Explore the ScaleUp Annual Review 2022

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Finance and access to growth capital remains a challenge for scaleups, as their third key priority after access to markets and talent. 

Scaleups continue to be far more likely to use external finance than their SME peers with 82% of scaleups using external funding as part of their growth strategy. Yet more needs to be done – almost half (47%) of those using finance do not feel they have access to the right amount and/or type of funding to support their growth ambitions.

Such experiences matter because 9 in 10 scaleup leaders expect growth in the next 12 months, with turnover growth expected by 8 in 10 scaleups and 7 in 10 expecting to grow by employment – and 1 in 5 expecting this growth to be more than 50%.

Of those scaleups using external finance, 4 in 10 are using equity or plan to use it in the near future. Amongst those who are not using equity finance the top reasons they cite are – reluctance to give up control, perceptions that it would be unsuitable for their business, and investors being too short term in their outlook. 

Perceptions of regional disparities have deepened: 51% of scaling companies outside of London and the South East of England believe that the majority of funding resides in that part of the UK – a significant increase from the 41% in last year’s survey. However, whilst scaleups in the North of England are somewhat less likely to currently be using equity finance (19%) there is little difference in use between those in London and the South East (30%) and those in other parts of the UK.

The knowledge gap about equity finance remains stable. The percentage of those who say they do not know anything about equity finance, which fell from 10% in 2019 to 5% in 2020 and 2021, now stands at 8%. This emphasises the importance of constant, ongoing finance education for scaleups.  

Equity investment remains a key feature of the scaleup ecosystem, with business angels and VC investors the most significant early stage equity investors: 82% of scaleups responding to our survey are either currently using such investment or looking for such investors going into 2023. 

This year, we have added to the number of case studies of equity, debt and mezzanine investors who have been active in supporting scaleups between 2015 to 2022. Three angel groups have been added – Cambridge Angels, Newable Private Investing and Archangels. Angel finance plays a very important role in the continuum of scaleup finance. These three groups represent the breadth and range of angel finance, using different business models and taking different approaches.

These newly endorsed networks have financed scaleups through successive rounds and provide support tailored to their needs or sectors. They all demonstrate deep connectivity into the wider scaleup ecosystem. 

While several of our endorsed institutions – such as Development Bank of Wales and Scottish Enterprise Growth Investments – are focused on investing in their respective devolved nations, several others continue to provide growth capital across the UK and many are helping to address regional disparities of growth capital provision which we highlighted in the Future of Growth Capital Report.

Nine in ten investments made by IP Group, and eight in ten made by BGF and LDC, are into companies based outside of London. Livingbridge, Amadeus Capital, Envestors, Cambridge Innovation Capital and Cambridge Angels all made more than half of their investments into companies outside of the capital. 

Endorsed private equity firms such as LDC and Livingbridge have made further investments during 2022; LDC, for example, has invested in businesses based in Stockton-on-Tees, Ellesmere Port and York.

All of the endorsed VC and VCT institutions continued to invest in scaleups this year. Many have balanced fresh investments in scaling companies while ensuring that existing businesses in their portfolio remained strong and capable of further growth. Follow-on funding accounted for more than 40 per cent of investments made by firms such as Cambridge Innovation Capital, Accel, Balderton, Notion, Amadeus and MMC.  

A key element of the mission of the British Business Bank (BBB) is to develop pools of capital for all sectors as well as enable their greater disbursement throughout the UK’s regions. It has built a model of how public sector finance can work with – and not crowd out – private sector finance in order to develop far bigger pools of capital in the UK and encourage more investors willing and able to provide ongoing rounds of follow-on or scaleup finance.

The investment capacity of BBB’s Enterprise Capital Fund (ECF) programme, which we endorsed in 2017 as a case study, stands in excess of £1.83bn. As at March 2022, 39 ECFs have been launched since their inception in 2006, supporting more than 675 innovative growing businesses across a range of sectors. The top five sectors supported by ECFs are SaaS, AI, industrials, TMT (technology media and telecommunications), and healthcare – 53% of the investments are outside of London.

The BBB continues to support scaleups with other initiatives. Its British Business Investments Regional Angel Programme aims to help reduce regional imbalances in access to early-stage equity finance. The Programme, which has been allocated £150m in funding, is focused on increasing the availability, supply and awareness of angel equity investment. 

We continue to emphasise the importance of current efforts to unlock UK institutional funds which can provide long term patient capital for scaling UK firms. In order to close the finance gap for all scaleups across the UK we must ensure that funds are deployed at a local level, so that progress is made in a way that continues to reduce regional disparities. 

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