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Unleashing the potential of North East entrepreneurs

BGF News 07.23.2018

We’re living in fascinating times. The world around us is transforming at breakneck speed and with it attitudes towards enterprise and its potential to be a powerful and positive agent of change.

Look beyond the gloomy headlines around uncertainty, and the UK is brimming with passionate and ambitious entrepreneurs and business leaders – people with the drive to make a difference to the world around them. They are using their ideas and innovations to secure progress, create jobs and boost economic activity.

Today, BGF backs more than 200 entrepreneurs so we’re fortunate to witness this determination every day. And it’s not just the leaders and management teams – collectively more than 50,000 people are employed within these progressive and pioneering companies, which would make our portfolio the seventh largest private sector employer in the UK. This really is the backbone of the economy.

The North East is something of an unsung hero, as it is home to many brilliant businesses. In the past four weeks alone we have announced investments totalling £16.5m in a further two of them. Alnwick-based Arcinova, a life sciences firm that has previously received funding from Innovate UK as part of the Government’s push to increase overall spending on R&D in the UK, will use our investment to drive continued innovation and international expansion. Meanwhile, Sunderland-based SaleCycle, a marketing technology company, plans to open offices in Japan and New York, highlighting the need for UK growing companies to increase penetration of international markets.

We are encouraged by the quality, conviction and talent of entrepreneurs we meet across the North East, and the advisory community supporting them. So much so that we have today announced the opening of an office in Newcastle, signalling our intent to increase the £70m we have already invested in the region.

We are committed to making a difference. However, we should not ignore a growing structural problem that threatens the competitive position of the North East’s economy in the UK and abroad.

Last year, a report by data company Beauhurst found that transaction volumes in the North East had declined for the seventh consecutive year, largely driven by the reduction in government-backed deals.

The decline in such deals is not a phenomenon exclusive to the North East; the trend has been comparable in areas such as the North West but tellingly in that region private funding has moved in to fill the gap.

I believe that this has nothing to do with the North East’s ability to produce, nurture and house companies throughout their growth stages. I do, however, fear the impact it has on entrepreneurs’ perceptions about the availability of long-term funding and support – which risks becoming a self-fulfilling prophecy. In terms of the UK’s regional development, that is a problem.

However, there are three interconnected solutions.

The first is to activate significantly more institutional investment into growing businesses across all sectors, stages and, crucially, across the country. A large pool of domestic capital exists but is being side-lined and not being directed into the companies with the potential to scale up. Local pension funds, for example, possess large groupings of investable capital but are organised in a disparate and ineffective way. The North East could so clearly be beneficiaries of a more consolidated approach to deploying this capital.

Secondly, we need to instil an equity culture and method of investment that suits the entrepreneur and not the investor. Short-termism doesn’t build bigger businesses; nor does disincentivising or demotivating entrepreneurs by encouraging them sell their companies too early. Patience pays off and if we want to build successful and substantial businesses, we have to take a long-term view.

And finally, investors need to exist outside of London. We need to make it as easy as possible for entrepreneurs to find, understand and secure private investment and so, to be most effective, the relationship between the investor and entrepreneur has to be local. Proximity matters. It builds trust, develops relationships, and supports local communities.

We’ve invested over £1.5bn of growth capital – and more that 70 percent of this is outside London. That is powerful evidence that if you set up in cities around the country and empower strong local teams to have relevant conversations, you will see results.

Looking to the future, BGF will remain not just champions of the North East, but for UK entrepreneurs who want to scale up. We are immensely proud to be working with incredibly bright businesses in the region and our job now is to continue to seek, invest and build on this.

Stephen Welton, CEO, BGF