UK startup founders must meet evolving investor expectations to scale successfully

UK investors are often more risk adverse than their US counterparts, sometimes leaning into risk avoidance instead of risk mitigation. This can mean startups have to work harder for investment than in other markets but might be all the better for it. I’m always keen to engage with investors to discuss emerging trends, which is the best way to understand investor preferences. Recent engagement has shown that UK investors increasingly want to see “market pull” instead of “tech push”, even in deeptech, transforming the UK investment landscape.

In parity with market shifts, the expectations investors put on startup founders to prove their investment readiness have also evolved. At Digital Catapult, we enable deeptech companies to scale, and as such recognise the need for startup founders to meet evolving investor expectations if they are to scale successfully.

How UK investor expectations have evolved in recent years

Being “investment ready” has changed since the frenzy years of 2021 and 2022, with the market narrowing and fewer themes attracting investment. This comes as the bar for investment has simultaneously risen in terms of investor expectations, creating a more competitive and somewhat challenging environment for startup founders. What was a sellers’ market has shifted into a buyers’ market in recent years, and so for the UK market, being investment ready can mean having a solution that is more marketable, mainstream, and able to meet the criteria of having a large market, good team, and few competitors.

The challenge however is that a growing number of investors expect startups to have achieved some degree of commercial success prior to investment, feeding into a loop that can be hard for startup founders to manage. This is due to the difficulty in raising the capital needed to generate the traction that is now increasingly expected from UK investors, often broken by grant funding or other mechanisms. The shift in investor expectations also comes as the investment climate has changed, and the founders we work with are seeing fewer participants and a slower deal pace compared to several years ago. This is why UK startups must understand what investors are looking for and must adapt to meet expectations.

What investors are looking for

We continue to meet with investors of all sizes at Digital Catapult, whether that’s to discuss new market trends or the solutions in development, and this informs the counsel and investment-readiness support that we can provide to startups on our programmes. In my view, the three things that UK investors look for when assessing an early-stage startup are team, traction and velocity. Having enabled startups to raise £53.6 million in investment last year at Digital Catapult, early-stage is all about the team. For example, in our investment-readiness workshops we emphasise that if a startup can attract and retain top-tier talent, this is a positive signal to investors during the assessment stage which can mobilise successful scaling.

Many investors I know also want to see traction as a sign of progress, but in reality, this is related to the team assessment as well and trying to quantify execution risk. When it comes to velocity, investors typically want to see relentless execution and making quick progress, given the advantages speed of execution can bring, compounding over time; however, this also relates back to team quality. Investors often assume that founders who have scaled and exited successful startups previously have a significant lead over others, and this is why you hear investors say, “Early stage is all about team”, and this insight further informs the investment readiness support we provide to UK startup founders.

How Digital Catapult is increasing founders’ investment readiness

Last year, Digital Catapult delivered investment-readiness workshops to approximately 40 startups across our programmes, and I believe that founders in today’s market may not appreciate the more thorough due-diligence that investors are increasingly doing. This is largely driven by tighter capital markets, which have raised investor expectations and increased the level of scrutiny applied to every deal. As a result, signals that may have previously been interpreted as evidence of traction like early revenue, pilot customers or rapid user growth, are no longer sufficient on their own. Investors now expect clearer proof of commercial resilience, repeatability and long-term viability.

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As a result, I also think founders don’t always prioritise the need for a credible go-to-market strategy and the importance of demonstrating progress on that plan with key milestones and metrics that can be shared and reported on. Commercial traction, which is key in today’s market, should include having an ideal client profile with some lighthouse clients secured, and the creation of a replicable sales process. This is particularly important for startups shifting from the research and development phase of deep tech innovation, which are often who we support on their scaling journey. At Digital Catapult, we also support with go-to-market strategies for pioneering startups, supporting founders’ commercialisation journeys as they translate deep tech innovation to commercial deployment, and equip the UK to be future ready.

There is a lot of activity and significant momentum that makes me optimistic about the health of the investment landscape in the UK right now and the ability for companies to scale in the UK. The challenge has often been around successful commercialisation, particularly in the realm of deeptech, and this is where innovation and accelerator programmes can be critical vehicles to successful commercialisation. Our programmes and tailored investment readiness workshops improve the investment readiness of startup founders, enabling them to meet evolving investor preferences, and scale successfully, which will be key to the long-term success of UK startup founders.