Filling the funding gap for entrepreneurs

Please note: The panellist opinions in this article do not constitute formal advice. Please contact your private banker or wealth manager if you’d like any more information on the topics.

Newly-formed British businesses are crucial to the UK’s economic health but face an acute funding shortfall, Coutts clients heard at a recent event.

As equity specialist Henry Whorwood told the audience, the number of start-ups getting underway and the amount invested “fell off a cliff” this year, as the world came to grips with coronavirus.

The Head of Research and Consultancy at Beauhurst, which helps investors find suitable companies to support, said “some deals were tabled, some were postponed, some will never happen”.

He also said activity had picked up a little since, but added, “The area where it hasn’t picked up enough is first time fund raising. For all the investors with capital to invest, if you don’t support companies at that early stage, you’ve got no pipeline for later stage investments.”

Andy Gregory, Head of Investments, UK and Ireland at the Business Growth Fund (BGF), said it was critical such businesses received more capital. He told our virtual client event – Innovation in UK Enterprise – that this was “a growth economy”.

“Generally, these companies are outperforming GDP in a huge way,” he explained. “Employment growth in them is about 30% over the last couple of decades, versus four per cent in larger companies. And yet there is a funding gap, particularly for entrepreneurs who do not want to cede control but are passionate about growing their businesses.”

Greg Kyle-Langley, Head of Entrepreneurs Proposition at Coutts, said that, despite the challenges, the pandemic had created exciting opportunities for fledgling firms.

“A big advantage I’ve seen from talking to entrepreneurs, and friends and colleagues in the states from venture capital and private equity, is how it’s opening up international capital for UK, high-growth businesses,” he said.

“There are businesses that would have previously struggled to excite someone enough to take that trip over the Atlantic to come and see them. But investors have become really comfortable using video conferencing and getting a good feel for a business that way, which means they can see a far greater spread of them.

“The way that it’s opening up new sources of capital, especially in those massively deep pocketed US venture capitalists, is exciting and I think will be great for the sector.”

Benedict Nagle-Taylor, who works for the Coutts Investment Club which introduces sophisticated investor clients to high-growth businesses, was also very positive about the future.

“Entrepreneurs are looking for finance but they’re not looking to sell out,” he commented. “They’re all backing themselves and they know that next year is going to be a bounce back year. There’s never been a bad time to invest in the UK, but next year is going to be even better.”

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