Jenny Tooth comments on The Future of Growth Capital report and what it means in an embattled economy
As we have all been dealing with the incredible heatwave across the UK these past few days, there has also been a raising of temperature in the debate about how we can ensure small business growth at a time when our economy is facing its greatest challenges since the Financial crisis. With many sectors still struggling to survive and unemployment set to rise exponentially over the coming months as furlough schemes shut down, the latest ONS stats make grim reading with a 20.4% fall in GDP the second quarter.
It is with this backdrop that the report, The Future of Growth Capital, was launched last Thursday under the leadership of the Scale-Up Institute and Innovate Finance which identified an emerging £15bn gap in equity investment available to scaling small businesses across the UK post Covid and what actions are needed to address this gap and to ensure future economic growth innovation and productivity . This is not a new gap, there has been a long-term structural imbalance between demand for and supply of growth capital. This stood at £5bn-£10bn a year before the Covid-19 crisis and has been significantly exacerbated under the pandemic which effectively doubled the equity gap.
The report sets out a five point plan for action to tackle the long-standing, structural problems of access to growth capital including a ‘National Blueprint for Growth’ based on a joined up approach to support and champion more consistent and effective economic growth across all regions and sectors and sees the opportunity to address regularity and fiscal barriers to unlock institutional and corporate capital including pension funds. The need to expand the roles of both the British Business Bank and Innovate UK is seen as fundamental, especially to ensure much greater deployment of capital and innovation grants to key regions. The fifth recommendation to create a “Future Opportunity Fund” is seen as vital to address key gaps in access to capital across sectors, regions and underrepresented groups, whilst supporting impact and sustainability, including the carbon net-zero economy
I was pleased to be a contributor to the development of this report and it is notable that the report identifies the vital role that Angel investment plays as part of the supply chain of growth capital, whilst recognising that this capital is too thinly spread across the UK regions. The report recognises that Co-investment and the EIS and SEIS schemes both have a major role to play attracting further pools of angel capital to underserved regions, sectors and groups. The report is now live at this link: https://growthcapital.report/ It is hoped that these key recommendations will now feed into the Comprehensive Spending Review and the Economic Recovery Unit planning in the coming weeks.
I had the pleasure to catch up with a number of our Angel Groups at our UKBAA Round table last week and to discuss perspectives on the angel market as we emerge from Covid. Whilst levels of Angel investment were indisputably affected, it is clear that our investment community is hugely resilient and have developed a range of strategies to ensure continuity of support for their investors. All groups have digitised core parts of their services and have been holding successful pitching events online these past months ,attracting attendance from a much wider community than previously , including international investors and notably with a more inclusive model enabling a more inclusive approach with more women investors and investors from wider groups to access their events. Whilst the future possibility of a further wave of the virus exists, our groups intend to continue with an online offering and potentially as a permanent part of their toolkit. However, despite this resilience all the groups identified the need for support with future growth and to ensure a much deeper pool of capital to meet entrepreneurial investment needs and withstand further shocks to our economy. Thus, it is now vital for Government to take note of the important role that Angel investors will play in the economic recovery and in the levelling up of our regions. Existing schemes through BBB and Innovate UK, whilst useful, are not adequate for the task in hand. As the Growth Capital Funding recommends, there is now a fundamental need for an ambitious, joined up proactive strategy to rebuild investment capital across the whole of the equity supply. The timing for Government action is urgent. We cannot afford to miss this chance.