By Jean Miller, CEO of InvestingZone,
The latest set of GDP figures reveal 0.8 per cent growth in the UK economy but do not change the underlying problem; that limited investment in SMEs is not enough to support the foundations of a rebalanced economy. SMEs act as an engine room for the UK and are currently responsible for 48.1 per cent of private sector turnover. As a result, any developments in the support, guidance and funding for SMEs would create a more bullish attitude about the future for UK plc and help the government achieve its growth ambitions including making the UK the best place in Europe to start, finance and grow a business.
However, to truly tear down the barriers to enterprise and economic development, the UK needs to create a business environment that fosters the potential of new business. Entrepreneurs drive growth but entrepreneurial spirit is currently constrained by the restricted flow of capital to potential business owners. Despite the Funding for Lending Scheme being refocused solely on business lending, the latest Bank of England data reveals that improvements in credit conditions have been greatest for large private non-financial corporations (PNFCs) that tend to have better access to capital markets. Marginal improvements in the cost of credit for SMEs mean many companies still face subdued credit supply or are charged higher interest rates as they are deemed ‘riskier’ ventures. Even with the tax incentives available for investing in early-stage companies, such as the Seed Enterprise Investment Scheme, there is still a distinct lack of funding available to young companies. However, new revenue streams, including equity-based crowdfunding, can go some way towards filling the funding gap.
The role of high-growth startups
Crowdfunding has already released vast amounts of stagnant cash for the benefit of national growth and provides early-stage businesses with sympathetic funding by people who have an interest and understanding of the business. By professionalising crowdfunding further, there is an opportunity for it to be a credible force in creating a more dynamic market that ensures the UK is retooled for a high tech future and can maintain its position at the top of the global competitiveness indices
Moving forwards, crowdfunding platforms need to offer potential investors the opportunity to support new innovations that have sensible valuations and offer a genuine return on investment, but may have larger funding capacities and longer timescales to market. All potential investors need is the business acumen to understand an opportunity, a degree of common sense about the valuation of a company and the right set of tools to understand the chances of a company achieving its market goals.
The explosion in entrepreneurial companies that specialise in high-growth areas such as technology and sustainable energy has the potential to transform the UK and might go some way to support the rebuilding of Britain’s manufacturing base. By gearing investment criteria more towards startups, there is an opportunity to open up the market of early-stage investing in high-growth companies and support the UK’s industry to ensure good prospects don’t go unfounded and the recovery remains sustainable in the long-term.