Growth funding call for emerging businesses
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.
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."