Startup Report Wales

Over the past year, we've had the pleasure of hosting The Coalition for a Digital Economy (Coadec) team to support with their extensive research into the Welsh tech ecosystem. They set out to identify the strengths, opportunities and challenges through carrying out 100+ interviews with leaders in Welsh business, tech, academia and government.?

As a result, Coadec have compiled a unique piece of research that sheds light on Wales as a lucrative location to start and scale a business, but also addresses gaps that need to be addressed in order to elevate startups and scaling businesses in Wales.

Wales has always been a naturally forward-thinking nation and one that is instinctively at home with disruption and a drive to improve: from creating the world’s first steam engine to passing the world-leading Wellbeing of Future Generations Act?

As our Co-Founder and Director Mark John said in the Foreword of the report; "Over the last decade we’ve seen pioneering Welsh tech firms, from early-stage SME’s and fast-growth scaling companies, to established primes and enterprise organisations, gather momentum until they became a tidal wave. This broad range of entrepreneurial talent has set us on a transformative course, establishing tech and digital - and creative technology - not only in Wales, but across the whole UK and beyond.

But no ecosystem is perfect, and Wales is no exception. There are certainly still gaps in the Welsh tech ecosystem, most notably in funding and access to finance (and investment) and in access to technical skills (and high-level training)."

As Elis Thomas, Coadec Policy Lead for Wales mentioned; "The founders I spoke to would all tell you that Wales is a fantastic place to start a tech company, but we have some catching up to do if we are to fulfil our true potential. The success of Wales’ future tech ecosystems won’t rely on a single organisation or government department, but instead on a wider strategy in which we are all pulling in the same direction. This report is an attempt to identify a path to that."

In 2022, the Welsh Government’s Trade and Invest Wales initiative estimated that the total value of the Welsh tech sector was ￡8.2bn.

This report backed up the feedback we've received?from our community over the past 6 years, so we wanted to share with you some of the ways we're working to combat these challenges alongside other key support organisations in Wales with the aim to?enable the Welsh tech ecosystem to meet its full potential.?

?? Investment: Startups want access to more diverse investment routes.?

We know that access to the right investment at the right time is critical to the survival of startups. The report shows that The Development Bank of Wales dominates Wales’ startup funding landscape and many founders said that they found it difficult to attract the attention of VCs. A common frustration was the feeling that, while they might settle in Wales, they have to travel to London to find funding.

Many founders are worried about there being a scaleup gap. Views differed on its causes. A most popular concern was that Series A funding can be its own valley of death - Government support can taper off after the early-stages, and VC investment to get to the next stage is difficult to access.

On the slip side, frustrations were also expressed by some investors who commented that extra business skills support were needed as some Welsh founders struggled to answer basic questions about their plans.

We see both sides of this within?the Tramshed Tech community and through our Startup Academy we have worked to?hone the kinds of business skills investors are looking for. We also launched our 'Meet the Funder' event series in 2022 in collaboration with British Business Bank where we host investors from around the UK, across SEIS / VCT and traditional Venture Capital. This provides an opportunity to connect Founders within our community with key investors on a one-to-one basis. As well as this we work closely with Angels Invest Wales and Barclays Eagle Labs, to facilitate events and mentorship around access to funding. ?

A December 2022 report by R3 found a 143% increase in the number of startups founded compared to the same period last year.? This shows a tech ecosystem with serious potential. But that potential needs investment. Wales is seeing record levels of investment year after year,? but it is still too low: a 2021 report by business data platform Beauhurst found that, despite having 3.5% of high growth companies, Wales has just 2.5% of the UK’s total equity investment deals.?

We’re excited to announce that we'll be launching an Investor Readiness Programme in partnership with British Business Bank very soon to ensure that Founders are investor ready and have everything they need before?approaching investors - more information to follow, so watch this space. ?

Roughly ￡882m was invested into Welsh high growth companies between 2011-2020

???Connectivity: Physically & Digitally

Clusters of startups in Wales are fractured geographically. The North and South of the country are not well integrated, with infrastructure problems in both transportation and sometimes internet access, leaving founders feeling isolated.

