entrepreneurs index volume 4 - barclays · capital for companies with turnover of £5m to £100m....

Volume 4

So, what exactly is our investment focus?High-tech to high street.Factories to fitness.Print to digital.Getaways to takeaways.Hard data to software.Big energy to a wee dram.Downtime to downloads.Good design to good health.Clicks to bricks.Whatever the sector, our focus will always be on you, your business and your plans.

BGF is the UK's most active provider of growth capital for companies with turnover of £5m to £100m.0845 266 8860 | www.bgf.co.uk

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About Barclays

Barclays is a major global financial services provider engaged in personal banking, credit cards, corporate and investment

banking and wealth and investment management with an extensive international presence in Europe, the Americas,

Africa and Asia. Barclays purpose is to help people achieve their ambitions — in the right way.

With over 300 years of history and expertise in banking, Barclays operates in over 50 countries and employs approximately

140,000 people. Barclays moves, lends, invests and protects money for customers and clients worldwide.

For further information about Barclays, please visit our website www.barclays.com

About Business Growth Fund (BGF)

With £2.5bn of capital, BGF is Britain’s largest single investor of equity in ambitious and growing British businesses.

Its origins are with the Business Finance Taskforce, formed in 2010 to generate ideas that would help return the UK

economy to growth. The Taskforce comprised the chiefs of the UK’s largest banks, including Barclays, and BGF was one

of its key recommendations.

BGF was officially launched in May 2011, and made its first investment in October that year. Since then BGF has made

more than 45 investments, providing over £250m of new capital to UK companies.

So, what exactly is our investment focus?High-tech to high street.Factories to fitness.Print to digital.Getaways to takeaways.Hard data to software.Big energy to a wee dram.Downtime to downloads.Good design to good health.Clicks to bricks.Whatever the sector, our focus will always be on you, your business and your plans.

BGF is the UK's most active provider of growth capital for companies with turnover of £5m to £100m.0845 266 8860 | www.bgf.co.uk

BGF-SME300-210x297-amended-AW_Layout 1 03/03/2014 12:26 Page 1

1

Expert PanelWe are extremely grateful for the time and help given by the experts on our panel.

Julian Frankish, Head of Business Economics and Research, Barclays Business Banking. His role at

Barclays involves detailed research of all aspects of the UK small business market, in collaboration with

both internal and external partners, to help improve the products and services offered.

Dr. Imran Hakim, Entrepreneur and CEO of the Hakim Group. Dr. Hakim secured funding secured

funding on BBC’s “Dragons’ Den” programme for his innovative iTeddy which now retails in more than

45 countries worldwide. He recently received an honorary doctorate for enterprise and continues to invest

in early stage businesses across a variety of sectors. Dr. Hakim also mentors budding entrepreneurs as

a chartered board member of The Indus Entrepreneurs (TiE) and is active on the speaking circuit.

Dr. Jonathan Levie, Professor and Director of Knowledge Exchange at the Hunter Centre for

Entrepreneurship at the University of Strathclyde. He served as Director of the Hunter Centre from 2000

to 2005. He co-directs the UK team of the Global Entrepreneurship Monitor (GEM), a major international

research project on entrepreneurial activity.

Guy Rigby, Head of Entrepreneurial Services, Smith & Williamson. He is a Chartered Accountant and

leads the Entrepreneurial Services group at Smith & Williamson. He built and sold his own accountancy

firm and has been a director and part-owner of a number of different ventures. Mr. Rigby also wrote the

book “From Vision to Exit: The Entrepreneur’s Guide to Building and Selling a Business.”

Dr Sally Ernst, Founder, UK and Australian Cyber Security Networks. Dr. Ernst has over 15 years

of corporate venturing, internationalisation and governance experience in tech companies, spanning

Australia, the UK, China, the Philippines and the US. She has held board positions, contributed to

government-led forums and is in an angel investor group. Both her MBA and Doctorate specialise in

corporate and tech entrepreneurship in a radical innovation context. She has been quoted on these

topics in the media, more recently with a business perspective on cyber security risk, and regularly

speaks for world leading universities, industry bodies and professional service firms.

