Recent reports compiled by the London School of Economics[1] and several industry insiders have shown us what the UK business SME sector current performance is. There are challenges reported however, Britain’s SMEs are proving more than ever to be a critical driver of the economy.
As some industries are fairly evenly spread around the country; others were seemingly concentrated in a number of locations; while in another scenario, activity is concentrated in only one location. Finance as a sector emerged in the second category. However, the creative sector and ICT fall into the third category. Given that these are considered high growth potential industries, the even spread of opportunity is still very much absent.
Larger firms, it seemed which tend to invest more and have higher productivity, were very sparsely spread: only 55% of local authorities have 10 or more large firms. Although more encouragingly, the growth of mid-sized firms is evenly spread across the nation. As a key to continued growth, it was striking to discover that yet only just over one in ten firms export and those that do export are most likely to be based in London, the South East or the East of England. The North East has the lowest share of exporters at fewer than 6%.
Using relatively similar countries Germany, France and the US as benchmarks, the UK’s best performing regions (with the exception of Central London) are far behind the German average. Germany stands out as a multi-hub country, with around ten identifiable high-productivity areas: by contrast in the UK the South East dominates.
Whilst Germany also faces regional challenges, with longstanding poor performance in East Germany, these poor performing regions are catching up. Whereas in Britain, the low performance regions appear to be falling further behind.
Crowdfunding platforms have taken a sizeable share of the market and are expanding in their reach. The most prevalent strategy was with seed venture equity investment. The added bonus of these platforms is that angel investors are choosing to invest through them. Therefore, businesses seeking a capital injection can reach out to a broad network of investors using these platforms. An example would be Syndicate Room, the Cambridge based investment crowdfund platform. It is targeted toward mainly sophisticated investors and has recently reported that investors in its 2011 cohort of 314 ventures who invested £10,000, would now be worth £63,848[2].
The technology sector coincidentally received the highest number and value of investments, in line with its performance in the wider market, according to the British Business Bank research. Furthermore, companies with consumer-facing products or services were particularly successful, such as mobile apps, food and drink and musical theatre. The emerging nature of crowdfunding was evident in both the regional and sector prevalence of transactions.
London & Partners reported that the UK received record breaking tech investments in 2017, at £2.99 billion – almost double the total amount invested in 2016 (£1.63bn). London remains a firm European favourite, attracting four times more funding in 2017 than Germany (£694m) and more than France, Ireland and Sweden combined.
On the other hand, a survey provided by Pitchbook for Q3 2017 showed PE firms (40%)were planning to increase their investment allocations to growth strategies 2018, with around 10% looking to significantly increase activity.
Thus far, 2018 offers a window of opportunity for SMEs seeking growth and expansion funding. However, the competition for quality investment opportunities are intensifying, and companies are in a strong position to achieve favourable terms. Indeed, the Government can make useful input although it remains unclear what the optimal input can be. The LSE report outlines that much work and needed effort must be implemented into the ultimate goal of regional policy while policymakers proceed cautiously and in full knowledge of facts on the ground.
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