The Government’s Industrial Strategy aims to increase national productivity, largely through greater business investment and stronger urban economies. After several years of declining equity finance deals, more new start-up companies that secure equity finance and grow more quickly are a priority for the Industrial Strategy, especially in the underperforming large cities outside London.
International entrepreneurs can play a role in increasing equity finance nationally and in specific places. Foreign nationals are disproportionately represented among founders of high-growth businesses. This is why the Government has recently announced an expansion of the Government’s Global Talent Taskforce to attract entrepreneurs who could create jobs and businesses.
But what does the role of international entrepreneurs in founding high-growth businesses have to do with cities?
International entrepreneurs are more likely to be in London, Cambridge and Oxford
Figure 1 shows the share of equity deals by the nationality of the firm founder(s) between 2020 and 2024. If a firm has at least one founding director with a non-UK nationality, the firm is classified as “international”.
By this definition, about 38 per cent of equity deals across the country have backed firms with international founders. Since foreign citizens account for less than 10 per cent of the UK population, they are overrepresented among founders of equity-backed firms. And in London, Oxford and Cambridge – leading cities for equity finance – roughly half of all equity deals involve a foreign founder.
Figure 1: About 40 per cent of firms have at least one entrepreneur with a foreign nationality
But this share varies across geographies. In the nine large cities outside London and in other small cities, the shares are about a quarter.
This has two implications. First, as other research suggests, firms with international founders play a significant role in creating businesses that attract equity finance.
But second, the effect of these international founders is not geographically even. London is benefiting from them much more than large cities, which partly explains the differences in equity finance.
Firms founded by international entrepreneurs tend to get higher-value equity deals
International founders are not only more likely to establish equity-backed firms, but also tend to secure higher-value deals.
Figure 2 shows the average equity deal value by the nationality of the firm founder(s). Across the UK, firms with international founders receive about twice the average deal value of firms with only domestic founders (£19 million versus £9 million).
Figure 2: Firms with international entrepreneurs tend to get larger equity deals
The difference between international and domestic founders appears to be largest in London and other large cities. In both cases, deals involving international founders are roughly twice as valuable as those involving only domestic founders.
For London, these founders are obtaining the largest deals in the country and leading the national equity finance market. For large cities, which struggle to support businesses that can secure the highest-value deals, equity deals with an international founder secure a higher value than London-based firms with only British founders.
Implications for policy
The quality of founders is a key factor in the growth of their businesses. These results show British cities are successfully attracting high-quality entrepreneurs from across the world.
But the Government should recognise that international entrepreneurs are attracted to good business environments. This is why they tend to start businesses in London and Oxbridge, where firms tend to perform well. So, beyond new immigration rules, the Government must make more places better for businesses.
In the short term, this means that the Government should not take London for granted. London is the most important centre for international entrepreneurs by far. If the Government wants the “brightest and best” to come to the country, a prosperous London is central to its appeal.
But the city has not kept up with its international peers, and its productivity growth has been stagnant. The Government needs to do more to improve and maintain London’s economic performance and global status.
At the same time, central and local leaders should try to make the other large cities more attractive to international entrepreneurs. This would both make the UK more attractive to these entrepreneurs overall and mitigate the underperformance of large cities in equity finance.
Attracting more international entrepreneurs requires better business environments in these cities, including better business support and commercial property. But, more generally, the Government should prioritise the productivity growth of these places and unlock their currently untapped potential as locations for nationally significant investment by businesses.