Incubation in Entrepreneurial Ecosystems

19. United Kingdom

Abstract

The UK government is an important funder of the incubation system. However, there is not an overarching national policy for supporting incubation, with public support delivered through a range of funds and programmes at both the national and local level. The result is a diversity of different incubation approaches on display across the country. The UK has also been successful in leveraging public funding for incubation to catalyse private investment into the system.

Overview of incubation system

It is estimated that the United Kingdom is home to more than 400 incubators and 300 accelerators, supporting in excess of 19 600 startups (Centre for Entrepreneurs, 2022[1]). This number is about twice the amount estimated by NESTA in 2017, pointing to significant growth in the incubator population. London has historically held a central position in the UK’s incubation system, reflecting the city’s status as a leading international startup hub. Notably, London’s Knowledge Quarter – a partnership of over 100 academic, cultural, research, scientific and media organisations within a one-mile radius – provides a series of interconnected, co-located incubators, accelerators and research organisations that collectively function as one very large incubation site. Oxfordshire also stands out as a national hotspot for incubation in terms of the number of incubators per business population, driven by the presence of numerous facilities around the Harwell Science & Innovation Campus and Oxford University. Elsewhere in the country, there is at least one incubator present in every Local Enterprise Partnership region (LEP) in England and every region in Scotland, Wales, and Northern Ireland. Hence, although the distribution of support is concentrated in London, at least some opportunities are available almost everywhere in the county (Centre for Entrepreneurs, 2022[1]).

Private sector involvement in incubation varies significantly across regions. In London, a large share of activity is delivered by private entities, whereas in other areas, incubators and accelerators are primarily publicly funded, often with a focus on economic regeneration. Universities also play a particularly important role in the UK’s incubation system. By 2011, over half of all UK Universities had established an on-campus university incubator (Hewitt-Dundas and Burns, 2016[2]) with a pipeline sourcing from either academic spin-offs or students’ ideas.

Recently in the UK, incubators and, in particular, accelerators, have become more specialised, mirroring the international trend. Before 2015, specialised incubators accounted for just 29% of all new incubators in the UK, with this share rising to 75% between 2019 and 2022 (Beauhurst, 2018[3]; Centre for Entrepreneurs, 2022[1]). A wide range of sectors are now supported by specialised incubation and programmes. Incubators are also increasingly supporting startups with a social and environmental dimension.

A survey of UK incubators and accelerators found that organisations that identify as accelerators emphasise mentoring, building investment-readiness, skills training, business model development, and investor networking, while self-identified incubators focus more on the provision of physical space and peer networking. The majority of the UK’s accelerators offer direct funding to startups, mostly in the form of equity participation, while some offer other funding instruments such as grants, debt, or convertible notes (Bone et al., 2019[4]).

Major policies for incubation

In the UK, the national strategy for supporting incubators follows a multi-channel support model. The main entities involved are UK Research and Innovation (UKRI) – a non-departmental public body funded by the Department of Science, Innovation and Technology – Innovate UK, which is the government’s innovation agency, the government’s Venture Capital Unit, the British Business Bank and its Enterprise Capital Funds, as well as the Department for Energy Security and Net Zero, which operates the Energy Entrepreneurs Fund.

Across UK, EU and quasi-governmental funding via universities, it is estimated that public expenditures on incubation supports amount to GBP 20 to 30 million (Bone et al., 2019[4]). Public funding constitutes around one third of incubators’ budgets and is often used to cover their operating costs. In addition, most incubators are at least partially self-funded through membership fees or rent charged to customers (Bone et al., 2019[4]; Beauhurst, 2018[3]).

Among the central government institutions, Innovate UK is particularly active in providing financial support to incubators. It offers a variety of financial support instruments including UK Innovation loans, Innovate UK investor Partnerships, as well as grant funding for R&D. Innovate UK also funds pre-acceleration programmes for university researchers and technicians. Moreover, Innovate UK sponsors ICURe, a pre-acceleration programme launched in 2013 for university researchers, technicians and PhD students focused on early-stage commercialisation. By 2024, more than spinout companies had been created through the programme, with 2 100 participants, 650 jobs created, and 2 750 market experiments conducted. A recent evaluation has estimated ICURe’s benefit to cost ratio to range between GBP 3.43 to GBP 3.84 per each GBP 1 of expenditure (Ipsos MORI, 2020[5]).

