The foundations of strategic dealmaking across innovation rely on future-focused insight

Daniel Jacob, managing partner of independent specialist London City law firm Marriott Harrison, discusses opportunities in the innovation market to bridge the transatlantic gap.

Whisper it, but there is positivity in the air when it comes to parts of the UK and Europe’s growth economy. As a firm that focuses on the innovation space, backing growth businesses, we often see the first signs of what is to come before it is seen in more established markets. After one of the worst bear markets for M&A in a decade, we are beginning to see – through our client base – an increase in activity. Many scaling companies that would not have thought about going to market a year ago are now doing so.

As AI begins to touch almost every aspect of business, there is a buzz across the technology industry, but this does not mean the whole market is set to take off just yet. AI has had an obvious pull, and we are seeing fast-growing areas such as deeptech, healthtech, and climate look promising – but it is less likely to pull the entire technology market up with it. The 2024 market may enter a new phase of ‘strategic dealmaking’. Rather than a return to the flood of fresh venture funding and fast-paced M&A market of late 2020 and 2021, we are more likely to see accelerated growth and exits in strategic assets. 2024 will also be the year where private equity’s decision to stick (hold on to assets for one more year) or twist (exit where they can) will drive the rest of the market. We are seeing the green shoots of this already as founders and management teams are gearing up for a busy 12 to 18 months.

UK Market – we are not out of the woods

The market will continue to pay the price of the reduced funding pipeline of 2023 and many companies are still struggling to survive the challenging period. Dealroom data shows that $21.3bn was poured into UK tech companies in 2023, a drop of 32% from 2022 and political volatility, from leadership challenges to the longer-term Brexit impact in areas such as regional funding has done little to instil investor confidence in the UK.
We do still have a government that backs growth businesses, and the chancellor Jeremy Hunt’s recent budget was clearly focused heavily on growth, encouraging UK businesses to start here, stay here, and (let’s see) IPO here. The UK is also still well ahead of its European rivals when it comes to founding and building a business. Even against some of the current headwinds, London is still seen as a keystone for international investors expanding into Europe.

The US and UK tie – a dynamic link

When it comes to international investment into the UK’s and Europe’s growth ecosystems, none is more important than the US. During the third quarter of last year, America made up around 37% of the $4.9bn of venture capital funding for British businesses. Add to this the recent decision by Andreessen Horowitz, one of the world’s best-known VC firms, to open shop in London and it’s clear to see just how invested and important American backing is for the UK and European innovation economy, especially at the later stages of funding.

Rules and regulations – crossing the transatlantic bridge

To bridge the gap between Europe and the US and understand the regulatory nuancesthat can impact the fast growth ecosystem, it is vital to have a strong presence in London. Both the EU and the UK have introduced regulations in the last few years that businesses of all sizes must be aware of, in particular small and scaling businesses. The EU has passed some of the world’s toughest AI regulations and to ensure fairness within Europe’s own AI ecosystem, early-stage companies need to be agile to changes. In the UK, the Online Safety Act also poses compliance hurdles for small businesses looking to scale, something that might impact their competitive advantage. It’s not just Big Tech that is getting caught in the regulation crosshairs.

There is renewed hope on the horizon

With positive macroeconomic trends developing (including a projected drop in interest rates), and increased optimism as we look to the rest of 2024 and beyond, having the right relationships with those who have a depth of knowledge of the UK and Europe’s innovation economy will be more important than ever. Whether it be realistic, commercially impactful advice, or an intimate knowledge of the context and work required at every stage of business growth, international expansion, M&A, and the path to exit, having the right advisers to partner with will be crucial as the market continues to evolve.