Growth funding call for emerging businesses

12 June 2014

ICAS and partner bodies propose new ways to fund growing businesses. 

More ways of filling the investment gap between early-stage angel funding and large-scale funding are needed for emerging Scottish companies.

This is one of the key findings in a new  report by the Royal Society of Edinburgh (RSE), Scottish Financial Enterprise (SFE) and ICAS.

The three  institutions came together during the past year to examine the challenges facing emerging companies in  sourcing growth capital. The report finds that the health and dynamism of the  Scottish economy would be enhanced if more young businesses could be grown to a  nationally and internationally significant scale. 

The report notes that the Scottish investment  infrastructure is relatively good at supporting promising businesses in the  start-up and early stages. However, such businesses can find it difficult to  attract the funding they need to progress and convert their early successes into substantial growth.

One of the key challenges for these companies  is in going from business angel investment to subsequent larger-scale sources  of funding, such as venture capital which operates under significantly different criteria.

Among the report's key recommendations are  the following points:

  • The  establishment of co-investment funding between pension funds and the private  sector on a similar model to the UK Government's Enterprise Capital Funds. Such  a model would help promote the establishment of  such small venture funds or provide them with access to capital.
  • Developing  a Super Co-Fund, built on the model of the Scottish Co-Investment Fund,  inviting institutional investors to match the combined angel plus public sector  co-investment on an agreed ratio.
  • Revisiting  the use of Venture Capital Trust structures operating from a base in Scotland.

Ian Ritchie, Vice-President of the RSE and  Chairman of the group which produced the report commented, "Scotland's long  record of innovation and scientific research excellence and its natural assets provide an environment for the creation of new businesses of great potential.  We need to find ways of enabling more of them to realise that potential more  fully. Our report examines the core issues and outlines a number of approaches  and initiatives for developing a more effective growth capital market in  Scotland."

Owen Kelly, Chief Executive  of SFE, added, "More promising young companies could be helped to fully realise  their potential if a greater range of funding options were available to  them.  Some early stage companies are unable  to make the leap to larger-scale investment and may not meet the more robust criteria  which are necessarily required by new banking regulations which govern the more  traditional lenders. Our report looks at  what alternative models for this intermediate level of funding are available  and makes a number recommendations."

Todd Nugent, director of Noble Grossart Limited and member of the Business Policy Committee of ICAS, added, "Funding the continuing growth of  successful companies ought to be more straightforward and our report sets out  new initiatives that, we believe, should help."

Topics

  • Private sector
  • Thought leadership

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