenging economic environment, businesses are adopting cost reduction strategies with 20.5% planning to implement such measures. When executed effectively, these efforts not only enhance profitability but also position the company more favourably for potential acquisitions or investments. However, the challenge lies in achieving cost reductions without compromising operational efficiency or long‑term growth prospects.
Extending the current exit runway, chosen by 14.5% of respondents, allows companies more time to achieve a better valuation in improved market conditions. Some companies are pausing hiring (9.64%) to preserve capital and relocating headcount to other jurisdictions (9.64%) to leverage favourable economic or regulatory environments. A smaller segment of companies (3.61%) are exploring distressed mergers and acquisitions. Interestingly, 51.8% of respondents are not planning any changes, highlighting a mix of caution and optimism among businesses.
Interestingly, 51.8% of respondents are not planning any changes, highlighting a mix of caution and optimism among businesses.
Raising capital
Does your company intend to raise growth capital in the next 1-3 years?
Types of growth capital companies are looking to raise
High growth tech leaders remain optimistic, with ambitious growth plans, despite a challenging funding environment.
Since raising a record £25.1b in equity investment in 2021, technology companies have faced a tougher fundraising environment. The drop in investment is largely due to macroeconomic factors and a partial market correction. In 2023, high interest rates and a decline in company valuations created a risk‑averse investment environment, which has been reflected in smaller deal sizes. Additionally, many new investors that entered the VC market during the pandemic exited, leading to a reversion to pre‑pandemic market conditions. Despite these challenges, our survey reveals that business leaders remain optimistic, with ambitious growth plans.
More than half (56.6%) of respondents highlighted that they intend to raise growth capital in the next 1‑3 years. In contrast, 16.2% of respondents stated that they have no intention of raising investment in the near future. A notable 77.8% of respondents indicated that VC investment is their preferred form of investment, with 28.9% of respondents expressing interest in both VC and debt financing.
In August 2024, the Bank of England cut interest rates to 5.00%, the first rate cut since 2020. This move may create room for cautious optimism as inflationary pressures stabilise. A recovering economic backdrop, lower interest rates, and a newly appointed government pledging to boost economic growth may signal a promising fundraising environment for high‑growth companies in the future.
In the first half of 2024, high‑growth tech companies raised £6.98b in equity investment and completed just over 2k deals, with private equity and VC funds participating in 41.9% of deals. If fundraising activities continue at this rate, end‑year figures for investment in the UK’s high‑growth tech companies may match last year’s total of £14.1b.
Investor relations
Has the nature of your investor relationship(s) changed over the past 12-18 months?
Despite the challenges faced by high growth tech companies in the past 2 years, many scaleups have preserved strong relationshipswith their investors.
Respondents revealed that 74.7% had maintained a steady relationship with their investors in the last 12‑18 months. High‑growth businesses have faced considerable trials in the last year with a challenging economic climate and more cautious investor sentiment. For many, the relationship between an investor and their investee(s) is a significant factor urging businesses to pick a strategic partner and not just a financial backer when looking for an investor.
Despite the challenges faced by scaleups, most have preserved strong relationships with their investors.
Exit pressures and valuations
Do you plan to exit the business or remain privately owned?
What is the ideal exit type?
What is the ideal timeline to exit?
Exits are on the horizon, but IPOs may have longer to wait.
Among the respondents, 55.4% indicated a plan to exit the business, while 44.6% preferred to remain privately owned. The most favoured exit strategy, chosen by 51.4% of respondents, is via a trade sale or corporate merger. This preference is likely due to the immediate liquidity and reduced complexity these routes offer compared to other methods. This is followed by private equity at 22.9%. Private equity exits typically receive less public scrutiny than IPOs as they are not subject to the same regulatory requirements as public companies. As a result, private equity exits are less complex and less expensive exit methods in comparison to IPOs, making them a more appealing option for business owners.
These findings can be attributed to the current economic climate in the UK, which is characterised by uncertainty and volatility. Businesses are likely seeking exit strategies that provide quicker returns and reduced risk in response to economic pressures such as inflation, fluctuating interest rates, and unpredictable market conditions. Trade sales and corporate mergers typically offer a fast and straightforward means of securing liquidity, which is particularly appealing when the future economic landscape appears uncertain.
The timeline for exits varies, with the majority of respondents (55.9%) targeting a horizon of over three years. This timeline suggests businesses are positioning themselves for optimal market conditions, waiting for a favourable economic climate. Economic factors such as interest rates, market stability, and industry trends play a significant role in determining the timing of exits.
