Urgent action is required to close the UK’s growth capital gap, according to a report released today by Innovate Finance, the ScaleUp Institute and Deloitte
The report, The Future of Growth Capital, stresses that closing the emerging £15bn gap will provide opportunities for aiding the UK’s economic recovery post-Covid, generating future prosperity and boosting regional economies, productivity, innovation and internationalism.
Growth capital refers to the financing that enables scaling innovative companies, both young and established, to reach maturity.
The gap — the difference between demand for and supply of growth capital — stood at £5bn-£10bn a year before the Covid-19 crisis. The pandemic has significantly exacerbated the issue and effectively doubled the gap, with it now reaching £15bn.
The report lays out five specific and practical recommendations to tackle the long-standing, structural problem of a lack of available capital for scaleup companies.
The recommendations are:
1. Create a ‘National Blueprint for Growth’ that delivers a strategic joined up approach to support and champion more consistent and effective economic growth across all regions and sectors
2. Accelerate the unlocking of Institutional and Corporate Funding through changes in legislation and organisation that crowds in the existing significant private sector capital that can make inroads into closing the growth capital gap
3. Expand and build upon the British Business Bank (BBB) by strengthening the regional presence of the BBB with empowered decision making deployed under a national framework, and continue the developments of its products along with Scottish Investment Bank (SIB), Development Bank of Wales and Invest NI
4. Expand the role and scale of Innovate UK and its direct deployment of innovation capital to our most innovative, early stage and scaling businesses
5. Create a “Future Opportunity Fund” to develop diverse sectors and impact investing potential that is focused on emerging, socially inclusive markets, including the carbon net-zero economy
There are a number of potential benefits from closing the growth-funding gap and laying to rest the long-term structural issues identified in the report.
These include a 10-20% boost in business investment, doubling the number of scaleups in the UK and supporting levelling-up objectives delivered through strong growth across all regions.
The UK’s 33,860 scaleup businesses constitute a critical portion of UK small- and medium-sized enterprises (SMEs) and contribute £1 trillion to the UK economy annually. These scaleups represent 50% of the SME economy and are twice as likely to innovate and have international businesses than their peers.
Irene Graham OBE, CEO of ScaleUp Institute, comments: “Scaleup companies are key to economic recovery. They make a significant contribution across the country in every locality and sector. As this report highlights, even through the Covid-19 period, they remain highly innovative and are still investing in R&D and job creation. As we seek to build back better we must be bold in addressing our scaleup challenges and the widening gap in long term patient capital.
“We believe that the combination of approaches set out in this report can finally solve long standing growth capital issues and make significant inroads to the leveling up agenda. As this report emphasises, the public and private sector must work together in a collaborative effort to deliver the step change required.”