Seven proposals for supporting the growth of scaleup businesses
In May, BGF hosted Scaleup Week, a series of virtual sessions exploring the issues facing growing businesses – everything from innovation and diversity to climate change and more. Based on those conversations, we have published a report, What Happens Next Matters, which explores the factors that will disrupt, reshape and reorganise the operating environment in the decade ahead.
The report also offers our vision for the future: a series of proposals to unlock the creativity, power and ingenuity of scaleup businesses so that they are well-prepared to overcome the challenges and benefit from the opportunities that are ahead.
Below, we have listed our seven proposals. These ideas are based on the sessions at Scaleup Week, which was presented in partnership with the ScaleUp Institute and with active engagement from Government, including the Secretary of State for Business, Energy and Industrial Strategy.
The proposals are aimed at a range of stakeholders, from government ministers to private sector organisations and to business leaders themselves. We believe that as progress is made in the directions we have signposted, then scaleup businesses will do the rest.
As our executive chairman, Stephen Welton puts it, “Given that these businesses – and especially the growth economy companies that BGF exists specifically to support – are a tremendous source of growth and innovation, the help they receive will repay itself several times over in terms of impact on the broader economy.”
Expand the sum of private capital available for equity investment in scaleup companies. We call for the removal of the regulatory barriers that prevent or disincentivise UK institutional investors, such as pension schemes and insurers, from investing in unlisted equities.
A good first step would be to add long-called-for flexibility around the defined contribution (DC) pension funds’ charge cap – in the form of excluding performance fees from this cap for relevant growth equity and venture capital investments – to enable such entities to invest in these important assets that have for too long been the preserve of the rich. This will not only benefit the scheme members who are currently missing out, but also the scaleup companies in need of investment, and the wider economy that depends on such companies to power its growth.
Alongside this, building on the work the British Business Bank has underway with the ScaleUp Institute and ecosystem, and the roundtable convened with HM Treasury in Scaleup Week, we propose a nationwide public information scheme, targeted at scaleup business owners and entrepreneurs of all kinds, to increase awareness of the opportunities of equity capital investment.
Recognise the economic and cultural value of decentralisation, both in terms of meeting local needs and preferences and driving national economic progress.
The growth economy is regionally dispersed, with two thirds of scaleup companies based outside London and the South East, and a significant distribution outside of major cities. Yet funders are all too often based in and around the capital, and the heavy concentration of the UK’s financial services sector in London exacerbates the problem.
A key plank of the nation’s ‘levelling up’ agenda should be fully investing in professional services across the UK to create much deeper local ecosystems, in turn driving awareness and practical help, including meeting infrastructure commitments to ensuring connectivity, and shoring up support for innovative local initiatives such as free ports.
Unlock the power of scaleups to help achieve net zero. While rising investor interest in green growth companies is encouraging, there must be a recognition that green businesses often require financial backing that is long term in nature.
The active development of the Future Fund: Breakthrough programme, which is based upon recommendations from ‘The Future of Growth Capital’ report in 2020, may be crucial in providing patient capital at scale. BGF has invested £200 million in businesses that are actively engaged in tackling climate change – a sector we call green growth – and will substantially increase this sum in the months and years ahead.
The crucial role that scaleups will play in meeting national climate-change objectives should not be underestimated.
Put education and skills provision at the heart of national commitments to growth and innovation. This means unlocking the power of the state-run system by adding more flexibility to apprenticeship schemes and ensuring high-quality financial and entrepreneurial education at schools.
We back the ScaleUp Institute in calling for the The National Skills Guarantee, Apprenticeship, and Kickstart programmes to be as accessible to scaleups as possible. Subjects such as computing that represent skills needed by scaleups should be better entrenched in school curriculums with increased uptake as a GCSE or equivalent level subject in schools. The expertise of local scaleups and university innovators should be called upon by the state sector to boost provision.
There must be a firm commitment to helping children catch up on their essential numeracy and literacy skills, following the disruption to schooling during the pandemic. The private sector should contribute to this, in terms of offering to help with both knowledge acquisition and resources.
In order to make ‘Global Britain’ a reality, the UK must welcome foreign investment, establish trade corridors around the world, engage with sovereign wealth funds, and lead on innovation.
Attracting international talent must be a priority, and the work now underway by the government on a scaleup visa, as recommended by the ScaleUp Institute, is very welcome. How it is set up and delivered will be critical to enable scaleups across sectors to hire smoothly the global talent they need.
We also call for the UK to take a lead on sharing knowledge globally and removing barriers to the export of data, services and intangible goods.
To accelerate innovation, the UK should expedite the meeting of its commitments to increase R&D spending, as a percentage of GDP, to match the OECD average of 2.4% – and then go beyond that.
As the UK Innovation Strategy evolves, the role of Innovate UK, with its regional footprint, should be expanded to help achieve that target. As the data shows, its role is seen as vital to scaleups. BGF and the British Business Bank can assist scaleups in deploying and commercialising innovation.
We support the creation of the Advanced Research and Invention Agency (ARIA), which should be launched quickly, and be tuned to work effectively with the private sector alongside those initiatives with proven impact for scaleups.
Make the investment industry more representative of wider society, and fully appreciate the value of diversity of all kinds. Investment companies should thoroughly review hiring policies and practices with the aim of eliminating bias, providing support and opportunities for underrepresented groups, and unlocking the vast potential of a diverse talent pool.
Internship programmes such as 10,000 Black Interns are an excellent model for achieving outreach. Measures to increase the number of women in investment are key. The proportion of women on BGF’s investment team has risen to a current level of 27%, which is well ahead of the industry, and trending in the right direction, but not yet where it should be.
Read more about the context surrounding these proposals in the full report, What Happens Next Matters.
Business funding insights
Six financing options for businesses ready to grow
From private equity to crowdfunding, here’s our guide to financing options for established businesses and start-ups
The good growth blog: the future is wearable
Apple’s £3 trillion valuation has our chairman thinking about technology of the future, such as wearable devices by investee business Myzone.