The first phase of the City Deal has largely focused on creating the conditions for economic growth, but the next should place greater emphasis on building the businesses that can take advantage of those conditions.
Cardiff Capital Region.
The Cardiff Capital Region (CCR) has committed hundreds of millions of pounds to economic development in South-East Wales and, in many respects, has adopted a more commercially sophisticated approach than the traditional regional development model, which relied largely on grants.
Its portfolio includes £50m for the Strategic Premises Fund alongside major commitments to fibre infrastructure, compound semiconductors, Metro Central and the redevelopment of Aberthaw. Importantly, a significant proportion is structured through loans and equity, allowing money to return and potentially be reinvested and its £50m Innovation Investment Capital fund invests £2m to £7m in high-growth companies.
That represents a sensible evolution in regional economic development, but it also exposes a weakness in the current portfolio. While considerable resources have gone to infrastructure, property, strategic industries, and businesses that have already demonstrated significant growth potential, far less attention has gone to creating the next generation of firms that might eventually benefit from those investments.
This is not new, and in 2020, I was asked to put forward a detailed Entrepreneurship, Productivity and Growth strategy for the Cardiff Capital Region. Its central argument was that regional development needed to focus not only on infrastructure and individual investment projects but on building a stronger entrepreneurial system across South-East Wales.
It proposed a regional business intelligence function, stronger networks between entrepreneurs, specific programmes around graduate enterprise and business growth, enterprise academies and an innovation accelerator.
It also proposed an SME Funding Challenge focused on investment readiness and access to finance, and an Entrepreneur Support Challenge recognising that founders need expertise, mentoring, seed capital, networks, and supportive communities for new businesses to survive and grow.
It was disappointing that those in charge did not take that programme forward, and six years later, the latest business demography figures suggest the underlying argument has become more, not less, relevant.
Across the ten local authorities that make up the Cardiff Capital Region, business births fell from around 7,765 in 2021 to 5,130 in 2024, a decline of almost 34%. In contrast, business births across the rest of the UK fell by around 12%. In other words, business creation in South-East Wales has fallen at almost three times the rate experienced across the rest of the country over exactly the same period.
That does not mean CCR caused the decline as business formation is affected by everything from interest rates and consumer demand to taxation and wider economic confidence but after hundreds of millions of pounds have been committed to improving the infrastructure and financing of the regional economy, a fall of this magnitude should surely lead policymakers to ask whether creating new Welsh businesses has received sufficient attention.
I am sure it will be argued that entrepreneurship activity exists within CCR and that both FinTech Wales and the Cyber Innovation Hub, which have been funded, have supported venture creation, but against an investment portfolio running into hundreds of millions, the amount focused specifically on creating and developing new firms remains relatively modest.
At the other end of the pipeline, the £50m Innovation Investment Capital fund performs an important role in providing substantial equity to companies that have already demonstrated the potential to scale. No doubt the decision to focus on established corporates has its rationale, but the question is not whether CCR should make those investments, but where the businesses capable of taking £2m, £5m, or £7minvestments in five or ten years’ time will come from if we do not invest more systematically in creating them today.
A missing layer exists between conventional business support and later-stage growth capital, and a dedicated Cardiff Capital Region Entrepreneurship Fund of perhaps £15m to £20m could fill that gap by combining intensive venture creation with investment. Part could provide pre-seed capital of perhaps £25,000 to £100,000, with a further element co-investing alongside angels and early-stage investors as firms develop.
The obvious constraint is that much of the original £495 million Wider Investment Fund has already been committed, but CCR’s increasingly evergreen portfolio means this is no longer the whole story. Money is now returning from earlier investments and becoming available for redeployment and there is a strong case for allocating part of that recycled capital to entrepreneurship rather than automatically directing it back towards another generation of property and infrastructure projects.
Other resources are also emerging through the £160m Cardiff Capital Region Investment Zone and the UKRI Local Innovation Partnerships Fund, both of which provide opportunities to support business creation, innovation and commercialisation. This means CCR has an opportunity that did not exist to the same extent six years ago and now has not only a significant portfolio of regional assets and investment funds but also an increasing stream of recyclable capital that can be used to address the entrepreneurial gap identified in 2020.
The first phase of the City Deal has largely focused on creating the conditions for economic growth, but the next should place greater emphasis on building the businesses that can take advantage of those conditions. Indeed, infrastructure, property and investment funds are only enabling mechanisms, and regional prosperity depends on the firms that use them, the people who build those firms and the entrepreneurs willing to take the risks required to create something new.
Six years after a comprehensive entrepreneurship strategy was first proposed, the argument for doing so has become stronger, and whilst CCR has invested extensively in the infrastructure of growth, it now needs to invest with the same ambition in those founders who can turn those conditions into businesses, jobs and sustainable economic value that can transform the economy of South East Wales.
