If you’re an Australian or New Zealand founder looking to scale then you’ll be no stranger to the thought of global expansion. While the ‘land down under’ offers fantastic opportunities and many advantages, the local B2B market is small and slow compared to the global markets waiting for you across the pond.
The first dilemma of international expansion lies in identifying which market to tackle first to increase the odds, scale and speed of success. Many founders default to heading to North America, and we know the siren call of Silicon Valley is tempting for many. But having taken hundreds of Australian founders and investors on trade missions to the UK and USA since 2016, in this article I’ll share my views on why scaling your startup into the UK might just be the ace up your entrepreneurial sleeve.
- High number and density of B2B customers (multinationals through to SMEs).
- UK corporates are more experienced in working with startups.
- The UK makes a great land-and-expand point for scaling in broader Europe.
- Commonality of common law typically makes UK entry much cheaper than the US.
- Very strong investment landscape of angels, VCs, CVCs and public markets.
- A tonne of support to help you enter the UK, plus grants, visas, and incentives.
- The UK is less litigious than the USA, while still enforcing strong IP protections.
The UK has a high density and depth of B2B customers
Let’s first focus on what really matters: customers.
London is a global financial and business hub, hosting over 75% of the Fortune Global 500 companies and is HQ for over one million local SMEs, all located within a relatively small geographical footprint. Outside of the capital city, each region of the UK has also developed it’s own niche industry clusters, such as media, creative industries and life sciences in Manchester, through to advanced manufacturing in Birmingham, and the deep tech fields of biotech, Quantum and AI in Cambridge and Oxford. Together, that means it’s not just about there being more B2B customers, it is that they are also typically easier to reach and service due to their co-location density. This proximity can also lead to quicker decision-making processes, shorter fundraising cycles, and more substantial networking opportunities. By comparison, for most sectors, the US is more fragmented over a significantly larger landmass.
UK B2B customers are technically sophisticated and have startup empathy
The UK is a global tech hub, with the tech industry surpassing $1 trillion in valuation in 2022, placing it as the third largest after the USA and China. And it’s only accelerating, with the local tech industry being the fastest-growing sector in the UK, attracting talent from around the world. As a result, SMEs, corporates and enterprise customers in the UK are typically quite tech savvy and are more experienced in dealing with and entering contractual arrangements with startups (or in their British vernacular, they prefer the term ‘early-stage technology companies’ rather than ‘startups’). Some great UK examples I’ve had personal experience with on this point include Boeing UK, Natwest, and Barclays.
Of the 180 accelerator programs operating in the UK, almost half of them are corporate-sponsored. Over 11,000 startups have gone through these programs, and they are proving to be highly effective as 57% of UK unicorns attended an accelerator before reaching their billion-dollar valuations.
While similar can be said of some industry sectors and regions of the USA, the US market feels much more fragmented. As a metaphor for this, keep in mind that the US is home to both the tech innovation epicentre of Silicon Valley and also a business community that still operates with paper cheques. At the same time, the state-based regulatory environment of the US can make it feel more like operating in 50 countries than one. Now depending on your value proposition and GTM strategy, these pain points can be a great virtue for leveraging growth in the USA vs trying to compete in a more sophisticated and simple UK market.
The UK unlocks access to the broader European marketWhile Brexit meant the UK has left the European Union, the UK still provides a strategic entry point to the European market, opening access to a market of over 440 million consumers from a local regional time zone. With all my trips and work in the UK and Europe I have to say that I don’t feel much has changed since Brexit for early-stage technology companies, other than the UK having a greater focus on supporting trade in the Commonwealth. Once you establish in the UK, the UK Government even offers export finance support for UK-based ventures to expand internationally.
The commonality of common law reduces costsOne significant advantage for Australian and New Zealand startups is the shared common law legal system with the UK. This familiarity simplifies the legal and regulatory aspects of doing business – from contracts to HR and IP – ensuring a smoother transition and reducing the learning curve associated with different legal systems. I heard a stat from the UK Department of International Trade once that it is 29% cheaper (on average) for an Australian startup to enter the UK market than the US market. It’s obviously a broad generalisation, and every international expansion nuanced and inevitably costs far more and takes far longer than expected. But if you manage to combine some of the efficiencies described above along with the various incentives and support programs and leveraging the Free Trade Agreement, your runway can look healthier in the UK than the USA.
The investment landscape
In 2021, UK startups received a record £17.9 billion ($41b) in VC investment, surpassing the previous year’s figures by a significant margin, and $30b in 2022, putting the UK third for tech investment, behind the USA and China. In London alone, investment increased from $100m in 2010 to $22bn in 2022. The UK is home to 4,595 venture funds and 1,650 VC firms, sitting on well over £10 billion in dry powder waiting to be deployed.