2

Jenny Tooth, CEO, UK Business Angels Association (UKBAA). The UKBAA is the trade body for angel

and early stage investing and the voice of the angel and early stage investment market. Ms. Tooth has

over 20 years of experience supporting small and medium-sized businesses to access investment, both

in the UK and internationally. She is also co-founder of Angel Capital Group and is a regular speaker on

angel investing around the world.

Stephen Welton, Chief Executive, Business Growth Fund (BGF). Mr. Welton launched BGF in May 2011.

He has worked in the development capital and private equity industry for over 25 years, including roles at

Henderson, Barclays and most recently JP Morgan Partners (CCMP Capital), where he was a Founder

Partner and member of the Investment Committee. In 2013, Stephen joined the Advisory Group, formed

specifically to guide the UK government on the direction and priorities for the new British Business Bank,

a government-funded institution which provides lending and broader support to small and mid-sized

businesses.

Hamish Stevenson, Founder and CEO of Fast Track. Mr. Stevenson set up Fast Track in 1997 with

cornerstone sponsorship from Richard Branson. Fast Track publishes league tables in The Sunday Times,

ranking the UK’s top-performing private companies, from the fastest-growing to the biggest; and runs

awards and networking dinners for the top entrepreneurs that run them. Mr. Stevenson is an associate

fellow at Oxford, where he held a research fellowship in entrepreneurship and completed his doctorate

in management.

Alastair Walmsley, Head of Primary Markets, London Stock Exchange. Mr. Walmsley is responsible

for attracting and advising companies from around the world on raising equity capital on the London

markets. Before taking up his current position in mid-2012, he worked in Equity Capital Markets and

Corporate Broking at Morgan Stanley and Merrill Lynch, and has 15 years of experience advising

companies on how to finance their growth ambitions.

Joanne Smith, Founder and CEO of The Consulting Consortium. Ms. Smith has worked in financial

services for over 20 years. Her expertise is in compliance-related matters, across all sectors of the

industry. Since 1990 she has worked in a number of financial services companies including Royal

Insurance, HBOS and KPMG, as well as the Financial Services Authority. In 2000, she founded The

Consulting Consortium (TCC) which specialises in providing compliance services and resources; TCC

is now the largest independent compliance consultancy in the UK.

3

ForewordWelcome to our fourth Entrepreneurs Index, our bi-annual study of the entrepreneurial lifecycle in the UK, in partnership

with Business Growth Fund (BGF). Yet again, the data gathered paints a positive picture of the entrepreneurial landscape,

with a number of interesting regional nuances.

Since October 2012, we have analysed the levels of shareholder activity occurring in small and medium-sized enterprises

(SMEs) across the UK as a key indicator to assess the level of entrepreneurial activity. A year later, we extended our analysis

to include the number of start-ups, as well as high-growth companies, and in so doing now cover all stages of the

entrepreneurial lifecycle; from starting, to growing, to finally exiting the business through share sales.

Barclays pays close attention to entrepreneurship, as it plays such a fundamental role in the UK economy. Figures from

StartUp Britain show that micro and small businesses represent 95 per cent of all companies and employ more than seven

million people in the UK. These figures reflect our belief at Barclays that entrepreneurs are a huge source of invention,

employment and productivity growth. As such, we are continually seeking ways to better understand how and why

innovation ecosystems emerge and what can be done to ensure that they flourish.

It is encouraging to see throughout this fourth edition of the Index that not only is entrepreneurial activity still on the rise,

but the proportion of these start-ups going on to prosper and grow is also on the up. We are hopeful that this momentum

will continue to drive the UK economy toward further growth in the coming months and years.

We believe that existing and future companies will thrive in an environment where the general population is entrepreneurial

by nature and open to opportunities for change and improvement. Therefore, we continue to strive for closer collaboration

with upcoming entrepreneurial talent in the UK, and seek to provide more targeted support for these businesses and their

owners, whether through access to finance, networks or skills development.

