Unlocking Growth: How to Expand Access to Capital

A new joint-report from The Entrepreneurs Network and The Enterprise Trust evaluates the funding options open for SMEs from Start-Up Loans and grants to equity crowdfunding and peer-to-peer lending and identifies key reforms to boost SME access to capital.

The report makes seven key recommendations:

• Experiment with lottery-style funding to channel more grant-funding to start-ups. New Zealand’s Health Research Council uses this approach to allocate funding to proposals that are “transformative, innovative, exploratory or unconventional, and have potential for major impact” and it works well.

• Simplify and modernise Research & Development Tax Credits by providing better feedback for applications and expanding the score of activities that qualify as R&D. It could be improved on three fronts: feedback, speed, and scope. Solving these problems would enable more start-ups to benefit from the relief and reduce the risk of start-ups turning to specialist tax credit advisers who can take up to 25% of the relief claimed.

• Make data sharing obligatory for incubators and accelerators receiving public funding. This will allow us to identify the most successful programmes, and better understand why they work. It will also allow us to identify the schemes best at expanding access to entrepreneurship among disadvantaged or under-represented groups.

• Improve the mentoring offer for Start Up Loans by providing additional advice when businesses finish paying their loans. The programme’s evaluation found high numbers of discouraged borrowers among participants.

• Streamline the advanced assurance process for EIS and SEIS to unlock more investment in high-growth start-ups so businesses using the pre-approved documentation could be fast-tracked and delivery more efficient.

• Unlock additional investment into venture capital from defined-contribution pensions by reforming the fee cap and clarifying rules on the valuation of illiquid assets. In the US, VCs invested more than 10 times as much as UK VCs in 2017. This is partly explained by the impact of pension fund investment in venture capital. In the US, VCs are overwhelmingly (98%) funded by institutions such as pension funds, insurance companies, and endowments. Pension funds play a much larger role in the US. They contribute 65% of the capital in the US VC market and 18% in Europe, but just 12% in the UK.

• Provide more long-term patient capital through the British Business Bank. The government should encourage British Business Bank to investigate if funds can be better directed towards solving market-failures. For instance, there may be a case for prioritising investments in regions under-served by venture capital or tying funding from the BPC to support for start-up community building, such as training for emerging fund managers.

The report also showcases startups and small businesses who have used external finance to meet their growth ambitions.

Cashing Out

A new report by Fred de Fossard looks at the rise of cashless commerce and its implications for SMEs, the high street, and financial inclusion. It finds:

• Cash is in terminal decline. Over half of Britons carry less than £10 in cash on them at any one time. Less than a quarter of retail payments are made in cash; cashpoints are disappearing from the high street; and a wave of small businesses are turning against handling cash altogether.

• A worrying trend has emerged in recent years, as major US cities have banned cashless businesses, and senior British politicians have called for their abolition in the UK, in the interests of financial inclusion.

• The British government has committed to preserving cash in the economy for the foreseeable future. However, usage shows that cash is in terminal decline throughout the western world, and regulators would be wise not to fight yesterday’s challenges.

• Handling cash costs British businesses on average over £3,000 per year. Cash is expensive, cumbersome, and dangerous. Today, cash accounts for only 22% of retail transactions, and it is increasingly associated with crime, and the underground economy.

• Abolishing card-only businesses would be a retrograde step which would harm a new wave of entrepreneurs, who have embraced the opportunities of the digital economy, and are responding to customers who want quicker, efficient, electronic payments.

• The market in electronic payments has been invigorated by recent innovation and competition, offering small businesses access to fast, cheap, and seamless payments, at a fraction of the cost compared to ten years ago.

• Around 1.23 million people in the UK do not have a bank account, many of whom exist on the poor, precarious margins of society. Many politicians have understandable and admirable intentions in their criticism of card-only businesses. However, abolishing card only businesses increases costs and risks borne by small businesses, and does little to materially help the poor and financially precarious.

• Regulators would be wiser to embrace the productivity and innovation of electronic payments, and focus on the advantages offered by Open Banking and financial technology to our economy and the financially- excluded alike.

• The UK economy turns on electronic payments. The key is to give as many people access to new technology as possible, rather than trying to preserve the declining use of cash. It is only by embracing technological innovation in banking and improving the provision of financial services that financial inclusion can be meaningfully increased.

