Current news has focused on record highs for private equity investments in the UK. However, are investors directing funds towards start-ups and overlooking the all-significant scale-ups?
According to experts, private equity investment in Europe increased by 14% in 2015, in spite of the fact that the number of firms receiving private equity investment fell by 13%. This reflects that the value of distinct investments is growing, while the real quantity of these kinds of deals is decreasing.
These statistics offer a valuable understanding of investor behaviour. Instead of providing less money to a gamut of start-ups, a percentage of investors are beginning to direct their funds to a specific set of SMEs.
This is to some extent reflects a trend that has been accepted in the US and must be seen as a constructive development in the alternative finance market.
Financing for the scale-up of the business community, instead of start-ups, is a vital stride for the UK if it is to realize the potential of its private sector, of which a surprising 99% are SMEs.
According to a research by Barclays, the University of Cambridge and the University of Oxford, “gazelles” (firms that increase turnover by 20% for three successive years) are an increasingly occasional occurrence.
These businesses amount to just 2% to 4% of SMEs across the UK – a disturbing factor when taking into consideration that these “gazelles” are responsible for a huge percentage of the UK’s SME growth. In order to maintain the high-growth abilities of small businesses, funding is vital.
According to an independent survey commissioned by private equity firm IW Capital, 34% of investors in the UK with more than £100,000 in investments would consider investing in SMEs over a five-year period, but do not have the expertise to do so.
In order to boost and foster private equity investment in the UK, it is crucial that the stakeholders responsible for guiding investors and SMEs focus on creating awareness.
There is an increasing connection between alternative finance solutions and growing businesses in the UK. Therefore, service providers and government must take the responsibility to increase responsiveness amongst investors in driving SME development forward securely.
In this regard, IW Capital and Crowdfinders in collaboration with the UKBAA, and Invesdor (international crowdfunding partner) among others, have launched a new programme known as Race to Scale – a funding drive valued at £100 million to generate development finance dedicated to the scale-up community in the UK.
It not only delivers a percentage of finance to ensure viable growth for the UK scale-ups, but also seeks a long-term solution by educating the investors that would ensure SMEs continued financial stability.
At a time when the infrastructure of the private sector is transforming rapidly in the UK, it is crucial that the alternative finance sector changes rationally, prioritizing long-term viability and development along with an investment of capital into the early stage of start-ups.