VC Reveals Startup Trends, Challenges and Opportunities for 2024
5 min read
Last year was record-breaking for UK businesses, with an unprecedented 900,000 new companies formed in 2023, a 12% increase from 2022.1 This past year’s success brings hope to budding entrepreneurs and start-ups on the cusp of creation.
As we look to 2024, the ever-changing start-up landscape sees new trends, opportunities and challenges. With this in mind, the investment experts atOxford Capitalhave shared their market outlook on the status of start-ups in 2024.
Market outlook: Emerging trends in 2024
Continued growth for tech start-ups
The tech industry is experiencing exponential growth with national data showing that 51,017 tech companies were incorporated in 2023, a 22% rise from the previous year.2 The UK has continued to stand valiant as the third-largest tech ecosystem worldwide, and a goliath in Europe, as UK start-ups secured more VC funds than France and Germany combined in 2023.
Start-ups in AI, fintech and cybersecurity are attracting inward investments from around the globe and will continue to grow in 2024. Wayve — the UK self-driving car technology startup — recently secured £840 million in funding, the largest investment in a UK AI company in Europe to date. AI startups are “particularly attractive” to venture capital groups, agrees Mark Bower-Easton, Head of Distribution atOxford Capital.
“This year has seen AI solutions driving unprecedented efficiency and innovation across various sectors, making AI startups particularly attractive. At Oxford Capital, we are already investing in AI technologies such as TextMine. In 2024, these companies will continue to offer high scalability, the potential for substantial returns, and the ability to disrupt traditional markets with cutting-edge technologies built on the foundation of large language models.”
Innovation accelerating biotech and healthcare
Healthcare is poised to become a lucrative investment opportunity in 2024, driven by significant innovation, increased utilisation rates, and appealing valuations. Biotech and health sectors are continuing to attract attention following COVID-19, thrusting the NHS into a digital transformation. Heavy innovation in digital health hopes to help the NHS cope with the ever-growing shortage and pressure of doctors and nurses in the UK.
There are many standout VC-backed companies such as Oxford BioTherapeutics who are accelerating clinical stage immunotherapies for cancer, disrupting the medical industry and attracting lucrative funding. The healthcare sector continues to experience robust demand for its products and services, propelled by cutting-edge innovations that address substantial unmet medical needs. These advancements not only enhance patient outcomes but also present companies with significant revenue opportunities within expansive markets.
VCs prioritising impact-driven companies with strong unit economics
Europe is seeing a general trend towards VCs prioritising so-called impact-driven investments, which alongside turning in a profit also aim to deliver social or environmental benefits. As one example, over the past three years investment in European climate tech start-ups has tripled to €20 billion, of which €18.2 billion was raised in 2023.4 According to Mark Bower-Easton, there will be a clear emphasis on backing companies that not only showcase innovative ideas but also demonstrate robust unit economics.
“Investors are increasingly drawn to ventures that can efficiently convert their innovative concepts into profitable business models. This shift reflects a strategic focus on sustainability and scalability, where startups with solid unit economics are perceived as better positioned to weather market fluctuations and achieve long-term growth. As a result, entrepreneurs are encouraged to refine their business strategies to align with these investor priorities, fostering a climate of innovation-driven economic success.”
Opportunities in the start-up ecosystem
Government support
The UK government has many avenues of support for start-ups through funding programs, tax incentives and grants. Popular schemes that benefit small businesses and start-ups include R&D tax credits, which encourage companies to prioritise research and development projects related to science or tech. Local Enterprise Partnerships (LEPs) are voluntary partnerships between local authorities and businesses to provide funding, support and guidance within the area.
Gaps in the market
“Oversaturation is a key challenge for start-ups, however, there are many gaps in the market with high potential. Every industry holds opportunities, and the tech sector, renowned for its forward-thinking and innovation, continues to develop and offer new prospects. Addressing social challenges within industries often leads to successful business models. For example, concerns about data privacy and algorithmic bias within AI can be used to catalyse these fears into a solution for ethical AI.”
Bright economic outlook
According to the UK Economy forecast released in July 2024, the domestic economy is looking brighter. The recent general election is expected to be followed by a fiscal event where a new economic agenda will be set. Corporate insolvencies are seeing a decrease from a year ago and capital expenditure saw growth in Q1.
The UK has seen many events in 2024 which are helping to boost the local economy including Taylor Swift’s Eras tour and major sporting events such as the UEFA Euros 2024. The UK’s inflation has decreased to 2% in May which is in line with the Bank of England’s targets with hopes to see further falling interest rates in August and September. This shift has resulted in Brits spending less frugally, presenting an opportunity for consumer start-ups to thrive.
Challenges for start-ups in 2024
Drop in VC investments
Last year VC investment fell by 45% amidst geopolitical and macroeconomic challenges. Alongside this, the UKs recent general election further exacerbated investor caution, prompting a more conservative approach to funding. These challenges are compounded by increasing regulatory scrutiny and evolving consumer behaviour, which demand adaptability and innovation from emerging businesses.
Global supply chain disruptions continue to pose logistical and cost challenges, particularly affecting startups reliant on imported goods or materials. Mark Bower-Easton shares more on this challenging landscape for start-ups:
“The continuing global supply chain disruptions pose a threat to start-ups by making it increasingly difficult to manage costs and mitigate deadline disturbance, leading to knock-on effects, not only on operations but reputation. Navigating these troubles requires resilience and an adaptive operational model”.
Regulatory Environment
The regulatory landscape in 2024 remains challenging to navigate for start-ups especially in fintech and health tech. For these sectors, staying compliant while scaling is not only complex but costly, requiring substantial resources for legal counsel and regulatory adherence. The evolving nature of regulations adds a layer of uncertainty, requiring agile adaptation from startups to avoid penalties and maintain trust among stakeholders.
Talent acquisition
Competition for skilled professionals is becoming increasingly fierce, requiring start-ups to offer significant value to attract talent. This includes competitive salaries, equity options, and flexible working conditions that can rival those of large corporations. Additionally, recent redundancies at well-known brands like The Body Shop, Sainsbury’s, and even the powerhouse Nike have heightened public unease and uncertainty. As a result, start-ups, which often provide less job security, face substantial challenges in hiring during 2024.
Mark Bower-Easton, Head of Distribution atOxford Capital, has shared his thoughts on how start-ups can thrive in 2024:
“2024 brings both challenges and opportunities for start-ups but staying innovative and adaptable is paramount for any start-up looking to succeed. Maintaining focus on refining operations and developing an iron-clad business model to thrive in the competitive landscape is invaluable through all stages”.
Neel Achary
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