26 September 2017

Reducing the shortfall in ‘patient capital’

Gareth Magee gives his view of the way forward following a UK Government review of funding.

A UK Government review of funding for innovative firms has identified a shortfall in so-called ‘patient capital’ – the funds that enable a business, especially a high-tech business, to develop and grow ahead of being in a position to bring in revenue. 

The findings of this review are surely, to a large extent, missing the point and risk diverting the focus on to the wrong issues.

All innovative, high-tech businesses need finance to grow. And the mix of debt and capital, as in any business, is critically important.

In terms of ‘patient capital’, Scotland is actually streets ahead. Our network of actively investing business angel syndicates, further leveraged by the inspirational and innovative Government-backed co-investment fund, is world leading. What’s more, syndicates such as Apollo, which have a very specific focus on pre-revenue businesses, provide the perfect capital for growth ahead of the revenue curve.

Where the focus is needed is in improving the weak or non-existent provision of debt funding. The well-intentioned Enterprise Finance Guarantee scheme, introduced by the Government in 2009, has seen a shockingly poor uptake and the Government should be working to establish why that is.

In the meantime, the vacuum is rapidly being filled with new and innovative solutions. Take Edinburgh’s peer to peer LendingCrowd, for example. With clear lending criteria, a slick and simple process, and rapid decision times, our traditional banks are in severe danger of being left behind.

The way forward isn’t further Government review or innovation; it’s fixing or even simply using the debt schemes that are already there.

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