Myth: The majority of European scale-ups are high-tech innovative companies.
Fact: Only 1 in 10 European scale-ups are active in the IT sector and only 4% are in biotech or healthcare.
It is undeniable however, that scale-ups active in IT and consumer goods and services are miles ahead of other sectors in terms of size and growth. This means, only a small percentage of companies are successfully scaling-up within the European ecosystem. These differences stem from the difficulties many scale-ups in Europe face when attracting funding. Scale-ups with external investors are not only more professionally managed, but have made great progress in internationalisation, innovation and talent management.
How do we know all of this?
Vlerick Business School conducted a large-scale study with more than 80,000 scale-ups across 8 European countries, investigating their management practices. Some of the conclusions are an insightful peek into the European scale-up ecosystem, what are the leading sectors and what are the greatest growth challenges.
What is hindering growth?
Merely having ambition is clearly not enough, or, there wouldn’t be such gap between sectors. What is causing other sectors to struggle? The report highlights five major challenges that the scale-ups themselves have identified hindering further growth.
Across all five challenges external financing makes a big difference.
Jürgen Ingels, founder of Scale-Ups.eu: “External financing is an important factor for increasing professionalism and growth. However, precisely this proves one of the biggest challenges for scale-ups. High-quality networking and matchmaking are therefore extremely important … If you aim to grow, seek out relevant investors and go for smart money. Let them pave the way to your success.”
Challenge 1: Recruitment and talent management
- 1 in 3 scale-ups regard finding and keeping employees as a recurring challenge.
Challenge 2: Funding
- 1 in 3 scale-ups also struggle with sufficient funding. However, it is interesting to highlight that it is primarily scale-ups that have already raised equity funding that have indicated difficulty. This reveals a gap in ecosystem. Scale-ups manage to secure early stage funding, but when it is time for larger follow-on-rounds, many struggle for finance.
Challenge 3: Access to Markets
- Less than half (43%) of successful scale-ups are active abroad, and when they are it is often under the influence of their external investors. External investors assume a catalytic function for international growth.
Challenge 4: Leadership
1 in 3 scale-ups have at least 1 independent director. This factor is important as the report shows, advice from independent directors has a beneficial impact on the sustainable growth of the scale-up.
Challenge 5: Infrastructure
- Although participating scale-ups identified this as the least challenging, investments in infrastructure can be transformational when increasing the complexity of their business.
Fostering a European scale-up ecosystem that attracts later stage investment is imperative for boosting European scale-ups.
Veroniek Collewaert, Professor of Entrepreneurship at Vlerick Business School: “In general, our research succeeded in both debunking and confirming a number of common views on scale-ups. They are not all innovative tech companies. Not all of them have raised external financing. However, scale-ups that do have external financing tend to be much more ambitious and professional in terms of their approach, whether it involves recruitment, sales, governance or IT infrastructure.”
See full report via Vlerick Business School
Full article by Scale-ups.eu