Discover Marylebone’s best kept secret
Discover Marylebone’s best kept secret
The 8 Best Indicators of Future Startup Success
Despite the fact that 90% of all startups fail in their first year, there is a certain cohort of businesses that are thriving in the ecosystem, with the fastest-growing companies standing a better chance at success.
At Beauhurst, our mission is to monitor each of the UK’s high-growth companies from their earliest-stages, making it easier for you to discover, track and understand them. In this post, we’ll take a look at the survival and death rates of Beauhurst-tracked companies, as well as their growth rates, and show you how we uncover these high-potential companies.
How successful are high-growth companies?
Whilst 90% of most startups fail in their first year, the death rate is significantly lower for those that hit one of our high-growth triggers. Of those that were founded in 2011, only 18% have died, and 4% have become zombie companies (where they’ve been neglected for a prolonged period of time, or are in a troubled financial situation).
This difference between these figures is outstanding, showing the impact of reaching one or more of our tracking triggers. Gaining high-growth status is a great indicator that a company will succeed in the future.
Not only are these businesses less likely to fail, their potential is far higher than their slower-growing peers. This means that securing a deal with a budding startup while it’s still in its infancy may well result in a hugely valuable contract down the line. Based on fair value company valuations, the average compound annual growth rate (CAGR) for companies that received equity fundraising in 2013 is 20.57%. For reference, the FTSE 100 has a CAGR of only 2% across the same timeframe.
How does Beauhurst identify high-potential and high-growth companies?
We have eight triggers for tracking UK companies on the Beauhurst platform. Each of these is a sign that a business is either actively growing or creating ambitious growth plans, and is less likely to fail than those that haven’t.
The role of investors in the high-growth ecosystem makes them a key source of insight into the startup community. As noted in our flagship report on equity investment, The Deal, the most prolific investor types are private equity and venture capital firms. These funds pursue those talented small businesses climbing towards an increasingly large valuation, in the hopes of making a significant return on investment, usually between five and ten years down the line.
Whilst equity investment is a great indicator that a company has excellent foundations and innovative ideas, it can also point towards the beginnings of a fast-paced future. Securing funding is often for the purpose of activities that naturally spearhead growth, such as research and development and increasing job creation. For these reasons, those interested in maximising the opportunities available in the high-growth space look towards equity investment as an indicator of potential.
A company triggers our equity investment tracker whenever they announce publicly, or to us directly, that they have secured a funding round. We are also able to see that funding rounds have taken place through Companies House filings, which are monitored and reviewed by both algorithm and human analysis, even if the round is never announced to the public. Beauhurst is the only data provider to cover unannounced fundraisings, which make up 70% of the UK equity market.
When looking to raise capital, companies might opt for debt financing rather than equity investment. Fundraising in this way allows businesses to raise money through loans, with the expectation that these will be repaid in the future with added interest.
Unlike equity investment, debt allows founders to forgo releasing any control over the future of their business. As a result, debt investment tends to be lower in value, but with larger tax deductions—something which can bring great benefits to seed-stage companies looking to increase their net profits.
As securing a loan requires businesses to demonstrate that they have the capacity to grow and ultimately repay this debt, accessing debt investment can be a great indicator of budding talent in the business sector. One example of this is Chip, a savings account app using AI to determine how much users can afford to save. Co-founder Simon Rabin, discussing the recent debt fundraising, explained how this would support the company’s “aggressive growth plans”.
Beauhurst specifically monitors venture debt, which includes mezzanine debt, convertible debt and debt provided by angel networks or venture capital firms. This form of debt is defined as providing lenders with more benefit than simply the interest gained from the loan, and an increased share of any pitfalls beyond the risk incurred by taking on the loan.
The aim of accelerator programmes is to scale up and elevate a cohort of ambitious companies by providing them with access to knowledge, resources and networking opportunities. These programmes attract companies with innovative capabilities, and help them to build out a concrete business model.
Watching accelerator programmes, and the companies graduating from them, is a great way to see who is in the process of being equipped with the skills necessary to grow. Beauhurst tracks over 300 accelerator programmes, including Barclay’s fintech-focused initiative and the Mayor’s International Business Programme, which has attracted some of the UK’s top tech startups, including Revolut and Onfido.
To feature on our platform, an accelerator programme must include both a starting and finishing date, a structure consisting of either a syllabus, milestones or obligatory events, and a competitive application process—all provided with either no or low attendance fees. This is necessary to ensure that only those accelerator programmes providing genuine benefit, as opposed to a marketing frontage, are featured.
Achieving scale up status means that a company has shown that they are capable of consistent year-on-year growth in either turnover or headcount. A company scaling up symbolises a brilliant opportunity for those firms that might support further expansion.
Beauhurst monitors two categories of scaleups: 10% and 20%. We’ll track any company that has an annualised growth rate average of at least 10%, or 20%, in turnover over three accounting years, and has at least £200k in revenue in its base year. Another way of reaching our scaleup tracker is through an annualised average growth rate of 10%, or 20%, in headcount over three accounting years, so long as the initial number of employees was at least 20.