We hope that this latest Entrepreneurs Index helps us achieve our ambition while at the same time providing a useful

indicator of overall level of entrepreneurial activity in the UK.

We hope you find this report an interesting and insightful read.

Richard Phelps

Managing Director, Barclays Wealth and Investment Management

4

The entrepreneurial spirit is stronger than it ever has been

in the UK. Record numbers of people are setting up new

businesses here – last year alone saw the creation of more

than half a million companies1 – and the latest figures from

StartUp Britain show that this trend is continuing in 2014.

Entrepreneurs will play a pivotal role in ensuring the UK’s

return to economic prosperity. They are significant

employers, with small and medium-sized enterprises (SMEs)

accounting for the majority of private sector employment in

2013, according to statistics from the Federation of Small

Businesses. They are major sources of innovation, and

disruptive new technologies and business models2. They are

also major sources of tax revenues for governments, and

bring broader benefits to the economy through a trickle-

down effect of both personal and business expenditure.

This fourth volume of the Entrepreneurs Index aims to

provide a measure of the UK’s entrepreneurial activity across

geographic regions and business sectors during 2013, with

comparisons against previous reports enabling us to draw

out key trends in the evolution of entrepreneurship in the

UK. To achieve this, we study a number of complementary

data sets, some publicly available, and others created

specifically for this report.

We use Companies House data relating to the number of

active companies in the UK – which has reached almost 3

million – to provide a measure of the change in start-up

activity nationally. At a regional and sectoral level, we

complement this with Office of National Statistics (ONS)

data recording changes in the number of VAT or PAYE

paying enterprises. We also look at Experian data on the

number of high-growth companies in the UK, to assess

whether these have increased or decreased as a proportion

of total companies of a similar size, both nationally, and by

sector and region.

Finally, we measure the number of active growing

companies recording share sales, using data sourced from

Companies House. We measure these sales across the UK

by sector and region, and by the turnover band of the selling

companies, enabling us to gauge liquidity events and exits.

Analysing these latest data sets, and observing the direction

of travel from the research undertaken for our previous

reports, helps us to build a picture of the strength of

entrepreneurial activity in the UK. Meanwhile, the addition

of qualitative analysis from interviews with our panel of

experts – including entrepreneurs, investors, academics,

business network leaders, stock exchange representatives,

and accountants, among others – enables us to deliver a

more comprehensive view of the UK environment for

businesses at each stage of the entrepreneurial cycle.

In each of our Entrepreneurs Index reports, we look in-depth

at a closely related subject in the In Focus section. This time,

we explore the theme of share sales and entrepreneurial

exits, in an attempt to more fully understand why we have

seen a continued decline in share sales of active growing

companies. To do this, we outline some of the challenges UK

businesses currently face when looking to sell, and whether

a decline in this activity reflects a determination among

today’s entrepreneurs to take full advantage of a resurgent

economy before making the decision to sell.

Introduction

1http://www.startupbritain.co/news/2014-01-26/new-figures-reveal-regional-entrepreneurial-hotspots 2 http://www.randstad.co.uk/documents/Tech/2013%20Tech%20City%20Report.pdf

5

Active companies – The term “active” is generally used

by Companies House to denote those companies that are

“live” in the sense that they are not in the process of

liquidation or being dissolved. Types of companies included

are private limited, public limited, private unlimited, private

limited by guarantee, and community interest companies

Enterprise – A term used by the Office for National Statistics

(ONS) to refer to the smallest combination of legal units

(generally based on VAT and/or PAYE records), which has

a certain degree of autonomy within a group of legal units

under common ownership.

High-growth companies – Companies with revenues of

between £2.5m and £100m that have increased turnover

by 33% over the preceding three years and produced 10%

year-on-year growth for a minimum of two of these years.

Mid-sized SME – Businesses with revenues of between

£2.5m and £100m per annum.

Share sales – Active companies with growing revenues

of between £2.5m and £100m seeing decreases in share

holdings by shareholders during a six-month period.

