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Finance for growth
2.19 Too many small UK businesses with good ideas have problems finding appropriate, affordable finance. The pace of change in the knowledge driven economy requires financiers to be as enterprising as entrepreneurs.
2.20 US entrepreneurs are backed by a strong venture capital industry. The UK venture capital industry is the largest in the EU and is growing. However, relatively little UK venture capital goes into early-stage and technology-based investments. Institutional investors need to consider how they might invest more funds in venture capital to stimulate the emergence and development of businesses with high-growth potential.
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Larry Sonsini, a leading US venture capitalist, highlights the difference between the attitude of UK and US venture capitalists:
"These US venture capital firms do more than provide capital...they are prepared to support the enterprise with recruiting, management, and business development. They develop business plans. They even incubate start-ups. They will find a successful technologist, or an engineer, or manager."
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2.21 Bank lending remains the most important source of finance for small businesses. Commercial banks are paying more attention to innovative, high-technology businesses. But UK banks are not as proactive in seeking out innovative small businesses as their US counterparts. Against the background of changing business needs, the Government has initiated a review of innovation, competition and efficiency in UK banking. This work will be led by Don Cruickshank and will report to the Government and Parliament next year.
2.22 Banks and venture capitalists need to develop better ways of assessing risk, particularly for innovative or high-technology businesses. They need to review how their products respond to businesses whose key assets are in know-how, not land and buildings.
2.23 Business needs to play its part in addressing financing issues. Many entrepreneurs are afraid of incurring significant debt finance after the damaging experience of the last recession. They are also reluctant to raise equity finance either through ignorance of the products available or because it involves ceding a degree of control over their business. These businesses need help in accessing the most appropriate form of finance for their needs. They need the financial and marketing skills to communicate more clearly to the financial community the opportunities offered by their ventures.
2.24 The Government will work with the banks and the venture capital industry to address these issues. It will, in partnership with the private sector, support an Enterprise Fund worth some £150 million over three years.
- A national venture capital fund will support very early-stage, high-technology businesses. This is currently under discussion with six leading financial institutions, Lloyds Bank, NatWest, the Bank of Scotland, the Royal Bank of Scotland, the European Investment Bank and the European Investment Fund.
- New regional venture capital funds will specialise in providing small-scale equity to businesses with growth potential, drawing in local expertise. The Government will work with the Regional Development Agencies on how to take this forward.
- More help will be provided using the Small Firms Loan Guarantee Scheme for businesses without the collateral or track record that banks normally require.
- The finance industry will be helped to develop innovative financing ideas to assist growth businesses.
2.25 The new Enterprise Fund will take full account of existing support in this area. In Scotland, a new Business Growth Fund has been established with £12 million over three years to provide loan funding mainly for start-up and early-stage companies. Scottish Enterprise and private sector investors will together invest around £25 million over six years in the Scottish Equity Partnership. This funds investments below £500,000 in new and early-stage businesses in key sectors and technologies.
2.26 In addition, the Government will look at other ways to increase the availability of finance. It will:
- consult on how to make it more attractive for large businesses to become expert investors, "corporate venturers", in small, growth businesses, possibly using the tax system
- look at how to strengthen the public markets for small businesses to provide the kind of liquidity available in the US
- improve small businesses' access to equity finance by facilitating cross-border public offers of securities within the EU
- promote best practice to enhance the development of risk capital markets in Europe.
Global ambitions
2.27 Many growing businesses need to export in order to expand output, increase productivity and spread risk. Through exporting they are exposed to tougher competition and more demanding customers which in turn improves their competitiveness. Contacts made through overseas trade also help businesses tap into new ideas and knowledge. Exporting requires the acquisition of skills, knowledge of markets and marketing. To make this easier, the Government is modernising its assistance to make it more accessible and coherent, particularly for smaller businesses competing in the knowledge driven economy.
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Britain's new generation of entrepreneurs
Jason Kingsley,
Rebellion
Jason Kingsley and his brother Chris started their computer games company in a basement five years ago. The company has grown rapidly and plans to quadruple turnover in the next two years. The brothers have taken a long term view of Rebellion's development as a corporation, developing partnerships with global players such as Microsoft and 20th Century Fox.
