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Growth Capital: One Year On from the Future of Growth Capital report

One year on from the publication of the Future of Growth Capital report, we asked four leading players to discuss how the market has evolved in 2021 and obtained observations from further discussions with institutional investors.


  • Stephen Welton, Executive Chairman, BGF
  • Marcus Stuttard, Head of UK Primary Markets and AIM, London Stock Exchange
  • Erin Platts, Head of EMEA, Silicon Valley Bank UK and president of the UK Branch
  • Sam Smith, CEO, finnCap Group

What have you seen as the key trends in the growth capital market in the past 12 months?

Stephen Welton, BGF

I have been pleasantly surprised at how robust markets have been. BGF has never been busier in deployment of capital. Our investment activity stepped up both in pace and volume in 2020 compared to 2019 – and has continued to accelerate in 2021. Our pipeline has never been fuller. Equally, we have had a record level of realisations and there’s a healthy pipeline for exits in 2022.

Through that lens the growth capital market is in a pretty good place. Credit should be given to the government for its speed of action in implementing the furlough scheme and the various loan schemes, and then of course to the incredible agility of our nation’s entrepreneurs.

Erin Platts, Silicon Valley Bank

The traction, velocity and diversity of capital continues to grow. At the early stages, new company creation remains healthy. We are seeing companies going through their life stages at a faster velocity than ever; they are going from early stage to product market fit to revenue to rapid scaling because of digital acceleration and adoption. This is being driven by an increased demand from investors at the growth stage with plentiful reserves of capital to fuel scaleup businesses.

US funds continue to come over: they have participated in one-quarter of the venture rounds that have taken place in the UK this year. And that number goes up to 50% at the growth end of the spectrum. The year-on-year momentum is pretty substantial.

Marcus Stuttard, London Stock Exchange

Capital is available and there’s a willingness among institutional and retail investors to support growth. In this year to date, £2.1bn has been raised by IPOs on AIM and £4.7bn raised in follow-on issuance. That represents about 52% of all of the capital raised across European growth markets. The resilience of the markets has opened many people’s eyes to the benefits of being public and having access to a broad set of investors.

Sam Smith, finnCap

This has been a bumper period for exits and IPOs have returned. These successes and exits are really important factors for a healthy market in private growth capital investment.

Observations from institutional investors  

There is a trend for global dedicated private investment firms to raise bigger funds and increase their fundraising velocity – they are raising bigger funds and raising them more frequently. So the rate of capital deployment into these companies is increasing by three to five times. More capital is being put into pan-European growth companies.

Last year’s Future of Growth Capital report identified a £15bn gap in the provision of growth capital. How has this been addressed?

Erin Platts

Approximately $11bn of venture debt has been raised across Europe in the year to date; almost $4.5bn of that has been raised by innovation businesses in the UK.

There are several factors at play. Entrepreneurs who are on their second or third venture have become more comfortable with venture debt; they see that equity funding a business from inception to exit can be expensive and dilutive. Second, the amount of providers of debt has grown substantially. And then there is the influence of US investment coming into the UK. In the US venture debt is used in nine in ten rounds. It is used systematically; venture debt rounds are raised simultaneously with equity rounds. It is nowhere near these levels in the UK at present but as US participation in UK venture rounds continues to grow, this will change.

More companies are raising larger rounds but a rising tide doesn’t lift all ships. Some companies have continued to struggle to raise growth equity capital. I don’t think that there’s a supply issue in terms of growth equity but there’s still potentially a gap with not all companies being able to access it.

Sam Smith

The pools of capital are bigger than we have ever seen – and deals are getting larger. There is an appetite among investors to support later-stage rounds and these fundraisings are getting bigger. In the first half of 2021, more than 50 deals raised more than £50m. In addition, capital is backing disruptive sectors faster than ever so these funding rounds are getting shorter.

There’s a possibility that a gap could open in the provision of earlier stage capital – we don’t want a part of the market to be left behind.

Observations from institutional investors  

There has been a massive increase in the amounts of equity and debt capital coming to the market. Large public equity firms such as Chrysalis, Baillie Gifford, Schiehallion are building big crossover funds which provide more options for private companies to raise capital. These are permanent capital funds so there is no pressure on the companies to IPO in a particular timeframe. The availability of more capital means they can be supported as private companies for longer.

Venture debt used to be less prevalent but there is now an appetite from companies who were previously allergic to it. With growth equity in plentiful supply, they can now use venture debt to blend their total cost of capital.

The Growth Capital Report made a series of recommendations and the Government across this year has made a series of policy measures including: establishment of the Future Fund Breakthrough; launched the product finance initiative; undertaken the listing review, which in turn led to the whole markets and prospectus review; and, has kept a focus on regional gaps. What are your thoughts now? Are you encouraged by Lord Hill’s Listings Review?

