Start ups may get the attention of the Crowd, but helping small business scale up is as much of a challenge for finance providers. In this sponsored post, Luke Davis, CEO of private equity house IW Capital and Co-founder of crowdfunding specialist Crowdfinders explains why more needs to be done to underpin the growth ambitions of the UK’s SMEs
In her speech at the Confederation of British Industry (CBI) on Monday, Prime Minister Theresa May highlighted that while the UK ranks third in the OECD for start-up support, it lags behind in thirteenth place for the number of SMEs that successfully scale up. In order to understand the barriers faced by ambitious entrepreneurs seeking scale up funding, the PM announced the launch of the Patient Capital Review – a treasury led investigation supported by a panel of industry experts led by Sir Damon Buffini.
The review is the second SME finance measure launched this month, being preceded by the national roll-out of the Bank Referral Scheme which connects businesses turned down by traditional banks with alternative lenders. With a renewed focus, I have every confidence that the funding gap can be closed and the full potential of Britain’s entrepreneurs can be unleashed.
‘Growing businesses are in limbo’
Eight years on from the 2008 economic crisis, the successful start-ups that benefited from the fintech and crowdfunding booms, find themselves at something of a dead end. This burgeoning collective of growing businesses – supported in their infancy stages through debt and equity crowdfunding – now find themselves in a state of limbo, too large for the level of retail-finance available on crowd-backed platforms, yet too small for institutional backing. The unfortunate shortfall has resulted in a £1bn funding gap, described by the former Prime Minister David Cameron as a “funding black-hole of missed investment opportunity.”
Given that poor access to capital is one of the key reasons as to why half of start-ups fail within the first five years of trading, a maturing crowdfunding industry must adapt to reflect the status of British business. Industry initiatives such as Race to Scale – a £100 million funding drive launched to support British scale-ups are vital to engage private investment as a contributory means to a solution, however it is of critical importance that industry measures are met with policy backed reforms.
‘Investors are keen to invest in UK SMEs’
The Scale Up Institute has estimated that unlocking the UK’s scale-up potential could create 150,000 jobs and deliver a £225 billion boost to the GVA measure of UK goods and services by 2034. Soon to operate as an independent entity, potentially outside of the single market, there exists an even greater impetus upon the post-Brexit government to support the growth of British businesses. Investors are already keen to invest in Britain’s promising scale up SMEs with over half of them considering SME investments since the EU referendum. These encouraging sentiments meet well with a critical requirement for entrepreneurs to receive much-needed growth capital, rendering them less reliant on drastically retreating institutional funding lines.
Given the commitment the Prime Minister and her government have shown so far this month to prioritise investment in growing SMEs as a core component of their post-Brexit growth strategy, I earnestly await the announcements which will be made in today’s Autumn Statement. I hope the government’s actions will speak even louder than Theresa May’s well-intended sentiments. Infrastructure across the UK needs the same level of support by way of greater trade links, greater funding for local councils and improved transport systems to connect Britain’s growing businesses with the new markets and skills which are critical to their scale up ambitions.