Start-up – A general definition meaning a company that

has recently been set up and is in the first stage of its

operations; a fledgling business or enterprise.

Start-up activity – This refers to the growth or decline

in the number of active companies or enterprises in the

relevant time period.

Glossary

6

MethodologyData sources

The key data sets used in this report are:

• Active companies. The number of active companies in

the UK as published in the Company Register Statistics

by Companies House.

• Enterprises. The number of VAT and/or PAYE based

enterprises in the UK as contained in ONS “UK Business:

Activity, Size and Location.” Latest data available is up to

March 2013.

• Start-ups. Figures for the number of new companies

across the UK during 2013, sourced from Companies

House data (via StartUp Britain).

• High-growth companies. Data on companies in the UK

with revenues of between £2.5m and £100m, and a 33%

increase in turnover over three years, as well as 10%

year-on-year growth for a minimum of two of these years,

supplied by Experian. Results were compiled in January

2014 and are based on the company accounts with

year-ends to March 2013, although some are still

outstanding.

• Share sales. Data on the number of active, growing

companies with revenues between £2.5m and £100m

seeing declines in share holdings by shareholders,

supplied by Bureau Van Dijk for Ledbury Research

between July and December 2013. This is a measure of

companies recording share sales, and is not limited to

owners exiting the business in wealth creation events.

7

Executive summarySteady growth in start-ups.

The economic recovery is driving an increase in

entrepreneurial activity: There has been a year-on-year

increase in the number of businesses recorded in the UK.

There was a 6.9% increase in the number of active

companies in the UK between December 2012 and

December 2013. A record 526,446 new businesses were

registered with Companies House in the U.K. during the

whole of 2013.

High-growth trajectory.

There was an impressive increase in the percentage of

high-growth companies within revenue bands of £2.5m

to £100m in the 12 months up to March 2013. Every

region across the UK saw an increase in the number

of these companies.

“Old economy” sectors rejuvenated.

The largest proportional increases in high-growth

companies have been in traditional, cyclical industries,

such as construction, manufacturing and transport. The

increase in the percentage of high-growth companies

for these sectors was 55%, 47% and 37% respectively,

for the period from March 2012 to March 2013.

Chart 1: Steady growth in start ups

Chart 2: High-growth trajectory.

Chart 3: “Old economy” sectors rejuvenated.

8

Share sales decline in early economic recovery.

Overall, there was a decline in the number of active

companies undertaking share sales in the second half of

2013. But there is significant variation across size bands,

with the smaller companies experiencing the biggest

decline, while companies with turnovers of £10-20m and

£20-50m seeing an upturn in share sales

No longer a solely London-led recovery.

Although London undoubtedly remains core to the

UK economy – with greater numbers of high-growth

companies and companies with share sales present

there than anywhere else – it is clear from our data

that many regions are seeing a resurgence in

entrepreneurial activity. Several regions outstripped

London in terms of the proportional rise in high-

growth companies for the period from March 2012

to March 2013: The Midlands, the North West, East

Anglia, and Yorkshire and Humber are all performing

well, with percentage changes in high growth

companies of 54%, 44%, 42%, and 38% respectively.

For London, this figure was just 17%.

Turnover:

£2.5 to 5m

Turnover:

£5 to 10m

Turnover:

£10 to 20m

Turnover:

£20 to 50m

Turnover:

£50 to 100m

Shar

e Sa

les

Leve

l

+20%

+10%

0

-10%

-20%

-30%

-40%

-50%

-16%

+20%

+10%

-23%-52%

Chart 4: Share sales decline in early economic recovery.

Chart 5: No longer a solely London-led recovery.

9

Chart 6:Key themes

Source: Barclays/Ledbury Research

Starting Growth in the number

of active companies has continued.

Growing Considerable increases

in percentages of high-growth companies

across regions.

Connecting Further declines in

share sales of growing companies, but reason

to expect upturn in 2014.

10

Headline findingsThe overarching theme to be drawn from our data is that UK entrepreneurial activity is increasing. There has been a rise not only in the number of active companies but also in the numbers that are moving from the start-up phase to become a high-growth business.