The Startup Manifesto

In collaboration with The Coalition for a Digital Economy (Coadec), we have produced a manifesto to make Britain the best place in the world to start and grow a business.

It features 21 policies across three key policy areas: access to talent, access to investment, and regulation.

As Dom Hallas and Philip Salter state in their foreword:

“ Talk to founders and it consistently comes down to three key things: world-class talent from both here in the UK and abroad; the right kind of incentives to support the creation of early-stage businesses then access to the capital needed to scale them; and a clear, simple set of rules and regulations flexible enough to encourage new and innovative startup business models to grow.”

The policies in the manifesto have been endorsed by over 250 entrepreneurs, including the founders of Transferwise, Mumsnet, and Octopus, in an open letter.

On talent and skills

• Ensure that the Start Up and Innovator Visas are implemented successfully

• Reintroduce the Tier 1 General visa – or an equivalent

• Reduce the Tier 2 Visa Salary threshold and allow stock options to be considered in visa applications

• Extend the Tier 5 Youth Mobility Scheme visa to European citizens

• Modernise EMI by increasing current limits from a £30M asset capitalisation to £100M, and from 250 to 500 employees

• Support more women to start and scale businesses

• Utilise private coding schools as lifelong learning providers

On access to finance

• Reform the Tier 1 Investor Visa by lowering the minimum qualifying investment threshold for investment in UK startups, scale-ups and venture capital funds.

• Reform advance assurance for EIS and SEIS to unlock more investment in high-growth startups.

• Unleash pension fund capital by adjusting the pension charge cap

• Encourage the British Business Bank to provide more risk capital

• Reform R&D Tax Credits so that they are fit for a modern digital economy

• Improve access to Innovate UK grants

• Devise a coherent regional startup strategy

On regulation

• Secure a Data Adequacy agreement as soon as possible

• Promote innovation in regulated sectors by creating a cross-sector regulatory sandbox

• Use the Open Banking approach to open everything

• Revolutionise the way government collects, stores and shares data

• Redraft the Age Appropriate Design Code to be more pragmatic

• Work with startups to ensure tech regulation doesn’t create new barriers to entry

• Protect encryption from politicised attacks

Here and Now

Though women make up just a fifth of business owners, we are seeing increasing numbers setting up companies. Though all-female teams receive just a penny in every pound of venture capital investment, Here and Now, the latest report from the Female Founders Forum, reveals that the share of funding to women-led firms has doubled in less than a decade. For some, the perception may be that male-led firms outperform, but our follow-on funding data show women are just as bankable an investment.

Future Founders

In partnership with Octopus Group, The Entrepreneurs Network have commissioned ComRes polling of over 1,500 young people (aged 14-25) to better understand the aspirations, intentions, and motivations of the next generation of entrepreneurs.

Future Founders: Understanding the Next Generation of Entrepreneurs found:

• Over half (51%) of British young people (aged 14-25) have thought about starting (or already have started) a business. A further third (35%) say they have not thought about it but are open to the idea and just 15% say they have not thought about it and don’t think they ever will.

• Young people are more likely to consider starting or have started a company if they are attending (65%) or have graduated from university (63%) compared to 18-25 year olds who haven’t attended university (53%).

• A desire ‘to be your own boss’ (86%) and the ‘freedom to do what I want’ (84%) are the top motivations for 14-25 year olds who have started or thought about starting companies. This is closely followed by ‘being passionate about a particular idea or cause’ (83%) and ‘wanting to make the world a better place and/or make a positive difference’ (76%). ‘Wanting to become wealthy’ is still a motivation for Generation Z (76%) but young people appear to be driven by a desire for meaning, not money.

• Exposure to entrepreneurship is a key driver of entrepreneurial intention. Respondents who have thought about starting or started a company are more likely to have a family member or friend who is a business owner (57% vs 47% who have not thought about it) and seven in ten (68%) say that having a family member or friend who is an entrepreneur has made them more likely to consider starting a business.

• 57% of young people could not name an entrepreneur who inspires them. Of those who could, Lord Sugar was the most popular choice (7.9%), closely followed by Richard Branson (6.5%). Elon Musk came third with 2.6%. Bill Gates (2.2%) and Steve Jobs (1.7%) were also named repeatedly. Of those who gave an answer, Kylie Jenner was the most commonly named female entrepreneur (1.1%).

Job Creators

While just 14% of UK residents are foreign-born, 49% of the UK’s fastest-growing startups have at least one foreign-born co-founder.

