More than half (55%) of businesses in the UK with turnover of more than £1m are actively looking for external finance, according to the new Dream Bigger: Funding ambition* report from Smith & Williamson, financial and professional services firm. Birmingham has been cited as the largest economy outside of London, but despite this, its share of scale-ups is low, which could be due to problems when accessing funding.
Business founders cite ‘building infrastructure’, ‘strengthening management’ and ‘financing R&D’ as the primary motivators for seeking investment in their business.
However, despite this hunger for finance, the failure rate remains high. The report established seven in ten businesses (70%) were unable to secure finance at the first attempt, 39% failed more than three times and 9% have made five or more unsuccessful attempts.
A significant factor behind these failure rates could be the considerable knowledge gap on how to raise external funding effectively.
In most cases, the more institutional the investor and the more formal the process, the less confident businesses are and the majority of firms are unsure how to access private equity (70%) and venture capital (68%). Meanwhile, despite the rise of peer-to-peer lending platforms in recent years, 83% of businesses still aren’t confident in accessing them.
The most common route for raising external finance successfully is equity investment from family or friends (52%) which, while cheap and easy, comes with clear limitations. These include the actual amount of funding only usually being suited to early stage businesses, and the potential impact on personal relationships if the business fails.
Fundraising can be all-consuming for businesses and the majority of those which have raised external finance admit wasting both time and resources by pursuing the wrong type of investor (55%). Other challenges include a drop-off in business performance (14%), being underprepared for investment meetings (12%) and giving away too much equity (11%).
Stephen Drew, Professional Services Managing Partner of Smith & Williamson’s Birmingham office, said: “Birmingham and the wider region is a great place to start a business, it has been cited as the top place for start-ups outside of London. But business potential can be quashed if founders are walking blind in to investor meetings. Preparation is key. Understanding what investors value will put businesses a few steps ahead, and this means taking a good look inwards at business plans and the management team.
“Awareness of the keys to success will not always be enough on their own. Engaging with experts from the outset can improve the chances of securing funding. There must be a shift in the industry to see the value of guidance through this process. This will see the number of firms successfully raise external finance skyrocket, and importantly reduce the number of those with funding regret.”
*The findings in this report come from a survey of the founders of 501 scale-up companies, and more than 500 non-scale-up SMEs in 2018.
For further information or to arrange an interview with a spokesperson, please contact:
Ellie Pocock or Rupert Bhatia at Teamspirit SmithWilliamson@Teamspirit.uk.com or 020 7360 7878
Note to editors
Smith & Williamson is an independently-owned financial and professional services group. The firm is a leading provider of investment management, financial advisory and accountancy services to private clients, professional practices, entrepreneurs and mid-to-large corporates. The group’s c1,750 people operate from a network of twelve offices: London, Belfast, Birmingham, Bristol, Cheltenham, Dublin (City and Sandyford), Glasgow, Guildford, Jersey, Salisbury and Southampton.
Smith & Williamson Investment Management LLP is part of the Smith & Williamson group.
Smith & Williamson LLP
Regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. A member of Nexia International.
Smith & Williamson Investment Management LLP
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Smith & Williamson Investment Services Limited
Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.