No innovation, no strategy… Why start-ups hold the key to the UK’s industrial ambitions

During the launch of the UK government’s industrial strategy last month, Peter Kyle, Secretary of State for Science, Innovation and Technology, said that tech entrepreneurs and innovators would be backed by government, so they could “create the jobs and industries of the future here in the UK.” This, said Kyle, is a long-term plan focused on investment and infrastructure to grow the economy and transform public services. But what does this mean for deep tech innovation? How will the strategy actually impact innovative start-ups and university spinouts?

The UK’s new Industrial Strategy focuses on frontier technologies, high-growth sectors, and regional inclusion – but without deep tech innovation, start-up investment, and stronger university-industry partnerships, the strategy won’t deliver the growth it promises. That’s the message emerging from those on the front lines of the UK’s innovation economy, at least. 

While the strategy provides the scaffolding, the actual structure, such as new jobs, technologies, and capabilities, will have to be built by high-risk, research-intensive companies that face long journeys to scale and survive.

The early warning signs are already here. According to the Department for Business and Trade, only 1,375 foreign direct investment (FDI) projects landed in the UK during the 2024–25 financial year, a 12% drop from the previous year and the lowest figure since records began in 2007. Sector-specific declines were particularly sharp, with a 43% fall in creative and media projects, a 20% drop in life sciences and pharmaceuticals, and a 26% decline in R&D investment.

“FDI is not just capital, it brings global talent, international partnerships, and long-term confidence,” said Dr Joe Marshall, chief executive of the National Centre for Universities and Business (NCUB). “The UK must become a more competitive and compelling destination to retain existing business investment and attract new, globally mobile partners.”

Marshall sees the Industrial Strategy’s focus on collaborative partnerships – between frontier firms and world-leading universities – as critical. But time is of the essence. “Research and innovation are global endeavours,” he added. “Strengthening investment will be essential to deliver the Industrial Strategy and realise the UK’s ambition for innovation-led growth.”

Universities UK chief executive Vivienne Stern reinforces that this is no abstract strategy, as it depends on on-the-ground capabilities.

“UK universities have forged strong partnerships with businesses across all major growth sectors and are central to developing the workforce and innovations of the future,” she said in response to the strategy announcements. “If the government wants to maximise the potential of its growth sectors, universities are essential to the success of its industrial strategy.”

The new strategy rightly identifies eight high-growth sectors, from quantum and semiconductors to AI and life sciences, as key to future productivity. It includes £6.6bn in British Business Bank funding to support start-ups and scale-ups, a £500m Local Innovation Partnerships programme to strengthen regional R&D ecosystems, and new AI growth zones to improve access to energy and planning support for AI data centres.

For deep tech start-ups, especially in places like Bristol, where clusters in AI, creative technologies, advanced materials and biotech have emerged from strong university and Catapult centre collaborations, the plan could be transformative. But only if it moves quickly enough.

Too often, these companies operate on tight runways and long R&D cycles. They don’t need cheerleading; they need smart capital, regulatory clarity, skills pipelines, and lab space. And in the race against international competition, they need it now.

Infrastructure challenges are also at the top of people’s minds. Rob Coupland, CEO of regional edge data centre provider Pulsant, welcomes government initiatives like the new AI Energy Council and designated growth zones but warns they risk deepening geographic inequalities if not rebalanced.

“The current approach lacks a nationwide perspective,” said Coupland. “There’s a danger of perpetuating a London-centric strategy that fails to reflect the diversity of the UK’s AI ecosystem. Without the input of regional businesses and edge data centre operators, the UK risks missing out on more inclusive and sustainable AI growth.”

Places like Bristol have the research base and entrepreneurial activity, but lack the hyperscale infrastructure and energy capacity needed to support scaling AI companies. The AI growth zones and related infrastructure planning must reach beyond the south east if the government wants nationwide impact.

Another foundational layer is often missing from public AI debates – semiconductors. Without access to cutting-edge chips and the materials that underpin them, the UK’s AI ambitions could stall before they scale.

“Semiconductors get a passing mention in this morning’s soft-launch of the Industrial Strategy, but they might be the key to its success,” said Philip Kaye, co-founder and director of Vespertec. “If the next industrial revolution is going to come in the form of AI factories, then UK businesses need access to the most advanced hardware possible to ensure they’re not left behind.”

Kaye argues that the UK already has world-class capabilities in semiconductor research, particularly through its universities and specialist centres. But to compete with the US, Taiwan, and China, he says, the government must go further.

“Boosting funding for this research in universities across the UK, starting with Wales, might well be the secret ingredient that keeps the UK running shoulder to shoulder with tech giants.”

It’s a reminder that AI and deep tech are not just cloud-native, they’re materials-dependent. From compound semiconductors in South Wales to quantum materials in Bristol and Cambridge, the UK’s regional assets need sustained support to fuel future industries.

Facilities like the National Composites Centre (NCC) offer a proven model of how place-based R&D infrastructure can bridge the gap between research and application. As the NCC puts it: “[the] NCC helps businesses of all sizes bridge the gap between cutting-edge innovation and industrial application, turning ideas into impact across the entire product lifecycle.”

Deep tech isn’t just about funding or infrastructure, it’s about people. And while the strategy references skills reform, many feel this remains a weak link.

Vishavjeet Sodhi, head of Heating & Cooling Business UK IRL at LG, warned that sectors like housing are already struggling to meet government ambitions due to workforce gaps.

“We need a workforce that is fit for purpose, one that can deliver on the government’s vision for the future,” he said. “More training facilities are needed to ensure the workforce is prepared to meet evolving demands, something the Industrial Strategy is aiming to achieve.”

Facilities like the National Composites Centre offer a proven model of how place-based R&D infrastructure can bridge the gap between research and application

Whether it’s installing heat pumps or deploying quantum-secure networks, the capacity to execute remains fragmented.

The strategy also signals a shift in how the UK treats data, recognising it as a “modern economic, financial, and social asset.” But that promise depends on more than infrastructure or AI compute. It hinges on the quality, governance, and accessibility of the data itself.

“In the age of AI, data isn’t just a resource, it’s the currency of innovation and growth,” said Gregory Hanson, group VP and head of EMEA North Sales at Informatica. “But unless the foundations are right, then this will never materialise.”

Hanson highlights initiatives like the Smart Data scheme, data marketplaces, and the National Data Library as major opportunities to unlock value for start-ups, government services, and citizens alike – but only if data integrity and public trust are prioritised.

“Strong privacy and security measures are non-negotiable to safeguard trust and ensure data access and sharing is always for the right reasons, by the right person, at the right time,” he said.

For AI and deep tech start-ups, which depend on access to high-quality, well-governed data to train models, spot trends, and scale products, this represents a foundational issue. Without usable data, innovation stalls, no matter how much compute or capital is available.

The government’s Industrial Strategy is a statement of intent but its success hinges on the ability to rapidly fund, empower and connect the UK’s innovators. With FDI dropping, regional capacity constrained, and execution risks rising, the question isn’t whether deep tech start-ups will benefit from the strategy, it’s whether the strategy will work without them.