Innovate UK also runs the Global Incubator Programme, which supports cohorts of up to 8 companies to work with world-leading incubators abroad to accelerate their global growth. Eligible firms are UK-based SMEs with the ambition and commitment to scale globally. The programme currently operates in four countries (the United States, Canada, Singapore, and Australia), and encompasses three-stages:

• “Prepare”, a two-day preparation workshop delivered to the entire cohort of startups in the UK.

• “Pursue’’, a 4 to 6 month programme where startups work with a foreign incubator.

• “Exploit’, a period in which firms work with innovation and growth specialists to continue expanding their internationalisation capabilities, building on the connections, knowledge, and expertise gained.

Another initiative that favours the internationalisation of UK startups is events that the government’s Venture Capital Unit organises regularly. These invitation-only, sector-specific showcase events allow international VC funds to connect with UK scaleup firms and offer an opportunity to access international funding. The objective is to obtain international investments into knowledge-intensive, high-growth sectors. The Unit collaborates with incubators in order to identify companies to participate in the events.

Through the City Deal programme, the Growth Funds, and the Getting Building Fund, national resources are distributed to Local Enterprise Partnerships (LEPs), which can be used in part to support local incubators. For example, the West Yorkshire Combined Authority, in partnership with the local LEP, has invested GBP 2.9 million of Leeds City Region Growth Deal funding into the Huddersfield Incubation & Innovation Programme at the University of Huddersfield. Meanwhile, the Oxfordshire LEP has used national funding from the City Deal, Growth Funds and Getting Building Fund, as well as ERDF funding, to finance a number of incubation initiatives including the Begbroke Innovation Accelerator at the Oxford University Science Park and the Energy Systems Accelerator Pilot. The Scottish Funding Council also provides important support for the incubation system in Scotland, including by investing in four sector specialised innovation centres. These examples demonstrate the importance of national funding for sustaining local activities in the UK. This is particularly the case given that many EU funding initiatives are no longer available. In 2018, the European Regional Development Fund (ERDF) was the most frequent sponsor of acceleration programmes in the UK (Beauhurst, 2018[3]).

The UK also delivers support for social impact incubators through the National Lottery Community Fund. Since 2014, the fund has financed the “Impact Incubator”, which is a partnership between six leading UK philanthropic foundations and Social Finance that aims to develop innovative solutions to social issues and improve the lives of vulnerable people in the UK.

Conclusions and lessons for other countries

The UK has adopted a relatively decentralised approach to supporting the incubation system, with support delivered through a multi-channel mix of regional and national public policies rather than one centralised funding system. This approach has facilitated the provision of tailored support across sectors and regions and enabled multiple delivery methods to be explored. Indeed, experimentation through pilot programmes and research has opened the way for gradual improvement of incubators’ practices, reducing displacement effects and increasing the long-run impact of the programmes. Public funding has also been instrumental in catalysing private resources.

There are also valuable lessons in the UK’s approach to data sharing and performance measurement. Data sharing is compulsory for incubators receiving public funding. This has contributed not only to improved performance and the sharing of good practices. Another distinctive feature of the UK’s policy approach is the commitment to supporting entrepreneurs from all different groups, which is often

References

[3] Beauhurst (2018), Accelerating the UK.

[4] Bone, J. et al. (2019), The impact of business accelerators and incubators in the UK.

[1] Centre for Entrepreneurs (2022), Incubation Nation: The acceleration of UK startup support.

[2] Hewitt-Dundas, N. and C. Burns (2016), “Structural Capital of University Spin-Out Firms: The Moderating Role of University Incubators”, in International Studies in Entrepreneurship, https://doi.org/10.1007/978-3-319-17713-7_4.

[5] Ipsos MORI (2020), Evaluation of ICURe.