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Entrepreneurs say company valuation disagreements and weak business records are most likely to derail funding deals
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66% say access to more venture capital would contribute most to starting or growing a business
LONDON, January 30, 2023 /PRNewswire/ — Early-stage entrepreneurs are hampered by a lack of information about how to access the external financing needed to support their growth plans, according to new research released today by the Venture Capital Trusts Association ( VCTA).
The VCTA surveyed 240 senior executives responsible for recently started small businesses that are less than seven years old and employ up to 250 employees. Despite the vast majority (92%) of respondents needing equity funding in the next two years, almost half (44%) say they lack information on how to access it, rising to 47% among entrepreneurs based outside London and Southeast.
Business owners say financing agreements most often fail with potential lenders because they fail to agree on a company valuation (43%), lack of a proven track record (42%) or a fully developed business model (37%) .
The VCTA survey highlights the critical role that equity funding plays in helping early-stage businesses grow: two-thirds (66%) of respondents believe that increasing the availability of venture capital funding would make the most difference in supporting entrepreneurs , who want to start or develop a business. This significantly outstrips other factors including access to local skilled staff (48%) and better local transport links and infrastructure such as broadband (34%).
Will Fraser-Allencommented the chairman of the VCTA:
“This research clearly shows that more work needs to be done by the venture capital industry to bridge the knowledge gap between young, fast-growing companies seeking the funding needed to scale and realize their potential.”
“Young companies often find it difficult, if not impossible, to obtain debt financing because they are too small and young to meet the criteria of most lenders, leaving equity financing as the preferred route to fulfill their growth ambitions.
“Venture capital trusts are specifically designed to address these barriers while investing in young, innovative businesses. By their very nature, entrepreneurs often do not have a proven business track record and their business model may need to be refined and refined by an experienced outside investor. VCT managers are used to overcoming the difficulties of valuing early-stage companies and are more likely to find a solution that works for both parties.”
Location is not a barrier to growth
Given the government’s plan to improve jobs, pay and living standards across the country, the VCTA study explores the importance of entrepreneurs’ choice of location on their chances of success. A large majority (88%) felt their current address was a benefit, while only 3% said it was a hindrance, while 9% felt it had no impact.
Contrary to popular belief, companies based in London and the South East have an advantage, with almost twice as many respondents based outside these regions (24%) saying their location is a “significant” advantage (24%) compared to those in and around the capital (13%). However, a slightly higher proportion of London and business owners based in the South East (90%) believe their location benefits them overall, compared to the rest of the UK (88%).
Will Fraser-Allenchairman of the VCTA, continued: “It is encouraging that such a large majority of early-stage businesses see their choice of location as an advantage. VCT’s managers invest in companies based across the UK and have more than 20 regional offices in towns and cities across the country. Investment professionals based in major cities can be closer to companies in these areas and will have a better understanding of their needs. A local presence ensures that the availability of patient capital is well known and understood by local entrepreneurs.”
“VCTs have an excellent track record of creating well-paying jobs in innovative, fast-growing industries across the country. These companies deliver important economic and social benefits to the UK, ranging from exports and increased tax credits to cutting-edge technology and job creation in sectors as diverse as healthcare, online retail and green technology.”
To illustrate this, the average salary of an employee in an unlisted VCT-backed company in the North West of England is approximately £40,000, which is nearly £10,000 higher than the average salary for the region. Average salaries for VCT-backed quoted companies in the North West rise to £50,000.
IN West Midlands, the average salary for an employee in a listed VCT-backed company is over £41,000, rising to more than £47,000 in unlisted VCT-backed companies. The average salary in the region is around £30,000.
About the Association of Venture Capital Trusts
The Venture Capital Trusts Association (VCTA) is the industry body representing twelve of the UK’s largest venture capital trust managers. Its members make up more than 90% of the VCT industry, with £6.6bn of funds under management invested through a wide regional network of UK local offices.
It is an industry body that actively campaigns to support early-stage businesses during a period of significant economic turmoil and creates a regulatory environment to unlock sufficient growth capital to accelerate the UK’s recovery.
See original content: https://www.prnewswire.co.uk/news-releases/vcta-early-stage-business-leaders-say-knowledge-gap-is-biggest-barrier-to-accessing-finance-301732536. html