This week, the second Wales Start-Ups awards were launched to not only celebrate the achievements of new businesses across our nation but to help identify those entrepreneurs that could make it big in the future.
Indeed, all of last year’s finalists showed that not only are start-ups in Wales growing but they could really make a difference to the economy over the next few years.
But many of those entrepreneurs at the 2016 awards will surely be redoubling their efforts this week following the announcement that Improbable, a business started by three university graduates only five years ago, has raised £390 million predominantly from a Japanese investor.
Currently employing over 200 highly skilled staff, the company develops technology that enables the building of virtual worlds in the cloud, with potential applications ranging from massive multiplayer games to simulations of vital infrastructure such as transport systems.
As a result, Improbable has become one of the few UK start-ups to achieve the so-called ‘unicorn’ status, namely having a valuation of over $1 billion. Such firms are named after this mythical creature because they are a rarity and only five years ago, there were only half a dozen such start-ups that had reached this status.
Since then, their numbers have grown to nearly 200 firms globally and that are collectively valued at £523 billion. The most valuable is Uber, the online taxi company that, in only four years, has reached a valuation of over £50 billion.
Whilst the majority are located in the USA, China is quickly catching up with over a quarter of unicorns based there. In Europe, there are only 20 unicorns and whilst there have been some activity in countries such as France, Germany and Switzerland, the UK remains the primary location for these billion dollar firms.
In total, eight British businesses have reached this milestone since 2015, including the fintech firm Funding Circle and the beer pioneers Brewdog.
So what is behind this growth in unicorn firms?
A recent article in Forbes Magazine suggested that investors, with few places to put their money during an era of near zero interest rates, are fuelling the growth in unicorns as they look for better returns.
Not only are venture capitalists investing into such firms but larger mutual funds, which tend in put their money into safer stock, are buying into start-ups. There is also the fact that multinationals across the World are sitting on massive cash mountains which they are beginning to use to buy up companies, giving investors an expectation that their company could be the next WhatsApp, which Facebook recently bought for £15 billion.
Certainly much needs to be done in Wales to ensure that those start-ups that may have the potential to scale-up considerably are given the right support to do so.
That is why it was not surprising to find that the Institute of Directors (IOD), in response to the forthcoming general election, has urged all the political parties to support young businesses in terms of finance and access to talent.
The good news is that we are already talking about an increasing number of new firms in Wales that could, with the right financial support, become unicorns over the next few years. The fact that start-ups such as Amplyfi, Sure Chill and DevOps Guys are being looked at carefully for their future growth potential says a lot about the increased confidence within the Welsh entrepreneurial ecosystem, especially around Cardiff.
However, in order to take them to the next level, there does need to be a more active venture capital market within Wales and the Welsh Government, or potentially the City Deal regions, need to incentivise experienced investors to come into Wales to ensure that these amazing firms are given the capital to fulfil their potential.
Certainly, it cannot be good for the high technology sector if only one fund - from Finance Wales - accounts for the vast majority of venture capital funding into Welsh business.
Therefore, getting more potential entrepreneurs to take the plunge into creating a business is critical for the development of any nation given that various studies have shown that new businesses are responsible for the majority of new jobs in an economy.
As the inaugural Wales Start-Up Awards showed last year, there are some fantastic ventures within our entrepreneurial community that are already impacting on their sector but more could, and should, be done to help these firms to realise their potential, grow further, and become real disruptors within their sectors.