Explore the ScaleUp Annual Review 2022
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CONTENTS
Introduction 2022
Chapter 1 2022
The ScaleUp Business Landscape
Chapter 2 2022
Leading Programmes Breaking Down the Barriers for Scaleups
Chapter 3 2022
The Local Scaleup Ecosystem
Chapter 4 2022
The Policy Landscape
Chapter 5 2022
Looking forward
Annexes 2022
SCALEUP STORIES 2022
Scaling businesses and the use of debt and working capital finance
A ScaleUp Institute/Barclays report brings fresh insights and identifies opportunities to further close gaps in the provision of scaleup finance.
This autumn, the ScaleUp Institute and Barclays will be publishing Scaling Businesses and use of Debt and Working Capital Finance – a report which brings together multiple data sets to provide unique insights into the use of different forms of debt finance by scaleups and the interplay between stages of scaleup growth in different sectors and regions of the UK economy.
The report combines quantitative analysis of the UK’s 34,000 scaleup businesses – using data from the ScaleUp Institute’s Annual ScaleUp Survey, the SME Finance Monitor, and the ScaleUp Index – with in-depth qualitative interviews with their leaders.
The findings highlight what is working and can be built on, as well as necessary actions to close the scaleup finance gap. There are actions that can be collectively taken to improve the level of understanding among scaleups and the options of available funding.
The key issues and barriers to further growth remain consistent with scaleup businesses continuing to grapple with access to markets, talent, and finance as their critical challenges as we head into 2022. Significantly, the talent challenge is dialling back up in 2021, whilst Access to Markets at home and abroad remain equally of concern.
Key findings
- Scaleups are more likely to use finance than other SMEs, but leaders say that they would invest more if they had the resources or expertise to make better decisions. In terms of working capital and debt finance instruments, the majority of scaleups use loans and overdrafts; there is limited usage of invoice finance, leasing/hire purchase, or venture debt.
- Scaleups with turnover greater than £10m are more likely to use debt finance, working capital and external equity than smaller scaleups.
- Scaleups by employment tend to use more of all types of external finance.
- The use of debt finance and working capital instruments – such as leasing/HP, trade credits and invoice finance – does increase with the age of scaleups. Three in four (76%) of older, established scaleups are users of debt finance with just over one in ten (12%) using equity; early stage scaleups are bigger users of equity (27%) with just more than half (55%) using core debt finance.
- Scaleups with the highest growth rates (100% + turnover growth) are more likely to use core debt products – loans, overdrafts and credit cards – than their scaleup peers.
- The use of working capital instruments (trade credits and invoice finance) is particularly low in smaller and younger scaleups – only 6% of those scaleups that are less than five years old.
- Within sectors, debt finance is most popular within the construction, wholesale & retail and manufacturing sectors. Invoice finance is most used in manufacturing and engineering. Equity finance is most used by scaleups in health & life sciences and the scientific and technical sectors. Scaleups in the accommodation and food sectors are most likely to use cash injections from friends, family and company directors.
- Scaleups who operate in the green economy use more invoice finance, Innovate UK grants and tax credit schemes than their scaleup peers.
- Exporter scaleups use more external finance overall. Specifically, they are more likely to use invoice finance for working capital.
- Scaleups that have raised equity funding enjoy greater access to external finance overall.
- Scaleups that have received grants or loans from Innovate UK grants were twice as likely to have received equity funding, and even more likely to use venture debt, tax credits and invoice financing – 506 visible scaleups from the ScaleUp Index 2022 received 1,401 IUK grants worth £318m. It is worth noting that those companies backed by Innovate UK have over time raised leveraged £4.51bn of equity finance and in their most recent financial year utilised £3.6bn in bank loans and overdraft facilities.
Opportunities for finance providers to build better relationships with scaleups and close the finance gap
There are opportunities for finance companies to work towards building better relationships with scaleups so as to better understand how these factors affect the sort of finance they need, and when. A scaleup in need of finance should not find it difficult to seek the specific type of financial support it needs, and few scaleup leaders have the time or skills to assess all options and adopt the optimal mix of solutions.
There needs to be greater clarity on terms and a focus on solutions rather than pushing products – how new products can foster a scaleup’s growth journey and fit with its existing forms of finance. Scaleups value finance providers who work holistically with them throughout their growth journey and value proactive engagement such as through High Growth Relationship Management teams.
Where a scaleup’s funding needs cannot be met solely in their suite of services, finance providers can join up solutions, referring onwards and/or syndicating structures to introduce more forms of blended finance which are better tailored to suit scaleups’ growth ambitions.
As well as introducing more forms of blended finance for scaleups, there are opportunities for dedicated international programmes to support their overseas growth.
Scaleup champions working in devolved nations enterprise agencies, Growth Hubs, LEPs and for local and metropolitan authorities are sought out and trusted by their local scaleup leaders. Finance providers should look to support these scaleup champions with learning and development opportunities, to build their own greater understanding of funding products and solutions and therefore ensure they are giving the very best advice to local companies.
There is a clear and specific opportunity in raising the profile and benefits of invoice finance for B2B scaling businesses. There is an opportunity to enhance engagement among smaller and younger scaleups with working capital instruments such as trade credits and invoice finance.
The vital role of Development Banks and Innovate UK
Development Banks and Innovate UK can play a critical role in the growth journey of scaleups. The powerful ‘kite-mark’ effect of Development Banks and Innovate UK demonstrates the power these institutions have in enabling access to other forms of funding. These institutions and grants should therefore be made more accessible as a financing option for scaleups.
Conclusion
Scaleup businesses are real engines of growth for the UK economy. They are innovative, productive and internationally-oriented; these are innate strengths which finance providers must help to maximise.
They are greater users of blends of finance, specifically equity, than their SME counterparts. But a ‘one-size-fits-all’ approach to scaleups’ use of finance does not exist. Use of finance by scaleups varies by their sector, age and size. The same scaleup will use different forms of finance at different stages in their growth.
It remains vitally important to inform and educate scaling businesses of all the options across the finance landscape, providing clarity about potential finance solutions and how differing
solutions fit together. We must get this right, specifically at regional and sectoral level.
Case studies and role models can help in this regard, alongside NEDs and advisors. Signposting initiatives must be as comprehensive and aligned as possible.
The full report of Scaling Businesses and use of Debt and Working Capital Finance will be published in the coming weeks.
CONTENTS
Introduction 2022
Chapter 1 2022
The ScaleUp Business Landscape
Chapter 2 2022
Leading Programmes Breaking Down the Barriers for Scaleups
Chapter 3 2022
The Local Scaleup Ecosystem
Chapter 4 2022
The Policy Landscape
Chapter 5 2022
Looking forward
Annexes 2022
SCALEUP STORIES 2022
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