The Covid-19 pandemic normalised and accelerated trends towards more hybrid and remote working. Founders felt Wales’s startup ecosystem - with its beautiful landscapes and a low cost of living - was well positioned to capitalise on this, as long as Wales improved its physical infrastructure and broadband.

We are proud to be partnered with Ogi -Welsh broadband providers who are on mission to power-up life online in communities across Wales. In December 2022, Ogi became the first internet service provider in the UK to deploy Nokia’s 25Gbps full-fibre tech at Tramshed Tech Grangetown meaning ultimate connectivity for Tramshed Tech members and an exciting step in the right direction for connectivity across Wales.

?Founders told us that coworking spaces had helped make the transition between working model seamless as their space enabled fully remote teams provided they could occasionally access the coworking space’s affordable in-person meeting spaces.

We always planned to expand the Tramshed Tech offering, but when Covid-19 hit, developments were stalled. As we came out of the pandemic, we re-activated plans and expanded to new hubs across South Wales to include Cardiff, Newport and Barry with new sites opening in 2023 to include Swansea. We also reviewed our offering to ensure ultimate flexibility which saw us introduce 'TT Roaming' enabling members to work across Tramshed Tech coworking location. We also reframed our memberships so rather than basing coworking on a set number of days, we switched to hours so that members can work their membership in a way that suits them.

Co-working spaces have been critical to the success of the UK’s tech boom over the last decade. There are hundreds of independent organisations across the UK, including Wales, that run flexible spaces that have become the bedrock of the UK’s startup ecosystem.

As Mark said in his foreword, since opening Tramshed Tech Grangetown in 2016, we have been able to build a thriving community of entrepreneurs, investors, startups and scaleups, all of whom are dedicated to driving innovation and making a positive impact - not just here in Wales, but across the world, as global innovators and forces for change.

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???Keeping talent in Wales & Routes Into Industry: While Wales can be good at training homegrown talent, many founders identified brain-drain as a serious issue. In one conversation, a founder said retaining local talent had become so difficult that, when asked where Wales’ greatest opportunities lay, they remarked “Liverpool, Birmingham, Bristol.”

An estimated two thirds of Cardiff’s Computer Science graduates leave Wales after graduating.

M-SParc’s Skills Academy in North Wales is a paid five month placement into a tech startup for students and graduates which has been reported to be a fantastic initiative. There was enthusiasm about this scheme’s potential to de-risk hiring and training and interestingly, a couple of founders, who weren’t aware of M-SParc, effectively described the same scheme when asked how they would want to give students industry experience.

?One interviewee also felt that the low cost of living in Wales meant exiting with ￡1m ‘seemed great’ which might mean there was less drive from other founders to become a unicorn.

We work closely with Universities to include Cardiff University and their Data Science Academy, Cardiff Metropolitan, University of South Wales, Swansea University and Trinity University College as well as Cardiff Capital Regions on programmes such as Venture Graduates which supports with routes into industry in Wales. We see first hand the evolution of the curriculum to close the gap with employability skills, and see the retention of graduates within Wales.

?? Struggles in scaling - A common sentiment among many founders was that Welsh businesses need to know how to scale. Something raised in this report was that Wales’ business culture is too often ‘risk averse’. As a result of this comes a wider international perception that Wales doesn't have much to offer. Founders and other ecosystem members worried that this affected the perceptions of Wales as an attractive place to invest.

A 2021 study into Welsh micro-businesses, companies with fewer than 10 employees, found that only 8% had invested in management training for their staff: Wales had 438 management training courses to England’s 31,938. A report by the Open University found that 69% of Welsh employers reported skills shortages, a critical impediment to scaling a startup.

Neil Cocker, startup founder, advisor, mentor and accelerator consultant commented; "I think the relevance of business support is still massively lacking. We don't have a significant number of first-generation tech entrepreneurs who have scaled and sold businesses and who are now active in terms of investing, advising, and being "visible"."

Whether due to a cultural gap in entrepreneurial spirit, or a modest and self-deprecating wider culture, a common theme from founders was that Wales does not broadcast its successes loudly enough. This is beginning to change, with organisations like GlobalWelsh and Tramshed Tech working hard to boost Wales’ image overseas.

Want to hear more about Coadec's findings? Read the full report here ?? https://coadec.com/news/startup-wales-the-welsh-tech-ecosystem/