Belfast Telegraph

Why finance to help firms get started can make all the difference in future


Steve Jobs overcame early adversity to make Apple a household name
Steve Jobs overcame early adversity to make Apple a household name

By Patrick Graham, Business Growth Fund (BGF)

To be an entrepreneur is to embrace risk, it is at the very heart of what it means to build a business and to step into the unknown. But for every triumphant firm that enters the market, scales up, puts a smile on the face of its investors and becomes the envy of others, there are those that simply don't make it.

We often hear the stories of global firms like Apple, who overcame early adversity to become household names. But for many businesses that must confront similar turbulence, the ship never steadies, the corner is not turned, and the journey ends soon after it begins. It is a fact of business and one that we should avoid trying to deny.

In 2017, 18,401 companies went bust, that's one in every 200 businesses in the UK being declared insolvent or one business ceasing trading every 30 minutes - sobering statistics.

However, just under 180,000 businesses did survive their first year and who's to say one of them won't become the next Apple, Amazon or Airbnb.

The greatest threat to the economy - whether here in Northern Ireland, the wider UK or beyond - is not businesses that fail, it is those that never get started. It is an uncomfortable reality for some that firms don't always get it right, the financial climate isn't always in your favour and despite the privileged few that reject such notions, bad luck is real.

However, whilst a fear of failure could stifle budding entrepreneurs, the even bigger problem is that it is definitely stifling the appetite of the world's largest financial institutions to invest in start-ups in the UK and Ireland.

This is why. Start-ups and scale-ups are where innovation happens, employment is created and the potential for growth realised. As an asset class these businesses offer a unique opportunity for investors and hold the key to future economic prosperity - if only we embraced the fact that some will fail. The venture capital industry is predicated on the 'move fast and break things' maxim. It relishes the thrill of the chase for the next unicorn and the quick pay-outs of a rapid success story. But it refuses to recognise the high chance of failure that is baked into its business model.

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In 2018, on average, Business Growth Fund has invested in a business every week at a time when most investors complete a handful a year. Being a unicorn hunter with all your eggs in a few champion baskets, the only option is to get it right, all of the time, and in the process say no to hundreds of businesses that have huge potential.

The result is that the real money - financial institutions and pension funds - see start-ups as a risky investment pursued only by those with the appetite for quick wins.

If a fear of failure is stopping potential entrepreneurs from starting companies, a fear of failure stoked by the VC industry is stopping investors from unlocking serious growth capital. I would argue the second is by far the more damaging for UK and Ireland businesses and needs to be addressed.

This is particularly relevant for an SME-based economy like Northern Ireland, which has no shortage of exciting start-ups and excellent established small and medium-sized businesses with real potential to scale up into something bigger and better. SMEs are the backbone of the economy here, but currently only a handful of them will ever get the opportunity to really compete on the global stage.

Funding start-ups and scale-ups is not conducive with a 'move fast and break things' attitude, but far more attuned to a 'keep calm and carry on' approach. It requires patient capital that supports the long-run trajectory of a business. An asset class that can weather turbulent times, deal with the inevitable firms that fall and deliver on those that do.

One unicorn from 100 investments aren't appealing odds. But 180,000 examples of stable growth from 197,000 new businesses suddenly looks a lot more attractive.

This is the time to sponsor positive change - embrace those that dared and didn't make it. But we also need to recognise the fact that not every company is going to become a unicorn or an Apple. Actually, the more reliable investment is the vast majority of small to medium sized businesses that will focus on steady growth. Success comes in just as many forms as failure.

The business community and society at large can champion these start-ups and scale-ups with patient capital. This is the 'asset class' that will underpin the UK's long-run economic growth.

  • Paddy Graham is director of BGF

Belfast Telegraph