This positive outlook reflects the growth we have seen in the wider economy, and the improved investor and consumer confidence that has accompanied that growth. In addition, our panel identified several further factors underpinning this trend. The funding universe has expanded for entrepreneurs, with the emergence of sources such as the Business Growth Fund (BGF), angel investment networks and crowd-funding. There are also tax breaks for those investing in start-ups. In addition, entrepreneurs have been able to capitalise on new technologies to compete on a level playing field with larger, more established companies, while better support networks are now available to offer support and guidance throughout the growth cycle.

We have seen a strong resurgence in “old economy sectors” such as construction3, transport and manufacturing, which has partly been assisted by high levels of commercial building work and civil engineering activity on large government-funded projects. At the same time, our data on high-growth companies also suggests the recovery is no longer primarily London-led. The Midlands, North West, East Anglia, and Yorkshire and Humber have all performed extremely strongly against this measure. But not every trend in UK entrepreneurship is overwhelmingly positive. Although entrepreneurial activity is increasing, we have seen the number of share sales continue to decline, suggesting that entrepreneurs may be struggling to make the transition from the expansion to exit phase of their journey. In reality, however, there could be many reasons for a growing valuation gap between buyers and sellers, such as:

• A reluctance of entrepreneurs to sell at such a promising stage of the economic recovery;• A lack of funds among the venture capital and private equity communities; and • A continuing lack of risk appetite among potential buyers.

Our ‘In Focus’ section explores this finding, and the underlying reasons behind it, in greater depth.

Section 1

3http://www.markit.com/assets/en/docs/commentary/markit-economics/2014/feb/UK_Construction_14_02_04.pdf

11

Starting/Funding: Consistent growth in number of active companies

The number of active companies in the UK has grown by

3% or more in each six-month period since June 2012, and

by 6.9% between December 2012 and December 2013.

In addition, there is further encouraging data showing that

a record 526,446 new businesses were started in the UK

during 2013, and nearly 60,000 start-ups have already been

registered in 20144.

4 http://www.startupbritain.co/tracker

Chart 7: Number of active companies in the UK up to December 2013.

Source: Companies House

Act

ive

com

pani

es

3 million

3.3%

3.4%

3.0%

3.6%

December2012

June2012

December2011

June2013

December2013

2,900

2,800

2,700

2,600

2,500

2,400

2,556,365

2,647,802

2,727,758

2,821,190

2,915,353Percentage change (previous period)

12

Starting/Funding: Cultural shift

Members of our expert panel felt that the UK is undergoing

a cultural shift in the perception of entrepreneurship, which

is encouraging more people to set up their own businesses

than ever before. This cultural shift is partly driven by

changes in society. For example, the government has

introduced a number of well-publicised initiatives aimed at

encouraging start-ups, and popular television shows such

as the BBC’s “Dragons’ Den” have raised the profile of

entrepreneurship as a career path. At the same time, as

younger generations move into the workforce, it has

become apparent that their career expectations differ from

those of older generations, and that they want to move

between jobs and work projects more frequently5.

The cultural shift also reflects, however, a reaction to the

economic crisis. High levels of unemployment6 have made it

harder for school-leavers, college and university graduates,

and other skilled young people, to find opportunities in the

corporate world. As a result, they may turn to

entrepreneurship because they believe it offers better job

prospects and the chance to become one’s own boss – and,

in an environment where many companies continue to shed

jobs, even a comparable level of certainty.

The combination of tough economic conditions created by

the recession and the emergence of a new, technology-

savvy generation has encouraged a wave of innovative

start-ups to form. To appreciate this, we need only observe

the 76% increase in the number of tech and digital

companies incorporated in London between 2009 and

2012, from 49,969 to 88,215.7

BGF Chief Executive Stephen Welton says that significant

structural changes in the economy – through the digital

transformation and the increasing reliance on new

technologies – are creating a new segment of business,

which means there is a lot of opportunity for new

companies to start and grow quickly. “If you look at the

Apple and Android ecosystems for example, and all of the

apps that come off the back of that, there is huge

innovation going on, and innovation is often better served

by smaller companies than large ones,” he says.

