The Supper Club and supporting partners BGF, finnCap, and Octopus Investments have produced a new guide to help entrepreneurs understand how best to use external funding to grow their businesses.
The rise of equity crowdfunding, peer-to-peer lending and the Enterprise Investment Scheme have driven a startup boom, but too few founders are using debt and equity to scale.
At The Supper Club’s Foresight event on The Future of Finance in March, low awareness of the options and limited understanding of how to use them were cited as contributors to this poor appetite for external funding.
While scaleups and high growth small businesses (HGSBs) have a disproportionately high impact on economic growth, they still represent a small proportion of the 5.7 million UK firms.
Latest data from the Scale Up Institute (SUI) found that there are 35,210 scaleup businesses – which are generally defined as those with more than 20% annual average growth over a three-year period, an annual turnover of between £1 million and £20 million, and more than ten employees.
The SUI’s last survey of UK scaleup leaders found that only 28% report using equity finance and a mere 13% plan to use it soon. Boosting the population of UK high growth firms by just 1% could create an additional 238,000 jobs and add £38bn to GVA within three years, according to the SUI.
To dispel some of the myths and misconceptions of debt and equity while helping scaleup founders and CEOs to navigate the funding landscape, The Supper Club and its supporting partners have produced a new guide – Way to grow: How funding can accelerate scale.
This comprehensive guide presents insights from members who have used different types of funding across the scaleup lifecycle of an entrepreneur, with advice on how to work with different types of lender and investor – from angels to family offices and venture debt to venture capital.
“Innovation has driven a funding boom, but the UK still lags behind the US where finance seems to be more abundant, less risk averse, and prepared to wait longer for a return on investment,” says Alex Evans, Programme Director of The Supper Club.
“While the Patient Capital Review is addressing part of this, the UK funding industry needs to convince founders that it is more patient and can offer valuable support beyond capital. We hope our guide will encourage more to take advantage of unprecedented levels of funding to take their businesses to the next level.”
Stephen Welton, CEO of BGF comments: “It’s still a cottage industry. There is still a lack of scale-up funding and only 31,000 scale-up businesses. If we’re serious about creating giants we need a bigger pool of capital.
“There is £250 billion locked up in pension funds that, if deployed, could be contributing to the SME economy. We need to create SME investment as an asset class, not in single companies but in a pooled risk vehicle.”
Chris Hulatt, co-founder, Octopus Group comments: “The UK still lags behind the US in the availability of growth capital to support entrepreneurs and deliver scale. We firmly believe that pension funds are key to plugging this gap.
“If they allocated only 1% of their capital this would unlock billions, making a material difference to high growth businesses across the UK, and the country’s economic growth.”
Sam Smith, founder and CEO of finnCap comments: “The pool of capital available to scaling private businesses has deepened significantly; VC and PE are no longer the de facto choice for high-growth companies seeking funding. The question now is not so much about making sure that you have access to enough capital, but rather that you have access to the right kind of capital which is best suited to your equity story.”