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AI and creative technology scaleups: less talk, more action Contents

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Chapter 1: Introduction

Background to our inquiry

1.In October 2024, the Government published its industrial strategy Green Paper, Invest 2035. The document sets out a 10-year plan aimed at supporting investment in eight “high-growth sectors”, as part of the Government’s overall ambition for economic growth.1 Two of these fall within the remit of this Committee: digital and technologies, and the creative industries.2

2.Our previous reports on the creative industries and large language models recognised the existing economic contribution of domestic creative and artificial intelligence (AI) businesses, as well as the opportunities for further growth they present.3 We concluded that the Government “should take better advantage of the UK’s startup potential”, and remove barriers that limit the ability of these companies to “grow and scale in the UK”.4 We launched this current inquiry in September 2024, with the aim of examining in greater detail the barriers faced by UK scaleup companies in the AI and creative industries sectors, and what could be done to address them.5

Startups, spinouts and scaleups

3.The term ‘scaleup’ is used to differentiate between ‘startups’—new enterprises that seek to develop novel solutions to market gaps—and more established businesses that are growing at pace.6 ‘Spinout’ companies are startups “that are created based on intellectual property (IP) generated through a university’s research.”7

Box 1: Scaleups and SMEs

While there is no single established definition of a scaleup, the Organisation for Economic Co-operation and Development (OECD) defines these as: “enterprises with average annualised growth in employees (or in turnover) greater than 20 per cent a year over a three-year period, and with 10 or more employees at the beginning of the observation period.”8 The 2014 Coutu report, a large-scale review of the impact of scaleups on the UK economy, argued that this definition is designed to identify the most innovative firms by using rapid growth as a proxy for innovative products or business practices.9 The Council for Science and Technology suggested that the term ‘scaleup’ can be used interchangeably with ‘high growth’.10 Other definitions place greater emphasis on market valuation or company size.11 Some scaleups are small and medium-sized enterprises (SMEs), businesses with fewer than 250 employees. SMEs are further delineated as follows: micro businesses: fewer than 10 employees and an annual turnover under £632,000; small businesses: fewer than 50 employees and an annual turnover under £10.2 million; and medium-sized businesses: fewer than 250 employees and an annual turnover under £36 million.12

4.The Confederation of British Industry (CBI) has noted that “scaleups are found in every sector of the economy, in all parts of the UK and can be both young and old companies”.13 A 2024 review from the ScaleUp Institute estimated that scaleups contribute £1.45 trillion to the UK economy, despite making up only 0.6 per cent of UK businesses. It also identified that they generate an average of over £449,000 turnover per employee; employ more than 3.2 million workers; and are five times more likely than other firms to export.14

Areas of focus: AI and creative technology

5.A 2023 report from the Social Market Foundation categorised AI and the creative industries as areas of the UK economy “where the potential of scaleup firms is greatest and growth is most achievable”.15 The Government’s Artificial Intelligence Sector Study 2023 identified more than 3,000 AI companies in the UK, of which 96 per cent were SMEs. It found that they generated more than £10 billion in revenues, employed more than 60,000 people in AI-related roles and contributed £5.8 billion in gross value added (GVA).16 According to Tech Nation, the UK has produced 20 AI unicorns17 to date, with four new AI unicorns emerging in 2023–24 alone.18

6.There are, however, indicators in the AI sector study to suggest that AI SMEs looking to scale in the UK face challenges:

• between 2022 and 2023, while the share of large AI companies remained constant, the number of small and medium-sized companies declined;
• the share of employment within small and medium-sized AI companies fell in 2023;
• internationally owned companies accounted for almost half of AI-related revenues (47 per cent) and one third of AI employment.19

7.In January 2025, the Government published the AI Opportunities Action Plan, produced by tech entrepreneur Matt Clifford, alongside its response accepting (or partially accepting) all 50 of the recommendations outlined in the plan.20 The plan acknowledged the central role that homegrown AI companies will play in positioning the UK as a global leader, but did not provide a detailed assessment of how these startups and scaleups can be supported to achieve their full potential. While the timings of our inquiry meant we were unable to take evidence on the plan itself, we have assessed the extent to which it addresses the barriers faced by AI scaleups against the evidence we had already received.

8.The Government’s response to the action plan described AI as the “defining opportunity of our generation”, and stated its responsibility to “make sure that Britain maintains its position as a world leader”.21 Evidence to this inquiry characterised AI as “a technology of national importance” that is “sure to underpin growth and prosperity for future generations”.22 We heard that the consequences of falling behind in this area include decreased global competitiveness, weaker economic prospects, a potential “brain drain” of talented individuals and risks to national security.23

9.AI development is highly relevant to the other area of focus of this inquiry: creative technology, or ‘createch’. Firms working in this area are “creative businesses where the development of new technologies or the adaptation of existing technologies in a novel way is a significant part of their business”.24 Examples of createch include video games, immersive experiences (including virtual and extended reality) and visual effects.25 A 2020 report outlined that createch was “already an important contributor to the economy”, and estimated that it could “account for nearly 40 per cent of employment in the creative industries by 2030”.26

10.Our creative industries report concluded that “much of the growth potential” of the sector “lies in subsectors that combine technology with creativity”.27 We were persuaded that “the UK’s strengths here are particularly striking.” Evidence to this inquiry reiterated this. We heard that createch is increasingly seen as “a new and vital subsector with immense growth potential”.28 In addition, the UK is “well-positioned to capitalise on this emerging field as a world-renowned powerhouse for the creative and technology industries.”29

11.As part of our inquiry, we spoke to a number of CEOs and founders with experience of growing AI and createch businesses. We also heard from witnesses representing venture capitalist firms, trade organisations, funding bodies and the Government, and received more than 60 pieces of written evidence. We are extremely grateful to all who contributed.

12.We heard consistently that while some of the challenges faced by AI and creative technology scaleups are unique to those sectors, most barriers faced by technology companies looking to grow are general and cross-cutting. Indeed, a recent inquiry from the House of Lords Science and Technology Committee identified many of the same barriers discussed in this report, despite focusing on a completely different sector.30 Chapter 2 of this report therefore addresses the broader landscape for scaling up in the UK, and how we could remove common obstacles to ensure we do not fall behind in enabling homegrown technology firms to scale. We discuss the specific issues facing AI and creative technology scaleups in Chapters 3 and 4.

13.The industrial strategy Green Paper sets out the need for the Government to be “clear-eyed about the sectors which offer the highest growth opportunity for the economy and businesses, including where the UK has existing and emerging strengths.”31 It is right to identify the technology and creative industries sectors as two such areas. We welcome the statement from the Government that the findings of this inquiry will inform the sector plans that are currently being developed for these.32

14.The evidence we heard makes clear that, within these sectors, AI and createch firms deserve particular attention. These are areas with huge growth potential and on which the UK has strong foundations to build. We hope that our report will persuade the Government to be ambitious in its approach for these kinds of scaleup, ensuring that the UK’s most innovative AI and createch companies receive the recognition and support they need and deserve.

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