Study shows that half of businesses in EA fail to secure external finance
1/07/2019 - Smith & Williamson
Almost half (48%) of businesses based in the East of England that have attempted to raise capital have failed at least once, according to the new Dream Bigger: Funding ambition* report from Smith & Williamson, the financial and professional services firm.
Despite being a significant proportion, businesses based in the East of England fare better than the UK average (70%) when it comes to raising external finance.
Securing funding is often critical to helping businesses scale quickly and maximise their potential. However, it’s often not plain sailing with one in eight (13%) East of England businesses having failed to secure funding more than three or more times.
The reasons behind this are varied. The most common explanation given by East of England founders is that their business had an issue with its credit history (45%), far exceeding the number of firms which said their business model wasn’t good enough (9%). Over a third (36%) of founders said their management team wasn’t strong enough business and 31% didn’t meet the criteria for investment.
The main motivators behind East of England businesses looking to secure finance include; funding new product development (45%), improving operational efficiency (42%), and financing R&D (38%). However, of the various funding routes available, the majority of East of England founders aren’t confident accessing private equity (59%), venture capital (56%) and despite the rise of peer-to-peer lending platforms in recent years, 70% still aren’t confident in accessing them.
John Morris, Partner at Smith & Williamson LLP, said: “Securing business investment shouldn’t be a blind leap of faith. Preparation is key. To be investor-ready, East of England based businesses must ask themselves difficult questions and demonstrate they have a strong management team in place, something that is crucial for investors. Equally important is the level of ambition displayed and a degree of certainty on future plans and objectives.
“Even with these measures in place, securing investment is never easy. Getting high-quality and relevant advice right from the outset can significantly improve the chances of businesses securing funding. This mind-set will see the number of firms successfully raise external finance increase and, importantly, reduce the number of those experiencing funding regret.”
*The findings in this report come from a survey of the founders of 501 scale-up companies, and more than 500 non-scale-up SMEs in 2018. Total sample size in East of England was 71 companies.