As we usher in 2015, it’s worth taking a moment to remember that among the nascent economic recovery underway in Britain, there has been one particular shining light: small and medium-sized companies. Last year, a record over half a million new startups were registered in Britain. That is an astounding number. The UK now boasts a fast-growing regiment of dynamic small businesses, which after five years of economic strain are playing an increasingly vital role in driving Britain’s revival forward. Recognising this we, in both private and public sectors, must do all we can to nurture these companies.
The London Stock Exchange is convinced that the success of our future economy is reliant on high growth companies that have the ability to scale up rapidly, and that a common challenge to them all is finding appropriate, sustainable financing. We strongly believe that what is essential to their future success is moving away from bank and debt finance, towards a place where equity finance plays a much greater role. Developing equity financing is especially crucial for Britain’s smaller companies as more than 50% currently use credit cards to fund their business. Of course, bank financing is crucial to all companies, but equity can be a more stable, long term and diverse source of funding, which needs to be actively encouraged.
We are continually looking at new ways to enable growth businesses to access the public markets, but also recognise that there is more to do to help these companies succeed than just the growth of public market finance. A comprehensive funding ladder needs to be established and we encourage equity investment from business angels, private equity firms and venture capital firms. Promoting alternative sources of finance to bank lending will increase the resilience of the UK’s financial system - a task for the entire business community and government.
Over the past two years, we have worked closely with the UK Government to try to relieve some of the financial pressure on smaller, growing companies and to increase choice for both issuers and investors. This will allow investors to align themselves with the long term growth opportunities these businesses are pursuing.
In August 2013, the Government’s initiative to allow AIM-quoted shares to be included in ISAs came into force, resulting in a stronger uptake in AIM shares by private investors. The removal of stamp duty for AIM shares in April 2014 provided a further significant boost for these businesses and was a key factor that enabled companies to raise £6bn on AIM in 2014 through a mixture of IPOs and follow-on capital raisings.
We were also heartened last year by a new report produced by serial entrepreneur and angel investor, Sherry Coutu, commissioned by the Information Economy Council. Released in November, The Scale-Up Report on UK Economic Growth lays out a clear and achievable pathway for the UK to follow if we are to close the gap with the US in the way in which young, exciting companies – of which we now have many – can be given the foundations from which to achieve real scale. The prize for doing so is extraordinary: an additional 238,000 jobs and £38bn added to the UK economy over just the next three years. Over the medium term, the report estimates that number could be nearer £100bn per year.
The excitement that these businesses are generating for the UK economy is palpable. Signs of a ‘tech revolution’ are being talked about and there is no doubt that high growth innovative firms have a unique capacity to innovate and create new jobs. We need to continue to foster, through policy and practice, a richer, more diverse entrepreneurial ecosystem in which high growth firms can take root and grow across Britain.
The message for 2015 and beyond is clear: if we want to maximise jobs, wealth and tax intake, we need to provide a fertile environment in which growing companies can achieve global scale and create a movement to help Britain create the real jobs and wealth engine of a vibrant economy.
Marcus Stuttard is head of AIM and UK Primary Markets, London Stock Exchange
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