Many innovative new businesses are also emerging from

educational institutions across the country, with hubs

developing around universities and science parks. “I think

UK businesses are having growing success in being able to

commercialise some of the extraordinary knowledge and IP

that is developed in these institutions,” says Alastair

Walmsley, Head of Primary Capital Markets at the London

Stock Exchange Group.

Another liberating factor for many new technology or

online-based businesses is that they do not need the same

level of business infrastructure that was required in the past.

New technologies, such as cloud computing, have greatly

reduced the barriers to entry for many companies, and

make it much easier for them to access foreign markets at

an earlier stage in the life-cycle, giving many new

entrepreneurs a more international outlook than they may

have had in the past.

5 http://www.orcinternational.com/APAC/Insight/Articles/Documents/HR%20Reflections%20Exec%20Summary_APAC.pdf 6 http://www.tradingeconomics.com/united-kingdom/unemployment-rate7 https://www.gov.uk/government/news/tech-city-celebrates-third-anniversary-as-new-figures-show-economic-success-story

13

At the same time, an explosion of online networks has also

enabled entrepreneurs either to reach people overseas to

carry out tasks such as website design more cheaply, or

even to exchange or trade-off skills between them in a

highly collaborative way. “We are seeing collaboration

happening around hubs such as the digital cluster in

Shoreditch, with people swapping services like web

development,” says Joanne Smith, CEO of The Consulting

Consortium. “This is part of the reason why creating hubs is

so beneficial for fostering entrepreneurial activity.”

Guy Rigby, Head of Entrepreneurial Services at Smith &

Williamson, also points out that start-ups have recently

been able to take advantage of very low-cost services from

providers keen to secure their business. “There are many

entrepreneurs who have managed to get what they need for

almost nothing, for example professional services or IT

services where start-ups may get their first year’s hosting

without charge,” he says. “This ‘world of free’ will end at

some point but it has certainly meant things have been

relatively soft on the supply side for entrepreneurs, and has

enabled them to buy things cheaply.”

While Dr. Sally Ernst, Founder of the UK and Australian

Cyber Security Networks, describes the UK’s entrepreneurial

environment as being supportive, even to the extent of

being benevolent in some instances. “I think the UK culture

is quite unique in that people who have experience or have

made a mark in a particular area appear to be quite

benevolent in opening doors or sharing their intellect,”

she says.

14

8 http://www.ukbusinessangelsassociation.org.uk/sites/default/files/media/files/taking_pulse_of_the_angel_market_02_07_2013_0.pdf

Starting/Funding: Improved investor and support networks

Another key driving force behind the rise in start-up

numbers is the availability of an increasing range of

alternative funding options, through the emergence of

crowd-funding, organisations such as BGF, angel

investment networks, and the government’s Start Up Loans

scheme. This has meant that, despite tight credit conditions

more generally, entrepreneurs have in many cases been able

to meet their financing needs.

In 2013, research undertaken by Deloitte and the UK

Business Angels Association (UKBAA) found that tax breaks

under the government’s Seed Enterprise Investment

Scheme (SEIS) were successfully drawing more angel

investors to start-ups and very small businesses8.

Jenny Tooth, CEO of the UKBAA, says that SEIS has made a

big difference in pushing investors toward companies at the

seed stage. “We’ve got a number of stakes in the ground

that help to build the financial ecosystem around

entrepreneurship, while platforms such as crowd-funding

are really helping to ensure that there is financial support for

start-ups, in the early stage when they may not yet be

ready for angel finance,” she says.

Meanwhile, entrepreneurial networking organisations, such

as E2Exchange and Enterprise Nation, are expanding across

the country and are an invaluable source of guidance and

information for many entrepreneurs embarking on new

business ventures. More could be done, however. “There is

still no single repository of information that makes the

process easy,” says Alastair Walmsley. “Entrepreneurs would

really benefit from having a single point of contact that

looks at their business strategy and can then explain the

funding options available.”

