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SMEs can drive the UK’s economic recovery, but only if we invest in their future

Written by Stuart Veale on Friday, 11 December 2020. Posted in Investment, Finance

When the UK first went into lockdown over six months ago, its businesses were propelled into a state of mass uncertainty. This rang particularly true for small businesses still in growth phase, with less cash reserves and market traction to fall back on.

SMEs can drive the UK’s economic recovery, but only if we invest in their future

When the UK first went into lockdown over six months ago, its businesses were propelled into a state of mass uncertainty. This rang particularly true for small businesses still in growth phase, with less cash reserves and market traction to fall back on. According to one survey by Tech Nation, after just one week of forced closure, concern over new customer acquisition reached 80% amongst UK tech startups, up from 44% the week before. This was for good reason; by early June, only 66% of businesses in the UK were trading.

Early stage innovators are a key part of the answer to the challenges posed by the Covid-19 health pandemic, both via their products solving societal issues and contribution to the broader economic picture. It is well documented that the UK is the European capital of unicorns and boasts leaders in sectors such as fintech, cybersecurity and AI. But recovery can also be driven by those that typically fall outside these headline-dominating sectors. From healthcare to luxury goods, the range of ambitious entrepreneurs growing businesses make the UK well placed to recover.

All of this goes to show how important external investment is for smaller businesses pursuing growth in any scenario, let alone one in an economic crisis. As the backbone of the UK economy, the continued growth of small businesses will be a crucial catalyst for its recovery. But to achieve this, they must receive the sustainable financial support that allows them to invest in R&D, hire staff and thereby contribute to regional economies.

Despite unprecedented government support packages, not all companies have been able to benefit and the number of fast-growth companies going into administration peaked last month as the impact of these packages waned. Although these temporary measures have been welcomed by the scale-up community and crucial to survival for many, they do not provide the sustainable, patient capital required for them to thrive. This can be achieved by initiatives that bring government funding together with the expertise and scale of private investors.

Against the backdrop of this challenging growth environment, however, broader political and economic factors are creating both the need and opportunity for public-private investment structures. The ‘levelling up’ agenda shows that the Government understands that a London-dominated strategy will not lead to successful economic recovery. 

The Venture Capital Trust Association, which I currently chair, represents ten VCT managers with offices that span each of the UK’s major economic hubs. This provides a network of experienced investors embedded in regional economies, and a proven model that can be scaled to drive forward the ‘levelling up’ agenda.

Ongoing Brexit negotiations continue to steer both attention and resources away from pandemic recovery. But even the most divisive of political issues, particularly for the business ecosystem, has the potential for a silver lining for the UK’s growth companies. Freedom from strict EU rules on State Aid could allow the Government to unlock more capital for struggling British small businesses. Far from Government picking ‘winners and losers’, private investment working in tandem with support from the public sector will ensure that the most promising growth companies succeed and limit the impact of mass loans on national debt.

The Covid-19 pandemic has presented unprecedented challenges for small businesses in the UK. Where there is a crisis, however, there are opportunities. The fundamental shifts in the economy arising from the pandemic may act as a stimulus for ambitious entrepreneurs looking to shape a successful venture and we may well see a boom in startups and scale-up, as we did after the last financial crisis. Whatever a post-Covid world has in store, the UK must start by using the structures currently at its disposal, bringing the power of public and private sector together, to provide the financial support required for them to thrive.

About the Author

Stuart Veale

Stuart Veale

Stuart Veale is the Chair of the Venture Capital Trust Association, an industry body made up of ten of the largest Venture Capital Trust fund managers. He is also Managing Partner at Beringea LLP and Vice Chair of the British Private Equity and Venture Capital Association. Stuart has over 30 years’ experience in the venture capital industry, following senior roles at the likes of Lloyds Development Capital, Chess Dynamics and Third Bridge.

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