A new report shows that small business appetite for long term equity-based finance has increased significantly in the last 12 months during which time demand for traditional bank debt has continued to fall.
Based on interviews with 1,000 SMEs, the fourth Albion Growth Report sheds light on the factors that create and impede growth in post-Brexit Britain. It found that 44% of small and medium sized business (SME) owners would consider taking equity finance, up from 34% a year ago. In 2013 just 12% of SMEs were willing to swap equity for support.
26% of business owners would consider a ‘Dragons Den’ style exchange of equity for hands-on support from venture capital, private equity or business angels, rising to 35% among firms with more than five employees. Over the same period, demand for traditional bank finance fell to 45%, down from 49% in 2015, suggesting that the UK SME sector is pivoting away from its reliance on debt.
In its analysis of the largest barriers to growth, the report shows that access to finance, arguably the highest profile concern facing small firms in recent years, has fallen to seventh place in 2016 (and 13th among firms with over five employees), down from sixth in 2015 and fourth in 2014.
On a sector basis, appetite for equity finance was the strongest by far among IT and telecom firms (52%), manufacturers (40%) and transportation and distribution companies (32%). Construction firms trail at just 13%.
On a regional basis, SME owners in London are the most likely to consider equity investment (37%) followed by those in the East of England (35%) and Scotland (29%).
Millennial entrepreneurs are by far the most enthusiastic towards equity finance with 40% considering this approach compared to 29% of CEOs in their forties. Male business owners are far more likely to consider equity from venture capital, private equity and business angels (28%) compared to just 16% of females.
The growing popularity of equity finance is supported by recent data which revealed that £4.9 billion was invested in fast growing UK businesses across 2,989 transactions in 2015-16, the highest on record.
Patrick Reeve, managing partner at Albion Ventures: “It’s a vote of confidence in the post-Brexit economy that demand for equity finance continues to grow among entrepreneurs, underlining a psychological shift from the traditional reliance on bank debt as the source of growth finance.
“What is particularly welcome is the emergence of the ‘Dragon’s Den generation’ – those under 35 who embrace an equity culture. The greater willingness of younger CEOs to use equity rather than banks to secure the funds they need suggests we’re shifting towards a more entrepreneurial model as seen in the US.”