15

Growing: Conditions favouring high growth

Entrepreneurs will be encouraged to learn that the UK

is becoming an increasingly favourable environment for

businesses to grow. Our figures show an impressive

increase in the number of mid-sized SMEs that fit our

definition of high-growth companies (see chart below).

In the 12 months up to March 2013, there was a 5.3

percentage point increase in the overall number of high-

growth companies in the UK. This story is consistent across

every sector, with all except public administration showing

an increase in the percentage of high-growth companies.

Chart 8: Percentage of high-growth companies.

2008 2009

27.3%

2010 2011 2012 2013

30%

25%

20%

15%

10%

5%

0%

27.4%

19.4%

16.2%17.9%

23.2%

Source: Experian

16

Growing: The recovery

The economic recovery taking hold is one obvious factor

behind this increase in high-growth companies, as Dr. Imran

Hakim, CEO of the Hakim Group, reflects. “I would use three

words to summarise the trend: optimism, confidence and

acceptance,” he says. “Confidence in the economy and in the

structures around us is key for entrepreneurs, while renewed

optimism goes hand-in-hand with an increase in investment

and business activity. I mention acceptance because

entrepreneurs must accept that this is a new business

landscape. We are starting to see those more resilient

business models that will thrive in this environment.”

Those businesses that were able to survive, and even

capitalise on the recession, tend to have a number of factors

in common. They are more resilient to market downturns, can

exploit opportunities in a recovering economy more easily,

and often take advantage of new technologies such as digital

to make cost savings and reach customers more easily.

“I think we have come out of the recession as better business

people,” says Dr. Sally Ernst. “The ability to be chameleon-like

and morph into what the market needs at the time is really

important.”

“I think we have come out of the recession as better business people.” Dr. Sally Ernst

17

9 https://select.bestinvest.co.uk/investment-guidance/investor-insights/2013/budget-2013-aim-companies-allowed-in-stocks-share-isas 10 https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/264607/18._Abolition_of_stamp_duty_and_stamp_duty_reserve_tax_on_growth_market_shares.pdf 11 http://www.deloitte.com/assets/Dcom-UnitedKingdom/Local%20Assets/Documents/Market%20insights/Entrepreneurial%20Business/uk-deloitte-entrepreneurship-uk-2013-2014-uk-futures.pdf

Growing: Government policy

The government has launched a number of recent initiatives

to support the growth of SMEs – in addition to SEIS and the

Start Up Loans scheme already mentioned – that are now

beginning to bear fruit. Alastair Walmsley points out that

there have been some significant policy changes in the past

year. In its budget statement in 2013, the UK government

introduced a policy of allowing the inclusion of companies

listed on the Alternative Investment Market (AIM) and other

SME equity markets as eligible investments for stocks and

shares ISAs9. In addition, the government is abolishing stamp

duty and stamp duty reserve tax on growth market shares in

order to boost investor participation in equity growth markets

and improve the conditions for growing companies raising

equity financing10.

“Those are aspects which obviously play to the cost of capital

in the public markets and we’re absolutely delighted the

government has pushed those initiatives through,” says

Alastair Walmsley. “Even investors at much earlier stages of

the value chain were very conscious of the potential benefits

for their own investment landscape and to the companies

that they’re engaged with in terms of providing that

continuity of finance. We saw some of the policy initiatives at

the public market stage as assisting different elements of the

same journey for private companies,” he says.

But despite some very positive policy developments, there is

still plenty more that government could do to encourage

entrepreneurial growth. One simple improvement would be

to raise awareness among entrepreneurs of the funding and

tax incentives that are available11, and to make the process of

accessing those funds easier.

Joanne Smith says that her company, The Consulting

Consortium, the UK’s largest independent regulatory and

compliance consultancy, was fortunate enough to obtain a

maximum grant from the government-funded Technology

Strategy Board at the first time of asking, but notes that the

difficulty of the process would probably discourage some

entrepreneurs from applying.