Paul Walker,
Sage Group
Paul Walker is Chief Executive of the Sage Group plc which more than doubled in size from 1994 to 1997. Sage is the world's leading supplier of PC accounting software and related products to small businesses and has achieved this prominence through being marketing-led, remaining dedicated to its core products and services and understanding the value of long term relationships with its customers.
Hilary Cropper,
FI Group
Business technology services company FI Group works predominantly with FTSE 100 organisations in the financial, retail and leisure and services sectors. Deputy Chairman and Chief Executive Hilary Cropper attributes the Group's 50 per cent growth in annual pre-tax profit for the last five years to its innovative approach to building long-term partnerships, and to the fact that over 40 per cent of FI Group is in the hands of the workforce - giving it a vested interest in the Group's performance.
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The Government will modernise its services for exporters by:
increasing its use of the Internet, including a new DTI web-site on Europe which will provide easy access for exporters to information about EU initiatives and help to those who come across unfair barriers in the Single Market
better targeting on markets which offer the best scope for exporters or where opportunities are not being exploited
relating UK sectoral strengths to particular markets and placing greater emphasis on opportunities for outward investors and service providers
improving its responsiveness to the customer including using ICT, more sophisticated performance measurement and customer surveys and restructuring export services to make them more coherent, consistent and customer focused. A review by the Cabinet Secretary will report shortly.
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Reducing regulatory burdens
2.28 Excessive or poorly conceived regulation means higher costs, less choice and fewer jobs. Smaller businesses bear the brunt. They have fewer staff to cope and are less able to bear the costs. The Government is acting to reduce the burdens of unnecessary regulation.
- It has set up the independent Better Regulation Task Force which is looking at the impact of regulation on productivity. The Government has accepted many of the Task Force's recommendations on specific regulatory issues; for example, DTI will simplify the complex weights and measures legislation.
- It has introduced stringent requirements before new regulations can be made. These include: full assessment of the risks, costs and benefits and environmental impact; consultation with all those who might be affected and consideration of alternative approaches.
- It is considering extending the deregulation order-making power to remove even more out-of-date and unnecessary legislation.
2.29 The Government is committed to cutting bureaucracy to help business, including by much greater use of electronic government.
- In April 1999, the Inland Revenue and the Contributions Agency will merge. Customer service will be improved, easing the compliance burden on business.
- The Cabinet Office is upgrading the Direct Access Government web-site which provides a single point of access to regulatory guidance and forms.
- The Government is proposing to develop a
Single Business Register to simplify businesses' interactions with government.
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Britain's new generation of entrepreneurs
Christopher Shokoya-Eleshin, Shokoya-Eleshin Construction
Christopher Shokoya-Eleshin is chief executive of Shokoya-Eleshin Construction,
a prominent ethnic minority business based in Liverpool. Christopher is an authority on urban regeneration and securing socio-economic benefits to targeted communities. He stresses the participation of black, ethnic minority and disadvantaged groups throughout the construction process. The company aims to employ 75 per cent of its workers from the local area.
Simon Bell, New Covent Garden Soup Company
Simon Bell is Managing Director of New Covent Garden Soup Company. It has created and established a market for fresh chilled soup, which is showing dramatic growth. The company's range is the clear branded market leader in the UK, with 41 per cent of a market worth around £55 million, and a developing export market in Europe.
Bushra Ahmed, Joe Bloggs Company
Bushra Ahmed and her brother Shami set up the Joe Bloggs Company 11 years ago, though Bushra had been involved in the clothing industry from an early age.
At fifteen she was buying for all her father's retail shops. The company has achieved great success through devising striking and innovative ways in which to promote
its image, including endorsements by leading figures in music and sport.
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Investing in R&D
Renishaw is a company which puts investment in R&D at the heart of its strategy.
Its products allow manufacturers to machine components accurately and perform measurements traceable to International Standards.
The use of Renishaw's products ensures that exacting specifications are met with cost-effective solutions.
Renishaw exploits the latest technology in designing and manufacturing its own products, developing much of this in-house. An example is the award-winning RAMTIC (Renishaw's Automated Milling, Turning and Inspection Centre) which gives in excess of 130 productive hours weekly, with assured quality.
Since the company's formation, 25 years ago, there has been a high commitment to research and development which annually, together with engineering expenses, amounts to some 12 per cent of sales. Eight of its products have been selected as Millennium Products - a DTI funded programme, managed by the Design Council, to identify and celebrate world-class products and services created in Britain. |
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