Equity funding vital for growth of smaller firms

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It is just over a year since I contributed to this column, writing about the importance of equity finance for fast growing ambitious businesses.

And, I’m delighted that in the last year significant progress has been made in helping these companies with access to equity funding sources, in turn allowing them to grow and fuel the revival of the UK economy.

As Lord Young, the Prime Minister’s Enterprise Advisor recently said in his Report on Small Firms, the UK’s record number of small firms, some 5.2 million, an increase of 760,000 since 2010, now account for nearly half of private sector employment, with large companies contributing less than 40 per cent. This is an encouraging statistic but does not mean we should rest on our laurels.

London Stock Exchange Group understands that this momentum needs to be maintained, and we are continually looking at ways to assist small and medium sized businesses (SMEs).

One initiative includes raising national awareness of these companies and their contribution. Our recently published 1000 Companies to Inspire Britain report identifies and showcases one thousand of the UK’s most dynamic and inspiring businesses.

And another - last month, our pioneering business support programme, ELITE, which helps firms prepare and structure for the next stage of growth, was launched across Europe.

ELITE introduces ambitious companies with business schools, gives them access to a community of leading advisers and investors and provides them with the opportunity to interact and share experiences with each other. Through this interaction, ELITE companies gain access to the most suitable sources of funding to help them grow, whether venture capital, private or public equity.

The ELITE community now totals 271 companies, more than 150 partners and 80 long term investors. There are 49 companies from the UK, with three from the Yorkshire region. These include, Barnsley based “Company Shop”, the UK’s largest redistributor of surplus food; e-commerce firm “Frillo” from Kingston upon Hull and Leeds-based technology company “The Test People”.

We remain committed to the belief that in order for these businesses to expand and contribute to the economy, they need to rebalance their financing - away from debt finance, towards equity finance. The statistics remain troubling. According to recent data from the British Bankers’ Association, only three per cent of UK SMEs use equity finance, in stark contrast with the US, where over 70 per cent of financing comes from various types of equity: angel investment, crowd-funding, venture capital, private equity or a stock market listing.

Across the UK and Europe, small and medium sized businesses are being recognised as the drivers of economic success and initiatives are being implemented to support them. In the UK’s last Budget, the Chancellor announced a move to widen the eligibility of ISA investment to include AIM stocks, while for example in France, the efforts of Emmanuel Macron, Minister of the Economy, are sending a clear message of support to SMEs.

Speaking to some of the ELITE company founders and CEOs, the feedback has been staggering, with many reporting that being part of ELITE’s vibrant community has helped them attract talent, develop expertise, deepen and broaden their contacts and grow in confidence as a business.

The excitement that ambitious SMEs are generating across the UK and Europe is palpable and London Stock Exchange is committed to providing them with the sufficient tools to help them grow.

We know they hold the key to unlocking more innovation, more jobs and more opportunities and we will strive to offer as many companies from across Yorkshire, the UK and Europe more widely, the opportunity to be part of ELITE’s dynamic community.

At the end of April, we hosted a week long series of events at our London headquarters, welcoming the first 25 ELITE Europe companies to the programme, along with a further 42 UK and Italian companies to the existing domestic programmes. A group of fascinating businesses, from across a range of sectors and across continental Europe, were invited to open trading on our markets in a celebration of business excellence. These included a French industrial engineering firm, Portuguese mining company and Finnish tech company.

In expanding ELITE across Europe, we believe it will propel the momentum already in place in support of SME growth. ELITE will allow more of the best and brightest fast growing businesses to fast-track their development and capital raising process, in turn stimulating economic and job growth which Europe needs.

We are keen for all of Yorkshire’s inspiring companies to find out more about ELITE: please visit www.elite-growth.com