Staying ahead of the economic curve in entrepreneurship

Written By Lola Anaid

Have you ever been asked to perform a PESTLE analysis? Naturally, I had no idea what a PESTLE was… other than it went with a mortar and every Cuban kitchen had to have one at arm’s length.

Turns out a PESTLE analysis can be very useful for small (and big) companies.

A PESTEL analysis is an acronym for a tool used to identify the macro (external) forces facing an organisation (See more).

Photo credit: https://upmetrics.co/blog/pestle-analysis

I won’t focus on the entire PESTLE… But here are some of the economic lessons I learned earlier this year through my Board Observer role at OBN, which could be of use to my fellow innovators and entrepreneurs:

For emerging entrepreneurs, especially in the life sciences sector, 2024 holds a variety of critical factors to consider for staying ahead in a rapidly evolving economic landscape. Here are some key takeaways and strategies for entrepreneurs to navigate the upcoming year effectively:

  1. Stay Informed on Economic Indicators: With the anticipation of elections in both the US and UK, significant shifts in economic policies affecting the life sciences sector could occur. Entrepreneurs should monitor indicators such as GDP growth and healthcare expenditure to anticipate and adapt to changes that could impact investment and funding availability.

  2. Monitor R&D Spending Trends: Research and Development (R&D) spending is a vital indicator of the sector's health. An increase in both public and private R&D expenditure suggests a favourable environment, while a decrease could signal potential challenges. Keeping an eye on these trends can help entrepreneurs align their innovation strategies accordingly.

  3. Leverage Venture Capital Activity: The amount of venture capital investment is a strong indicator of the sector's growth potential. Despite global economic downturns, the UK life sciences sector has remained an attractive destination for venture capital, indicating sustained investor confidence. Entrepreneurs should consider this when exploring funding options.

  4. Prepare for IPO Opportunities: The initial public offering (IPO) market has experienced a slowdown, making it essential for companies considering going public to be well-prepared. Entrepreneurs should focus on building a strong company narrative, realistic valuation, and exploring alternative funding sources.

  5. Consider Global Opportunities: The UK's trade balance in pharmaceuticals and medical devices highlights the importance of international competitiveness. Entrepreneurs should not limit their market focus to the UK alone but explore opportunities in other regions as well.

  6. Adapt to Inflation and Employment Trends: Inflation rates and employment trends within the life sciences sector can affect operational costs and talent acquisition. Entrepreneurs should develop strategies to mitigate these challenges, ensuring sustainable growth and innovation.

  7. Utilise Government Support and Initiatives: Significant government investments and initiatives aimed at bolstering the life sciences sector, such as the £650 million growth package and support for early-career researchers, provide valuable opportunities for startups and established companies. Entrepreneurs should take advantage of these initiatives to accelerate their growth and innovation efforts.

GDP Growth

The overall growth of the economy can influence government spending and investment in life sciences. A strong economy might mean more funding, whereas a weaker economy might lead to the government cutting back on spending. 

United Kingdom GDP Growth Rate

“Planned total health spending will increase to £192bn in 2024/25 but inflation means that, on current plans, this would equate to a small increase of 0.6% in real terms compared with 2023/24 and a real-terms reduction in funding compared with 2022/23.” (Health.org.uk)

Research and Development Spending

Both public and private R&D expenditure are key indicators of the health of the life sciences sector. An increase can signal a favourable environment, while a decrease may suggest forthcoming challenges.

According to the latest Office for National Statistics (ONS) release, the total expenditure on R&D that was performed in the UK was £66.2 billion in 2021. The breakdown is as follows:

  • The business sector accounted for £46.9 billion, which is 71% of the UK total.

  • The higher education sector accounted for £14.9 billion, which is 23% of the UK total.

  • The government sector, including UK Research & Innovation, performed R&D worth £3.4 billion, which is 5% of the UK total.

  • The private non-profit sector performed the least amount of R&D at £1.0 billion, which is 1% of the UK total.

Venture Capital Activity

The amount of venture capital investment in the life sciences sector is a strong indicator of its health and potential for growth. A rise in venture capital indicates investor confidence, while a decline could signal a tightening of resources.

For the latest details on investments and support for the life sciences sector, the BioIndustry Association (BIA) offers reports and insights, while the British Business Bank provides information on its backing of innovation in life sciences.

“Despite the global economic downturn, UK life sciences companies secured £1.25 billion in venture financing, constituting 11% of the total venture capital investment in UK companies this year. This share has been maintained even amid the decline in investment from the remarkable highs of 2021, suggesting that the decline in investment is likely due to economic conditions and global events rather than industry-specific reasons. The sector therefore remains an attractive and reliable destination for venture capital investments.” (BIA)

The situation with the IPO market can be summed up like this:

In the past years, fewer companies decided to go public in the UK, and those that did raised less money than before. This slowdown was partly because of tricky economic conditions, like prices going up and the cost of borrowing money increasing, which made investors more cautious.

What does this mean for you as an entrepreneur with an eye on growth?

  1. Be prepared: If you're thinking of taking your company public, it's more important than ever to be ready to move when the time is right. The IPO "windows" could open briefly – that means there might only be short periods when the conditions are favorable for an IPO.

  2. Solid story: You'll need a strong story about what your company does, how it makes money, and its potential for growth. Investors will be picky, and they’ll want to see a track record of success and clear future profitability before they put their money in.

