10 March 2010
The City has a vital role to play if new businesses are to
survive and grow
A report published today by the City of London Corporation
examining the role and contribution of public equity markets in
providing funding for small to medium-sized businesses (SMEs) based
in the UK has highlighted the important contribution made by SMEs
to the UK economy as well as the benefits, shortcomings and
efficacy of the UK’s two main growth markets (AIM and PLUS) in
supporting their access to equity finance.
The report states that of the estimated 4.8 million enterprises
in the UK at the start of 2008 (latest figures available), 99.4%
were classed as medium sized or smaller (less than 250 employees).
Between them, these businesses accounted for 59.4% of total private
sector employment and generated 50.1% of private sector
turnover.
Stuart Fraser, Chairman of the Policy and Resources Committee at
the City of London Corporation, commented:
“Small and medium-sized enterprises (SMEs) will be vital drivers
of the UK economy as we look to move towards a sustainable,
long-term recovery, not only in terms of job creation and growth
but also through their flexibility, capacity for innovation and
geographical spread.
“If they are to succeed in this task, the City has an important
role to play by providing the finance new businesses require to
survive and to grow.
“However, providing funding for SMEs poses specific challenges
and, at a time when lending institutions are being told that they
must act in a more prudent manner and hold even greater amounts of
capital on their balance sheets, many small businesses are finding
it hard to obtain finance through the traditional means.
“That is why this report into the role that public equity
markets play in providing funding for SMEs is so important.
“Equity investors differ from bank lenders in their expectations
of return and their view of risk - our public equity markets are
the largest growth markets in the world and have substantially
increased the variety of capital raising and investing
opportunities for UK financial services in SMEs.
“A healthy and growing smaller business sector is not a luxury
but a necessity in these challenging economic circumstances.
“It is the responsibility of the financial services industry to
create better blend of alternative funding streams and new products
that can be easily accessed by SMEs and that meet their individual
requirements.
“That is the challenge we must meet in order to make sure new
businesses have the support they need to survive those difficult
first few years, so they have every opportunity to grow and to
become genuine assets to the UK economy.”
In addition to the difficulties directly attributable to the
economic downturn, the report also highlights a number of specific
reasons why SMEs are struggling to raise external finance:
- A reduction in the supply of early stage venture capital finds
(£2m to £10m) has led to SMEs becoming more reliant on business
angels to meet their equity finance needs.
- The investment relationship between business angels and venture
capitals has become increasingly disconnected and business angels
are now tending to fund SMEs for an exit rather than seeking
ongoing investment or a market listing.
- The Initial Public Offering (IPO) market is depressed and both
business angels and venture capital funds are finding it difficult
to exit from investments in order to raise capital.
The report identifies the role of the AIM and PLUS growth
markets in providing a platform for investing in SMEs and suggests
that 2010 will bring new opportunities for both AIM and PLUS to
support high growth SMEs in accessing equity finance.
It also calls for enhanced Government support for the business
angel market by increasing financial input and tax incentives and
amending the Enterprise Investment Scheme rules so as to address
the investment disconnect between business angels and venture
capital firms.
Ends
Notes to editors
Download a copy of The City’s Role in Providing for the Public
Equity Financing Needs of UK SMEs
About the City of London:
The City of London Corporation is a uniquely diverse organisation.
It supports and promotes the City as the world leader in
international finance and business services and provides local
services and policing for those working in, living in and visiting
the Square Mile. It also provides valued services to London and the
nation. These include the Barbican Centre and the Guildhall School
of Music & Drama; the Guildhall Library and Art Gallery and
London Metropolitan Archive; a range of education provision
(including three City Academies); five Thames bridges (including
Tower Bridge and the Millennium Bridge); the Central Criminal Court
at Old Bailey; over 10,000 acres of open spaces (including
Hampstead Heath and Epping Forest), and three wholesale food
markets. It is also London’s Port Health Authority and runs the
Animal Reception Centre at Heathrow. It works in partnership with
neighbouring boroughs on the regeneration of surrounding areas and
the City Bridge Trust, which it oversees, donates more than £15m to
charity annually.
About Stuart Fraser:
Stuart Fraser is Chairman of the Policy and Resources Committee of
the City of London Corporation. View his biography
Press contact
James Abbott
Tel: 020 7332 1754
Mob: 07831 543188
Email:
james.abbott@cityoflondon.gov.uk