Marcus Stuttard

Lord Hill’s Listing Review and the Kalifa Review on UK Fintech have had a positive impact and have created momentum. They were tangible demonstrations that the government, regulators and the wider capital markets community were listening and proposing changes to support founders and to make the funding continuum as joined up as possible. The speed of the response from the FCA and the Treasury and the desire to take swift action has also been very well received.

Sam Smith

The Listings rules will be very helpful if they encourage more tech companies to grow in the UK ecosystem, to recycle capital, to create bigger companies that generate returns and which then encourages more people to invest in smaller tech companies. The more technology companies we have in the FTSE100 and 250 Indexes builds the ecosystem and makes the UK better placed to back smaller growth companies.

Erin Platts

We have to make sure that the ecosystem creates options for innovation businesses. The holistic coverage of the listing rules is a great idea and there has been some positive progress on the dual class share listings. We’re moving in the right direction to compete with international public markets like the US.

Has there been progress on the unlocking of institutional capital and what more needs to be done in your view?

Stephen Welton

We are further forward but not sufficiently further forward. It is high up on the political agenda; in August, the Prime Minister and the Chancellor jointly signed an open letter to City institutions. The right people are thinking about it and the mindset is moving in the right direction. My concern is that the changes will be insufficient. The jury remains out.

We have to crowd in the pension funds. Given the huge investment that is required to achieve Net Zero, it’s an absolute necessity. And if we are going to make this change, there is no better time than now. Maybe the dam will break; the new Office for Investment is shining a light on this country to attract overseas sovereign capital. If these overseas investors are going to support our innovative growth companies then it’s an unacceptable anomaly for UK pension funds not to be doing so too … in scale.

Marcus Stuttard

The overall value of AIM is as high as it has ever been and liquidity has increased. There is strong UK institutional investor representation in smaller and AIM companies but it also remains important that they have access to international capital. In some of the technology stocks, more than 40 per cent of the shareholder register is North American.

What demand for growth capital are you seeing at a regional level in the UK?

Marcus Stuttard

I’ve been really pleased about the regional spread of businesses that have come through this year. There has been strong representation from the North West in particular, with companies such as musicMagpie, In The Style, Made Tech, Victoria Plumbing and Northcoders.

Technology has broken down some physical barriers: virtual investor roadshows help to reduce geographical barriers. Having a good mix of IPOs, in terms of size, sectors and regions, helps to build momentum.

Stephen Welton

We have now invested in more than 400 businesses across the UK and Ireland, so we are the most active investor in the growth economy.  I would like to see more effort made to build business clusters around our excellent universities. Exeter and Edinburgh are on opposite sides of the UK and yet both universities are in the Russell Group, for example. The UK can proudly boast 18 of the top 100 universities globally. These institutions are doing a fantastic job of nurturing talent and innovation. We need to make far more of this extraordinary pipeline of talent and ideas.

Sam Smith

We’re seeing a lot of activity in Manchester, Bristol and Scotland. Each of these areas are gaining traction with their own tech-led ecosystems.

Erin Platts

There are definitely pockets of activity in areas such as Manchester and Bristol – where we have seen great momentum – but you can’t get away from the fact that growth capital is very London-centric. Over time we could see a more dispersed coverage of capital invested, although we expect London to continue to be the lead hub.  

In capital raising, what weight is now being put by investors on a scaleup’s ESG credentials?

Sam Smith

This is a mega trend. Everyone is looking at it. Last year, two thirds of investors told us that they would be looking at ESG in the future; this year 100% of them said they will use it as a metric. For many companies, this is about not getting left behind. You must think about it, measure it, start making incremental improvements – and be able to report on it.

Marcus Stuttard

ESG is becoming more and more important. Investors want to know that companies are taking it seriously. Whether they are private equity and VC firms or public market institutions, they want to know that they are deploying capital in a sustainable way that’s making a difference.

Stephen Welton

Responding to climate change and achieving net zero is a huge opportunity as well as a crisis. Many of the changes that we will need will come from innovation and young companies – and we are intent on increasing our exposure to them. We have set up an advisory board specifically around net zero which is part of this, but equally important is the role that business has on our communities right across the country. For me, this is what the ‘S’ means and we have to show real progress to have any chance of levelling up.

Observations from institutional investors  

The primary focus of many investors is to make good investments. ESG is a factor but these companies are aware of their footprint and have good policies around employees. All of them are trying to change the world for the better. It is rare for a growth company to be doing bad things.

Will it be harder or easier for scaleups to raise growth finance in 2022 – and why?

Stephen Welton

The environment is more positive. The only qualifier would be if a hike in interest rates hits the markets and in particular tech valuations and with that sentiment overall weakens. It could take some wind out of the sails of growth capital into the sector.

Erin Platts

It is never easy to raise capital but I think it will be bifurcated. An abundance of domestic and global capital is chasing the top quartile of businesses who are growing faster than ever before – and there is both growth equity and debt to fuel these companies to scale.

Sam Smith

There are plenty of good companies that are growing fast – and good companies will always raise money. It will be easier but that assumes that some of the bets on disruptive industries go the right way. If there are some shockers that will set things back.

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