  3. Valuation matters: Be realistic about how much your company is worth. Over the past couple of years, there's been a shift, with investors focusing more on the actual value and performance of companies rather than just potential.

  4. Alternative options: Remember, going public isn't the only way to raise capital. Look into other funding options too, like venture capital or partnerships, which might be more suitable in the current economic climate.

  5. Stay informed: The market can change rapidly, so keep an eye on financial news and trends. This way, you can plan better for the future and time your decisions wisely.

  6. Potential for recovery: Although the IPO market has been quiet, there's hope that it could pick up. If economic conditions start to stabilize and investors become more confident, we might see more IPO activity.

  7. Think global: As much as we’d hate to see you go, the UK isn't the only market. Depending on your business, you might find opportunities elsewhere.

As you grow your business, you may eventually reach a point where an IPO makes sense. By then, hopefully, the market will be more welcoming. Until that time comes, focus on building a strong, profitable business with a compelling narrative that will attract investors, wherever you decide to raise funds​​​​​​.

A few notable life sciences companies have successfully gone public in early 2024, signalling potential opportunities for others considering this route (see Xtalks).

Tim Davis, Regional Head of UK Primary Markets at the London Stock Exchange, spoke at BioTrinity 2024, organized by OBN, about the resilience and attractiveness of London as a listing venue amidst global uncertainties. He highlighted that despite significant global challenges such as the ongoing war in Ukraine, unpredictable actions from leaders like Putin and Trump, and volatility in the Middle East, the UK remains largely insulated on a day-to-day basis. Davis pointed out that these global issues create nervousness among investors, leading to cautious behaviour. However, he noted positive signs of recovery and momentum, indicating that the period of investor redemptions has slowed or stopped.

Inflation Rates

Inflation can affect the cost of research, development, and production in life sciences. High inflation may lead to increased operational costs and reduced purchasing power.

UK Inflation rate


source: tradingeconomics.com tradingeconomics.com

Employment Rates in Life Sciences

Employment trends within the sector can indicate its current health and predict future growth or contraction.

UK Employment Rates


source: tradingeconomics.com Investing.com offers real-time streaming quotes of each constituent stock in the FTSE 350 Pharmaceuticals & Biotechnology Index.

Government Budget Allocations

Changes in budget allocations to life science sectors, including education, research, and health services, are direct indicators of the government’s support.

Chancellor reveals life sciences growth package to fire up economy

A £650 million war-chest to fire up the UK’s life sciences sector and drive forward the government’s priority to grow the economy was unveiled by the Chancellor of the Exchequer Jeremy Hunt on 25 May 2023.

Science, Innovation and Technology backed in Chancellor’s 2023 Autumn Statement

£500 million investment in artificial intelligence (AI).
Five new Quantum Missions launched to promote technology.
£4.5 billion in funding for British manufacturing to increase investment in eight sectors across the UK.

Women-led high-growth enterprise taskforce
(Meeting minutes last updated Feb 2024)

The purpose of the taskforce is to increase the number of women-led high-growth businesses, with a particular focus on regions outside of London. The £250 million funding pot will come from a combination of pension funds and other private sector investors, as well as government monies.

Spring Budget 2024 life sciences announcements (March 2024)

The recent Spring Budget introduced several significant initiatives aimed at boosting the UK's life sciences sector:

  1. Venture Capital-Pension Fund Consortium:

    • A pioneering venture capital-pension fund consortium has been launched to drive investment in life sciences.

  2. Pensions Value for Money Reforms:

    • Reforms to the pensions Value for Money framework have been announced, with the goal of enhancing long-term investment outcomes.

  3. R&D Tax Relief Advisory Panel:

    • To streamline the R&D tax relief process, an expert advisory panel will be established.

  4. AstraZeneca Investment:

    • AstraZeneca has committed to a notable investment of £650 million, further strengthening the UK's life sciences industry.

  5. Support for Life Sciences Manufacturing:

    • New government investments have been pledged to support life sciences manufacturing.

  6. Focus on Talent Development:

    • There is an increased focus on nurturing talent, with additional funds allocated to support early-career researchers and apprenticeship programs.

These measures collectively aim to fortify the UK's position as a leading hub for life sciences innovation and business growth. For a detailed exploration of these announcements, please refer to the BIA website.

Science and Technology Framework (Last updated 9 February 2024)

Investment in R&D reaching £20bn per year by 2024/25.

For entrepreneurs and businesses in the life sciences sector, these developments suggest a favorable environment for growth and innovation, backed by government support and funding. It's an opportune time for startups and established companies alike to leverage these initiatives for their strategic advancement.

Trade Balance

The trade balance is a measure of the difference in value between a country's imports and exports over a certain period.

If a country exports more than it imports, it has a trade surplus.
If a country imports more than it exports, it has a trade deficit.

The trade balance is an essential indicator of a country's economic health and can affect exchange rates, levels of foreign reserves, and overall economic policies. The trade balance in pharmaceuticals and medical devices can provide insights into the international competitiveness of the domestic life sciences sector.

In 2023, the UK imported £25.4 billion worth of medicinal and pharmaceutical products, leading to a trade deficit of approximately £700 million. (ABPI)

Creating trade policy for a life sciences superpower by the Association of the British Pharmaceutical Industry (ABPI)

Disclaimers:
* I’m no economics expert…

Join the dialogue—reflect, share your tales from the trenches, and by all means correct me if you spot any erroneous information.

Lola Anaid