The United Kingdom boasts a robust angel investing community, supported in no small part by two standout programs, the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS), providing generous tax incentives to individual investors who back eligible startups. Under the EIS, investors can claim income tax relief of 30% on investments of up to £1 million per tax year. Under the SEIS, investors can claim income tax relief of a remarkable 50% on investments of up to £100,000 per tax year. Additionally, both classes benefit from CGT exemptions if the investment is held for a minimum period. Speaking with the UK angel investors in my network, these programs are working to attract more funding for founders.
It is true that the comparable valuations of UK-backed ventures is higher than their ANZ equivalent counterparts, so founders will typically experience a nice valuation lift as they raise capital in the UK. Indeed this very fact forms a key part of our investment thesis to provide outsized returns for our investors. But I am not of the view that this should factor as a high priority in a founder’s decision making when selecting a new market for expansion.
There’s a tonne of support to help you enter the UK
Post-Brexit, the UK Government has doubled down on facilitating trade across the Commonwealth. From extensive visa programs to grants and funding, tax breaks, loans, regulatory sandpits, and dedicated personnel on standby to concierge your market entry, there is no shortage of support to get you trading in the UK. The big initiatives that demonstrate this include Australia-UK Free Trade Agreement, the UK–Australia FinTech Bridge, and the United Kingdom (UK)-Australia Space Bridge agreement.
In 2022, over 1800 grants valued at over £100,000 each were issued to UK businesses. Some specific business incentives worth exploring include: Research and Development Tax Credits, Capital Gains Tax Relief, Export Finance Support (including loans and guarantees) Regional Investment Grants, Business Rates Relief, and the Apprenticeship Levy. It’s also worth noting that the corporate tax rate in the UK is currently 19%, one of the more competitive business tax rates in Europe.
There is an almost endless supply of Government departments, quasi-Government agencies, and private sector operators whose full-time focus is on helping you enter or do business with the UK. And it’s not just London-centric – each regional area also has economic development teams with their own incentives, programs and personnel to facilitate your relocation or market entry.
While the US offers some support, mostly from Austrade, private sector fee-for-service operators, and the occasional state-based incentives programs, it is tiny in comparison to the depth of support that exists to help you enter the UK market.
Numerous visas and talent entry pathways
For Australian and New Zealand citizens, the UK enables entry, temporary and permanent visits to the UK through a range of visas and exemptions. If you have British parents or grandparents, you may even be entitled to apply for a British passport or a UK ancestry visa. If neither of these apply, the UK Government are enabling foreign business activity through a range of attractive work visas, such as the Startup Visa, Innovator Visa, and Global Business Mobility Visa.
The UK is less litigious than the USA
We recently met with a visiting VC firm from New York, and we semi-jokingly made reference to the law-suit happy nature of the USA. The VC replied: “Oh it’s true. We are in court with 3 of our portfolio companies right now”. A few days later, catching up with a friend visiting Brisbane from Silicon Valley, he shared that he was in two legal disputes with past co-founders. Litigation is almost factored as a cost of doing business in the USA.
The reality is that the first-time entering a new market is usually much harder, and involves many more mistakes and a higher potential for broken promises, than a second or third market.
The UK enforces strong intellectual property protections
The UK is renowned for its robust intellectual property protection laws, safeguarding your startup’s innovations. This ensures that your intellectual capital remains secure as you navigate the competitive landscape.
Cultural Affinity and Language: The cultural similarities between Australia, New Zealand, and the UK extend beyond language. Shared traditions, business practices, and humor make it easier to build relationships and connect with customers and partners. Your Australian or Kiwi accent can be an endearing asset in your networking efforts.
But don’t be fooled into thinking “the Brits are just like us”
The Brits definitely share a lot in common with Aussies, from a shared language, very similar culture, and a healthy mutual respect and rivalry. So much so, the Australian Department of Foreign Affairs and Trade (DFAT) lists the UK as the most like-minded trade partner with high levels of cooperation across foreign policy, defence, security, intelligence, trade and economic opportunities.
Many founders fall into the trap of extrapolating this to mean that little localisation of product and messaging will be required. But the reality is that business is done differently in the UK, and the cultural nuances, while seemly small, are significant and important, and probably need an entire blog post of their own to prepare founders for market visits and entry (for context, we typically run 3 workshops with founders to prepare them before taking them on a trade mission to the UK).
One big tip when entering the UK is to secure a trusted and well known UK brand as your first pilot customer, even if you make no revenue from the initial transaction. This credibility anchor will be the secret to unlocking others in a risk-adverse business culture that places a high value on trust.
Despite my clear bullishness on the UK market, I’m not prescribing that it is the right first-market entry point for every ANZ B2B venture. But I do believe more founders should be seriously considering the UK market rather than defaulting to North America. As with all things in the life of an entrepreneur, the how will be far harder to work out than the what or where.
If you are considering the UK, and want to understand whether it is a fit for you and develop your roadmap for market entry, then come with us on our trade mission to London in June where we will hold your hand through the process and fast track your market access.