The start-up revolution is brewing – and we must unleash equity finance – Telegraph.co.uk
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And then many of them will stall. Perhaps they will simply run out of steam or the founder will decide to retire. But, all too often, the real challenge for many of these companies is simply knowing how to take the next step.
Now that Britain is launching more than half a million new companies a year, we must make sure that the best of these have an environment and the support they need to scale up, to make the transition from SME to large-cap; from million-pound venture to billion- pound superstars.
Knowing who these companies are is the first step, which is why I’m delighted to be launching, with the support of The Daily Telegraph, the third annual edition of the London Stock Exchange’s “1,000 Companies to Inspire Britain” 2016 report: an annual celebration of the fastest-growing and most innovative small and mid-size businesses in the UK.
When we first launched this report in 2013, our aim was to bring to a wider public what we knew instinctively to be true: that these companies are the lifeblood of the UK economy. It is part of a wider vision and campaign to support UK high- growth companies in their journey from start-up to stardom and to create an entrepreneurship revolution.
As our report demonstrates, the UK is already home to thousands of inspiring smaller companies. The country remains one of the easiest and best places in which to launch a new business. What we must fight to build now is a more diverse funding ladder for Britain’s high-growth businesses.
The report has received cross-party support from leading politicians including George Osborne, Angela Eagle and John Swinney, who have all contributed to the report. This is important: UK policy-makers have a unique opportunity actively to build on the transformational changes already taking place in the UK economy.
Historically, as a society, we have been obsessed with using debt to finance companies. Debt is a short- term fix that cannot encourage long-term growth. It may be a suitable funding tool for established blue-chip multi-nationals, but is not appropriate for innovative businesses that need capital to grow and invest.
Any small company in receipt of a bank loan must prioritise managing that debt, or risk default, instead of using all its financial and human capital to invest, innovate and expand. And, as has been made painfully clear all too often, too much debt ultimately always leads to disastrous consequences for the wider economy.
Instead, we must unleash the power of equity finance, where businesses find investment through crowdfunding, business angels, venture capital or on the public markets – in return for a stake in that business.
In Europe, 80pc of SME financing is dependent on bank lending, with just 20pc coming from equity financing. In the US, however, it’s the mirror image. Some 60pc of American SMEs, for example, raise capital by offering friends and family a stake in their business. As a result, it should come as no surprise that the US has been the quickest nation to recover from the most recent financial crisis.
Progress is being made and the Government deserves praise for the many decisions it has taken to facilitate and encourage equity investment, but unlike the start-up revolution, we are just at the beginning of this journey.
The crucial next step will be to give alternative forms of finance to debt a fair chance, changing the focus of our tax system in favour of growth funding. To do so will be to reduce the Damoclean risk to our economy posed by excessive debt and to support jobs and real, long-term investment in the very best of British companies and talent.
The 1,000 small and medium-sized companies featured in our report paint a vibrant picture of Business Britain. We have the visionaries, we have the innovators; we must now work together to support their revolution.
If I might paraphrase a famous revolutionary cry: “Aux armes capitalistes!”
Xavier Rolet is the chief executive of London Stock Exchange Group; The 1,000 Companies to Inspire Britain report is available at 1000Companies.com
The start-up revolution is brewing – and we must unleash equity finance – Telegraph.co.uk}