Finance

Finance and access to growth capital remains a challenge for scaleups. It is 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 eight in ten (78%) of scaleups using external funding as part of their growth strategy. Yet more needs to be done. 

Three in ten scaleups are using or planning to use equity finance but they still view the funding landscape as patchy and they perceive raising capital to be an uphill struggle. Nearly 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 1 in 5 expecting this growth to be more than 50%.

The perception that growth capital is more prevalent in London and the South East persists: 59% 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 – compared to 51% in last year’s survey. 

There is clear demand for constant, ongoing finance education for scaleups. In this year’s survey, scaleups said they wanted more “meet the investor” type events to showcase their business as well as gaining better access to finance mentors and peers who have raised funds before. They also put value on regular investment briefings, relationship managers and structured referrals between financiers. 

Equity investment remains a key feature of the scaleup ecosystem, with business angels and VC investors continuing to be the most common early stage equity investors for  7 in 10 scaleups.

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 2016 to 2023. 

We have endorsed Venture Capital Trusts (VCTs) as an asset class and have highlight Foresight Group, Maven Capital Partners, Mercia Asset Managers and Octopus Investments  as exemplars of VCT fund managers who play a key role in the continuum of scaleup finance. 

As can be seen in the case studies, each of these VCT fund managers support many visible scaling businesses in their current portfolios.

They have financed scaleups through successive rounds and provide support for the scaleups within their portfolios that are tailored to their needs or sectors such as providing access to senior level talent and NEDs, providing online support and guidance, market analysis, events and network opportunities.

They all demonstrate deep connectivity into the wider scaleup ecosystem. Importantly, they provide connections to the wider support ecosystem especially through the regional funds they offer where they connect up with local players such as Growth Hubs and universities. 

While several of our endorsed institutions – such as Development Bank of Wales, Scottish Enterprise Growth Investments and the Scottish angel syndicate Archangels – 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.

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

All of the previously endorsed 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 crowdfunding platform Seedrs, angel syndicate Archangels, regional development bank Development Bank of Wales, and VC firms such as Cambridge Innovation Capital, Accel, Balderton, Notion, Amadeus, Molten, Partech 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. 

2023 has seen a pivotal step forward in impetus to unlock UK institutional funds for the provision of long term patient capital for scaling UK firms with the development of the Edinburgh and Mansion House Reforms, including the Intermittent Trading Venue and LIFTS initiatives, and the continued progress of the Capital Markets Industry Taskforce.

These initiatives should help evolve and revolutionise the choice, scale and depth  of UK scaleup capital helping to foster more cross-over funds and deeper pools of UK capital through series B and beyond. 

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. 

Yet while scaleups are clear of the value they place in Government and private sector developments to unlock institutional capital, they are sceptical that they will access this finance – just one in five think that this new institutional capital will reach them.