Growth firms ‘held back’ by limited sources of finance
The report found 81% of Scottish investments are from investors in the country
Scottish growth businesses rely heavily on investors based within the country – and in most cases within a short distance of where they are based, according to new research.
While Scotland has one of the most vibrant financial ecosystems in the UK, there are fewer choices of finance which is holding back ambitious entrepreneurs, it said.
Scotland’s 9% share of UK equity deals since 2011 outperformed its 6% proportion of the SME population, but its value of private debt investment was just 2%.
This imbalance reflects the regional disparities in access to equity finance and private debt across the UK, which are wasting economic potential, the report found.
The data emerges in the British Business Bank’s first annual Regions and Nations Tracker.
It found that 81% of equity investment stakes in Scottish companies involved an investor within the country, behind only London’s 90% – which has a vastly larger investment community – and ahead of North East England with 66%.
About one-eighth (12%) of equity investors in Scottish companies were based in London, while 7% were based in other parts of the UK.
Companies in Edinburgh are the focal point of the Scottish equity market, with nearly half (47%) of pairings between businesses and investors based in Edinburgh. Glasgow is the second highest with16% of pairings. North Lanarkshire and Aberdeen represented 9% and 5%, respectively.
Investors are far more likely to invest in businesses close to their office with 82% of equity investment stakes within two hours of each other and 61% are within one hour of each other.
In Scotland, three-quarters (75%) of business-investor pairings were within two hours of each other.
The preference for short distance deals has not been impacted by the increase in remote working due to Covid-19, the data shows only a slight uptick in the mean and median travel time in 2020.
Catherine Lewis La Torre, CEO of British Business Bank, said: “The lower flows of finance in certain regions and localities reflect a population of businesses operating with fewer choices.
“These gaps in growth finance are undoubtedly holding back ambitious entrepreneurs and lead to wasted economic potential. This is something the British Business Bank is committed to changing.”
Access to growth finance is particularly difficult for rural business owners who are more likely to resort to injecting personal funds into their businesses, especially in the construction sector.
The report found 38% of rural construction business owners used personal funds compared to 27% of their urban counterparts. Almost a quarter (23%) of all businesses in Scotland are registered in rural locations.