The UK is home to world-leading university research, with institutions across the nation turning IP into innovative businesses, known as spinouts. These can span all kinds of sectors, but are particularly common within life science, healthcare and artificial intelligence. A spinout company that has recently achieved huge success is Oxford Nanopore, a University of Oxford spinout that underwent a £350m IPO listing on the London Stock Exchange in September 2021.
The IP developed in university labs is highly attractive to investors who are looking for the next big opportunity. These companies have already received initial equity investment from either the university itself, or a connected venture fund, meaning that they are in the process of maturing towards a high valuation.
Beauhurst tracks all academic spinouts from recognised universities in the United Kingdom, so long as the university either owns IP that has been licensed to the company, or owns shares in the company, or the university has the right to purchase shares in the company at a later date.
Management Buyouts or buy-ins
When a company’s management team, or an external group, takes a controlling stake in a business, this can be a great sign that change is on the horizon. The former event is known as a management buy-out (MBO), whilst the latter is a management buy-in (MBI). When an event like this takes place, it often indicates that new owners and incentives managers are looking to increase the pace of expansion, pushing the company to a higher valuation.
Beauhurst tracks 1,977 active companies that have undergone either an MBO or an MBI, including the robotics firm CFK Holdings, which was overtaken by its management team in December 2020, and babble, a cybersecurity company which hit a £90m valuation in the days following an MBO. We define an MBO/MBI as a transaction where the incoming, or incumbent, management takes a majority stake in the company.
Large Innovation Grants
Large innovation grants are awarded to those companies with promising, and often quite specific, projects in the pipeline by entities hoping to boost the UK’s business sector. They are therefore incredibly interesting to track, and help highlight innovative businesses across the country.
Beauhurst defines a ’large’ grant as above £100k, where the awarding body is based in the UK, and €100k+ when this body is in the EU. Innovation grants are understood as those which are awarded with the aim of fostering ‘New-to-the-market’ projects, rather than other aims such as job creation or capital equipment.
The Beauhurst platform includes comprehensive data on those grants awarded by bodies including Innovate UK, H2020/FP7, Scottish Enterprise, the Development Bank of Wales and Invest Northern Ireland.
Featuring on a selected high-growth list is an indication that a startup has huge potential, as they often require self reporting on financials that don’t need to be filed to Companies House.
By ‘selected high-growth lists’, we mean lists that validate the ambition and growth prospects of featured companies.
An eligible high-growth list must be focussed on high-growth, high innovation, or ambition, have a selective application process and be completely free for the featured companies. This includes high-profile lists such as the London Tech 50, 1000 Companies to Inspire Britain, and FT 1000.
Our recent report on the country’s most valuable companies, produced in collaboration with Singer Capital Markets, found that 59% out of the top 200 businesses in the UK had hit our high-growth list tracking trigger.
How to use Beauhurst to discover, track and understand companies
Cut down on prospecting time
Finding these companies is not always straightforward, but Beauhurst’s Advanced Search tool allows you to find those startups which are showcasing great potential. Our data team has already tagged every company by sector, size, location and more, making it easy for you to search across key company characteristics. It’s also possible to search across events, such as fundraising rounds and accelerator attendances. This allows you to build a perfect prospect list in seconds. Then, every week, you can receive a list of new companies that meet these criteria.
The search tool is flexible, allowing you to be as specific or as broad as your circumstances require. For example, if you’re looking for a list of UK-based tech companies which have reached one of our tracking triggers for high-growth, you would be greeted with a list of 17,000 businesses. Alternatively, your search can be more tailored to your industry, allowing you to find companies that are within both the e-commerce and financial services sectors, or mobile apps centered on improving mental health and well-being, and have received equity funding in the last few weeks.
Approach companies at the perfect time
To increase your chances of converting an email to a meeting, you need to approach prospects at the right time. By monitoring intent signals, like news features, funding rounds or key hires, you can time your approach perfectly, and book more meetings with fewer touch points.
Our Collections feature allows you to monitor your prospects’ developments without any heavy lifting. Get notified when there are any new developments, and use this as a trigger to get in touch. You can amend any notifications through the platform so they arrive as frequently as you like—you can even pick which days you’d like to receive them.
Build authority and prepare for client-winning meetings
We all know that poor preparation means poor performance. Beyond helping you identify prospects, Beauhurst is a one-stop shop for everything you need to know going into your first meeting. Who runs the business? What are the key events they’ve been through this year? How fast are they growing?
Beauhurst provides thorough data on all the companies that have hit any of our tracking triggers. You can see a comprehensive timeline highlighting all key events achieved by each company, alongside news articles, transactions and pandemic insights. Using machine learning, the platform also analyses the company you are looking at, and suggests a series of similar companies that might also suit your search, or act as competitors to your prospect.
We also provide a comprehensive outline of a company’s leadership team, including the business emails and Linkedin profiles, giving you open access to the fastest-growing companies in the UK.
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