Corporate Finance » The challenge for firms seeking to raise their game

The challenge for firms seeking to raise their game

While there is plenty of appetite for expansion, British companies have to battle against various hurdles, says Sam Smith- CEO of AIM adviser and broker finncap

Britain’s reputation as a place to create and launch a business is one of the best in the world and well deserved. Little wonder too. Last year, 414,000 start-up businesses were launched. Such a record of success is one of the reasons the UK ranks third in the OECD for start-ups but despite this the UK falls to 13th when it comes to supporting them to scale up. Our just published report, Understanding the Scale-Up Challenge outlines the issues faced by scale up businesses and our Ambition Nation Summit in London this week will see further debate and discussion about how to help scale-up businesses realise their potential.

Fewer than 3% of start-ups survive for longer than a decade. While efforts to provide greater support to scale-up businesses are being made, there are clearly issues still to be addressed if innovative, young companies are to grow in line with their ambitions.

The problem is not the extent of entrepreneurial activity, but the ability to turn that activity into high-growth scale-ups. Research conducted by the Treasury last year suggested just one in 10 UK start-up firms that had received seed funding went on to later stage fourth round investment compared to one in four US firms.

This is potentially impeding UK economic growth. Research suggests if only an additional one percent of fast-growth/scale-up businesses in the UK were supported in their scale-up ambitions an extra 150,000 jobs and some £225bn would be added to the economy.

As it is, scale-up businesses already account for some 3.5 million jobs, create 3,000 jobs a week and account for 20% of all jobs created in the UK. Meanwhile, 60% are based outside London and are instrumental in making our regional economies work harder. Scale-up businesses are fast growing too, 77% expect turnover growth in the coming year to exceed 20% and 52% expect to increase the number of people they employ by more than 20% too.

Our own report found 52% of scale-up businesses felt they had fewer funding options than start-ups, while over 60% felt they received less Government support than start-ups. Frustratingly, 65% of companies in the UK said they were looking to scale up in the next 12 months and more businesses said they were looking to scale-up now, than compared with 12 months ago.

Barriers  to growth

The research findings also revealed concerns about the increased challenges and complexity around the process of securing larger levels of investment. Some 60% of businesses said they were looking for more help to scale-up their business than they were in the previous 12 months. But at the same time 70% of scale-up businesses complained there was not enough practical guidance to help them navigate what is often a complex funding landscape.

Ensuring a greater flow of scale-up capital is crucial to the jobs and economic growth of the future and solutions are being put forward to address the concerns of scale-up businesses. A University of Cambridge report recently recommended increasing the number of UK venture capital funds that are sufficiently large to finance scale-ups.

As the Scale-up Institute notes the majority of scale-ups are already international and hungry to do more. So growing the number of experienced UK investors with in-depth sector expertise but also strong international networks would clearly be beneficial.

Other suggestions include developing a UK venture debt market to complement equity funding, promoting the London Stock Exchange as the leading pan-European stock market for scale-ups and developing new approaches for creating liquidity in private company shares.

Some of these ideas will be no doubt be debated this week at the finnCap Ambition Nation Summit, which will bring together chief executives from high-profile growth businesses, as well as senior corporate executives, advisers, venture and private equity professionals in London this week. They include David Bellamy, chief financial officer of PureGym; Edward Perry, Co-founder of Cook; Oz Alashe, chief executive and founder of CybSafe and Bob Woods, Co-founder Mattioli Woods among others.

Few scale-up entrepreneurs lack ambition. And with help they can make an even more significant and positive contribution to the growth of the UK economy. Since finnCap was founded in 2007 we have provided around £3bn of funding to help growth businesses execute their expansion plans. Through our finnCap Ambition Nation Summit we hope to be able to share our experiences and those of other business leaders to help come up with the solutions that will enable the next generation of businesses looking to scale up to achieve their goals and provide that invaluable drive to power the UK’s economic growth.

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