A new analysis of Britain’s 100 fastest growing companies highlights the massive contribution of immigrant entrepreneurs to the UK. It reveals:

• 49% of the UK’s fastest-growing startups have at least one immigrant co-founder.

• 9 of the UK’s 14 startup unicorns have at least one foreign-born co-founder.

• The fast-growing immigrant founded companies of the Top 100 have attracted a combined £3.7bn in investment.

The report calls on the government to reform the visa system in three key ways:

• Restore the Tier 1 Post-Study Work Visa and allow international students to work in the UK up to two years after graduation before moving on to another visa.

• Reform the Tier 1 Investor Visa by lowering the minimum qualifying investment threshold for investment in UK startups, scale-ups and venture capital funds.

• Ensure that the Start Up and Innovator Visas are implemented successfully.

Management Matters

Too often viable companies fail due to bad management even when the fundamental idea behind the business is sound. A body of academic research that finds good management is a better predictor of a firm’s success than R&D spending, IT spending or how skilled their workforce is.

Whether or not firms consistently monitor and improve their processes, set and revise targets, and incentivise employees through merit-based hiring, firing and promotion procedures explains almost a third of the differences in productivity between and within countries.

Report author Sam Dumitriu recommends practical reforms including tax breaks for self-funded work-related training to encourage greater investment in management capability to reduce the rate of unnecessary business failure. Put simply, when businesses are well-managed they create more jobs, pay higher wages, and sell better (and cheaper) products. Better managed workers aren’t just more productive and better paid, they’re happier too.

APPG for Entrepreneurship: Enterprise Education

To thrive in the modern world, Britain’s next generation must be adaptable to change. Up until relatively recently, a job for life was both possible and preferable. It’s increasingly neither. Universities have been central to many of the great intellectual revolutions across history – now they must embrace enterprise education to imbue students with the necessary enterprising skills to flourish in the twenty-first century.

Government has a role to play. Political action — or inaction — has significant repercussions for how enterprise education is delivered. This report aims to inform the government about the successes, challenges and opportunities for delivering enterprise education at universities. Its recommendations are based on responses to a Call for Evidence and aim to work with the grain of the latest thinking and practice.

Human Capital and Business Stay-Up

In recent decades, governments worldwide have employed an array of different policy tools to try to increase start-up rates in their countries, but relatively little attention has been paid to how to support ‘business stay-up’. In that it is among the fastest growing small businesses that employment growth, innovation and productivity gains are strongest, this lag in the progress of entrepreneurship policy should give us cause for concern.

Of those approaches to supporting business sustainability that have been tried, efforts to improve management practices have shown promise. This report adds to a growing body of evidence in this area, new research supporting the importance of human capital to entrepreneurial outcomes.

Author Gabriel Heller Sahlgren’s research substantiates a relationship between business owners’ specific areas of qualification and the growth of their enterprise. Moreover, and more importantly, he further finds that not all areas of qualification are equal in terms of stimulating success. The training obtained through programmes in business, social science, and law, and in technical areas, such as engineering, appear to lead to employee growth – whereas programmes relating to other subject areas do not.

Accordingly the author argues that governments should seek ways to incentivise training in high impact areas, and in management skills specifically. e most promising approaches, he finds, appear to focus on task-related training, in both an operational and specific sense. To maximise the probability of firm success, owners must therefore learn the operational skills of organisation and management, while at the same time keep up-to-date with the latest developments in the field in which they operate.

APPG for Entrepreneurship: Women in Leadership

The UK needs more early-stage businesses achieving longer-term survival and scale. Supporting female entrepreneurs is not just about increasing the number of women-owned businesses: it is about raising their performance and growth potential. Not only will this lead to more established SMEs contributing more to economic growth, but they could also serve as inspiration to young girls.

As more and more women turn promising ideas into thriving businesses, they will make up a greater share of entrepreneurial role models, thereby encouraging more women into the pipeline – from schoolgirls considering STEM to founders scaling big. According to our survey, less than a third of women now think gender has been a hindrance to success. However, the figure for men is a negligible 1 per cent. 

APPG for Entrepreneurship: Tax Reform

It is vital that, as Britain leaves the European Union, we are one of the best places in the world to start and grow a business. Getting tax policy right is key to creating a business environment that fosters entrepreneurship. Tax reform can deliver faster economic growth, boost employment and raise wages.

