EY: Entrepreneurs’ growth plans blocked by access to funding

Mike Timmins

Business leaders of some of the UK’s fastest-growing companies said they found funding to be their biggest blocker to expansion, quoted by 51 per cent of the 380 founders and executives interviewed as part of the Tracker. 

While the majority said they were still hungry for capital (66 per cent), the number of entrepreneurs who said they wanted to raise funds has fallen since last year - down from 71 per cent (EY’s 2017 Fast Growth Tracker).

Of those who wanted to raise funds (66 per cent), 81 per cent were looking for a minimum of a £5 million cash injection and 19 per cent up to £10 million.

Mike Timmins, EY’s Entrepreneur of the Year Leader in Scotland, said: “Entrepreneurs are vital contributors to the Scottish economy, creating wealth and jobs across the country. They have an unrivalled drive and ambition to expand and innovate.

“With their positivity and ability to spot opportunities in challenging times, entrepreneurs will help to lead the way through the uncertainty that lies ahead. With such an important role to play in boosting confidence, it is important that we maintain a supportive environment in Scotland and the UK that supports their expansion plans.”

According to the Tracker, finding suitable investors continues to be an issue for business owners, with over a third (37 per cent) still struggling to find a match for their enterprise.

75 per cent said they favoured traditional equity financing via venture capital firms, compared to new pools of capital such as crowdfunding and initial coin offerings (ICOs). Notably, crowdfunding was quoted as a more viable funding source by one in five entrepreneurs (20 per cent) than traditional bank financing (19 per cent).

The Tracker also found that entrepreneurs are becoming more hesitant to look internationally for investment. In the last 12 months the desire to target overseas investors has dropped by 10 percentage points amongst the UK entrepreneurial community surveyed, compared to the 62 per cent recorded in 2017.

Mr Timmins said: “The good news is that there are more sources of capital available to fast-growth, entrepreneurial companies than ever before. In the last couple of years we have seen the number of funding options multiply, which has prompted some business owners to opt for a hybrid funding model – using crowdfunding to supplement venture or angel capital, for example.

“When it comes to funding, the main challenge for the entrepreneurial community is supporting start-ups with capital, in order for them to scale-up. Some investors seem unwilling to take the chance on businesses that are still in the seed stages of growth, perhaps because of the level of risk involved, but in reality they are often the ones that need it most.”

According to the Tracker, 67 per cent of founders and executives said they expected to exit their business within five years, but only 22 per cent said within the next three years. This compares to 30 per cent in 2017, which suggests that near term events, such as Brexit and heightened levels of uncertainty, could be impacting their timetables.

For the second year running, an acquisition by an international corporate is cited in the Tracker as the preferred exit route for UK entrepreneurs (53 per cent) - a five percentage point decrease from 2017. In comparison, just 11 per cent of those surveyed said they are considering listing on an international stock exchange, and 12 per cent plan to exit to private equity.

The Tracker suggests that some business owners appear to be waiting for more stability before entering the next stage of their company’s lifecycle. 83 per cent of UK entrepreneurs don’t believe that now would be a favourable time to exit, with two thirds (67 per cent) expecting to take the leap within the next five years.

Mr Timmins added: “Reassuringly, the Tracker demonstrates that there is still a strong desire to start-up and build companies in the UK. Entrepreneurs still have a positive and opportunistic outlook, predicting growth and new hires in the next 12 months. However, unsurprisingly entrepreneurial aspirations are being curtailed by current market volatility and political uncertainty.

“This could see entrepreneurial flair being dampened by a touch of realism and pragmatism, reinforcing the importance of the private and public sector working together to maintain a supportive entrepreneurial ecosystem in the UK.”