By Bradley Topps, below, Project Director, Sister and Chief Commercial Officer, Bruntwood SciTech
2024 was a tumultuous year for start-ups and SMEs. From having to navigate a difficult economic and political climate, to combatting ongoing barriers such as access to finance and regulatory requirements, starting and running a business has become increasingly challenging. During the third quarter of 2024, UK start-ups secured just £2.2bn in new venture capital funding, a 50% drop from the previous quarter, according to data from HSBC.
Despite these challenges, start-ups and SMEs have persevered and there is reason to feel optimistic about the future.
As we settle into 2025, it’s all about tangible action from government and business. It’s about targeted, practical plans to address the ongoing economic and political challenges that the UK is facing so that businesses can thrive.
In particular, here are three things start-ups and SMEs can look forward to and capitalise on in the year ahead.
Technological Revolution
For start-ups, AI will continue to be essential for unlocking productivity as automation tools can help streamline tasks like content creation and software development, freeing up time to focus on more value-added work. AI also presents start-ups with the opportunity to accelerate and push boundaries – their agility makes them perfect vessels for experimentation with new and emerging AI technology and paves the way for new discoveries and innovations, from the deepest depths of tech to new drug discovery.
There’s even further scope for SMEs to transform industries by partnering with universities and university spinouts. From predictive diagnostics and personalised treatment plans in healthcare to breakthroughs in advanced materials within construction, these businesses can drive innovation by using the latest research and technology available through academic partnerships. There is a shift within academic institutions to value innovation more broadly, and encouragingly, many are eager to use their specialisms to partner with entrepreneurs and early-stage businesses to turn research and new ideas into thriving enterprises, expanding the real-world application of their R&D. Offering access to expertise, facilities and industry connections, an academic partnership can ease some of the challenges around starting and scaling a business, while helping to boost the UK’s innovation economy.
As the UK positions itself as a global AI superpower with its recently launched AI Action Plan to drive growth for Britain, start-ups in technology and research-driven sectors can expect to receive stronger support in both funding and talent to enhance growth. Initiatives such as the Global Talent Visa, which will attract top international talent to the UK and attract more investment; the new Regulatory Innovation Office, which will reduce red tape for businesses looking to bring new products and services to market; and the R&D tax relief scheme, which will give tax rebates on the money companies spend on innovation, should all provide much-needed support to SMEs. Furthermore, the Budget’s £100 billion investment into infrastructure projects – namely for data centres and quantum computing – will open plenty of opportunities for start-ups operating in these sectors.
Investment Opportunities
The Chancellor’s plans to raise capital gains taxes from 20% to 24% and National Insurance Contributions to 15% (up from 13.8% on earnings above £175 a week), was a blow to start-ups and SMEs already facing rising business costs. In a turbulent market with low confidence, these issues can compound and stunt business growth despite the government’s ambition to make the UK a global hub of innovation.
Despite the difficult economic landscape, 2025 will present more investment opportunities for start-ups, especially in growing sectors like AI with over 500 new AI companies registered in Q4 of 2024 alone. Key to continued growth for start-ups will be access to smart, quality finance, provided by a savvy investor that offers more than just access to capital, but also advice and guidance for businesses on their growth journey. Founders need to be ambitious when asking for investments and ensure they are protecting their businesses by identifying and securing IP early on to help with the rest of the journey.
Government incentives such as the Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) also provide great funding opportunities for start-ups and SMEs. These schemes provide tax relief for investors, making it easier for start-ups to secure funding despite the increased operating costs faced by businesses. Distributed investment into cutting-edge sectors will also be made through the British Business Bank, expanding its scope to provide financing options tailored to early-stage companies, thus closing funding gaps in regional and underserved markets.
Going Green
In 2025, start-ups and SMEs have a key role to play in getting us back on track to achieving our net zero goals. Following a disappointing COP29, where Western leaders continued to fall short of emissions targets and the global south was left disappointed with a lack of financial support for the adoption of green energy sources, now a new Trump administration in the US also threatens to de-prioritise sustainability even further.
Start-ups and SMEs will be essential to combating this faltering progress. In the UK, the green industry is the sector of choice for entrepreneurs with 72% of green businesses in the seed or venture stage, and the green tech industry alone is estimated to generate an economic opportunity worth $10.3 trillion, meaning there is huge potential for creating innovative solutions and alternatives that can drive significant advancements in the fight against climate change.
Clean energy, for example, provides a massive opportunity for new entrepreneurs, given the increasing demand for clean energy sources such as nuclear and biofuels. The main challenge, however, is that the infrastructure required to scale and meet this growing demand for alternative energy sources, including tidal, wind and solar, is not readily available. In these growing industries, there is a huge need for new innovations that can help tackle these challenges, which is where start-ups can come in.
Looking Forward
In the upcoming year, start-ups and SMEs must focus on staying ahead of the curve whether that be through investing in new technology like AI or green tech, or taking advantage of government incentives to bolster innovation and partnering with industry experts. We have a pivotal role to play in order to lead the UK on a path to economic growth whilst driving innovation across industries and transforming our society for the greater good.
This is where innovation hubs like Sister come in and can play a big role through building the right ecosystem to provide ample opportunity for start-ups and spinouts looking to commercialise their innovations and accelerate their business growth. Sister also provides no and low-cost workspaces to enable start-ups and spin-outs to refine their products and services, market propositions and USPs, and connect with a broader network of investors and funders within the ecosystem. By supporting early-stage businesses from the outset, Sister creates an environment where growth and innovation can thrive.