Demographics and Entrepreneurship

Developed countries face a long-term decline in entrepreneurship that is at least partially driven by demographics. Since demographic trends cannot be easily reversed, countries will have to improve the environment in which entrepreneurs and businesses operate, to encourage more and better entrepreneurs.

This series of essays are published in partnership with Canada’s Fraser Institute, the Centre for Strategic and International Studies (CSIS) in the US and the Institute of Public Affairs in Australia.

Mentoring Matters

In partnership with Barclays, this year the Female Founders Forum focused on mentoring. This report is based on the insights of speed-mentoring events held across the country, which were attended by both experienced and novice female entrepreneurs. Also, following up the theme of last year's Untapped Unicorns report, we have updated updated the data on female founders' access to equity finance.

Parliamentary Snapshot 2017

This is the fourth Parliamentary Snapshot. It uncovers MPs’ views on policies impacting entrepreneurs, providing unique insights on the opinions and working knowledge of the House of Commons. Once again, this report is supported by Bircham Dyson Bell (BDB).

Key finding include:

• 66% of Conservative MPs think “leaving the EU through a hard Brexit” would be good for entrepreneurship, only 8% of Labour MPs think the same.

• 71% of Labour MPs think “remaining within the EU” would be positive for entrepreneurship in the UK, only 10% of Conservative MPs think the same.

• Greatest divergence in four years of this survey between the two main parties on lowering personal taxes, with 91% of Conservative MPs thinking it would be good for entrepreneurship, compared to just 26% of Labour MPs.

• Over four years of the survey, Parliament has shown growing cross-party support for a more liberal immigration policy for British businesses. “Making it easier for entrepreneurs to move to the UK” is the second most popular change for MPs (79% of MPs are positive and 4% just negative), and we have seen increasing support from both parties for “making it easier to hire skilled workers from abroad” (62% of MPs are positive and 14% negative).

• Although MPs’ knowledge about initiatives to support entrepreneurs have risen against previous years, too many initiatives remain unknown. 54% of the MPs have never even heard of Venture Capital Trusts or don’t know enough about it to know whether it’s effective.

A Boost For British Businesses

Sixty-six entrepreneurs and experts have put their name to a letter calling on the next Government to put together a coherent plan to boost Britain’s businesses.

The letter supports this detailed policy report, which includes contributions from the Institute of Directors, Federation of Small Businesses, Nesta, Adam Smith Institute, Sage, IPSE, SQW, Coadec and Nesta.

The policy asks are at the vanguard of research in the UK; don’t rely on the vagaries of Brexit negotiations; could be adopted by all political parties; and wouldn’t put a significant strain on the exchequer. The project is sponsored by Sage.

Untapped Unicorns

Studies have shown that access to finance remains a persistent barrier to female entrepreneurs. We partnered with Barclays on the Female Founders Forum – a group of some of the UK’s most successful female entrepreneurs, who’ve joined heads to come up with tangible, actionable recommendations for tackling the funding issue. The project’s first report, Untapped Unicorns, outlines how Britain can scale up female entrepreneurship.

City of Entrepreneurs

In these pithy articles, the solutions to some of London’s biggest challenges are detailed and faced head-on by experts with the aim of ensuring Britain's capital continues to flourish.

Parliamentary Snapshot 2016

Once again, this Snapshot uncovers MPs' views on policies impacting entrepreneurs as well as providing useful insights on the opinions and working knowledge of the House of Commons. This report was supported by BDB.

Female Founders Forum: Briefing Papers

The Female Founders Forum is a group of some of the UK's most successful female entrepreneurs. These briefing paper cover the four roundtables we hosted at Barclays, Octopus Investments, Parliament and the London Stock Exchange. The ideas from these roundtables formed the basis of the Untapped Unicorns report. The Female Founders Forum is run in partnership with Barclays.

• Read the Barclays roundtable here.

• Read the Octopus roundtable here.

• Read the Parliament roundtable here.

• Read the LSE roundtable here.

Regional Voices: Yorkshire

This briefing paper is based on the edited highlights of a roundtable discussion. It took place at the Leeds office of PwC with business leaders invested in promoting Yorkshire as a hub for entrepreneurship. Our principal guest was Iain Wright MP, chair of the Business, Innovation and Skills (BIS) Select Committee. The ideas presented were designed to feed into his work on the committee, the Northern Powerhouse initiative and wider debates on how to support entrepreneurship across the whole of the country.