These 8 barriers are preventing the creation and growth of UK businesses
61% of European-listed businesses have market capitalisation of less than €200m, compared to just 46% in Hong Kong and 39% in the US
Small and medium-sized high growth businesses within the European Union are struggling to obtain early stage funding in comparison to their US and Asian counterparts, according to a report by AFME
The Shortage of Risk Capital for Europe’s High Growth Businesses has revealed that European companies receive just €1.3m, on average, from venture capital compared to €6.4m in the US.
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It’s suggested many forms of financing are also being underused and neglected by businesses, as just between 8% and 10% of UK firms currently make use of venture debt – compared to 15-20% in the US.
Indeed, 61% of European-listed businesses have market capitalisation of less than €200m compared to just 46% in Hong Kong and 39% in US emerging growth companies – suggesting there is plenty of room for improvement in the European risk capital landscape.
When it comes to the main factors for UK and European businesses failing to achieve growth, the report highlights eight key barriers, as well as recommending solutions to each:
- Fragmented start-up market: Creating a single EU framework with standard rules across all members would help give businesses greater access to 508 million consumers.
- Lack of awareness of risk capital benefits among businesses: Proving entrepreneurs with more clear information on risk capital would help ease business failure rates.
- Under-developed business angel and crowdfunder capacity: By aligning all the best practices, consistent tax incentives would create a better environment for angel investors.
- Insufficient business angel exit opportunities: Angels and crowdfunders require better exit opportunities.
- Insufficient venture capital funding: Incentives should be created for investing in VC funds.
- Small venture debt market: Developing the venture debt market in Europe could provide the necessary funding for VC-backed businesses to reach their next milestone
- Unfavourable environment for businesses to access public markets: The development of a small business advisory ecosystems could help smaller firms plan for long term growth.
- Sluggish primary equity market: The decline in IPOs should be tackled to aid European growth.
Simon Lewis, chief executive of AFME, said:
“Europe’s shortage of risk capital for high-growth businesses is a pressing issue, particularly given the enduring low growth environment. Collectively, we are pleased to present this pan-European report providing data and recommendations on improving access to equity and venture debt financing for high growth companies. The industry looks forward to working with the commission to help further the Capital Markets Union and growth agenda and boost EU companies’ competitiveness.”