“An entrepreneur with an idea and a passion driving them

to create something does not want to get caught up in a

bureaucratic process to try and get a grant,” she explains.

A more complex goal for government would be to enhance

the education and training of young people so that

entrepreneurs possess more of the requisite skills from the

outset, as well as having access to a bigger talent pool when

they are recruiting. “Right from school level we should think

about providing mentors and guidance to young people,

educating them about starting their own business,” says

Joanne Smith. “Apprenticeship schemes would be a way

forward for developing skills and we should also start to run

hub centres for budding entrepreneurs like we see in the San

Francisco Bay area in the US.”

Dr. Jonathan Levie, Professor and Director of Knowledge

Exchange at the Hunter Centre for Entrepreneurship

highlights the interconnected issue of training for growth

as something that government, support agencies and

universities must work together to address. “Many

entrepreneurs realise that they or their staff are not geared

up for growth, but they cannot afford – or think they cannot

afford – to train themselves or their key senior staff,” he says.

The government has launched a Growth Voucher initiative

that provides £2,000 worth of advice and support to small

businesses, which can help with finance and cash flow, and

recruitment, among other things. “The Growth Voucher

initiative is a positive measure, but many entrepreneurial

teams need training to internalise basic skills for growth, for

example in selling, which is a fundamental requirement for

growing a business,” says Jonathan Levie.

From a funding perspective, BGF Chief Executive Stephen

Welton says that further extending the SEIS scheme, more

heavily promoting the Enterprise Investment Scheme (EIS)

and extending entrepreneurs relief, would help to reinforce

that the UK is one of the best places to start and grow a

business.

18

Growing: Funding the growth cycle

The emergence of a strengthening angel investment

community is undoubtedly a crucial factor in driving the

growth trajectory of UK SMEs. Jenny Tooth points to the

growth of syndication, in which business angels join forces

to participate in the same deals, as an important means of

meeting the financing needs of growing companies more

effectively, and this has been given extra impetus through

the £100m Angel CoFund which co-invests with syndicated

deals. In particular, this process is mobilising angel investors

to fill the perceived gap that has been vacated by venture

capitalists.

“Business angels are starting to build quite significant

firepower, and this also means that they have the capacity

to go through multiple rounds of finance through

syndication, which enables them to build a really strong

platform for high-growth businesses,” says Jenny Tooth.

“Ultimately, they may co-invest with venture capital and

private equity or look to pass the baton to them, but the

angel community is growing and filling that space which is

able to take care of the earlier stages of the high-growth

market.”

Another important part of the entrepreneurial cycle in the UK

is that, once entrepreneurs have achieved sustained success

and generated sufficient wealth, they then have the

opportunity to become angel investors themselves. “We need

those entrepreneurs who are now achieving growth and

success, particularly at the higher end, to see the opportunity

in reinvesting their capital gains back into small businesses,”

says Jenny Tooth.

Alastair Walmsley adds that another benefit of the UK

environment is that its public equity market functions at an

earlier stage than in most other jurisdictions, particularly

through the junior market, AIM. “There is a large community

of investors and advisers that are absolutely focused on small

cap capital raising, so businesses can raise money at an

earlier stage,” he says. “If you tried to raise £10-£25m of

capital anywhere else in the world via public markets, it

would be very difficult because the community doesn’t exist

like it does in the UK.”

19

Growing: Proceed with caution

While the UK’s recent return to economic growth is of course

good news for business owners, our panellists warn that the

growth period immediately following a recession is a

notoriously dangerous time for entrepreneurs. For example,

companies can run into serious problems if they expand too

quickly in order to seize new growth opportunities but do not

have a balance sheet that is sufficiently resilient to support

this expansion. “Unfortunately, history shows that, at this

stage in the cycle, you get a lot of business failures,” says

Stephen Welton.

And Julian Frankish, Head of Business Economics and

Research for Barclays Business Banking, says that some

businesses will stumble across high growth unexpectedly

during this period as demand for their services comes in from

unexpected places, and risk then arises in overstretching.

“This becomes very much an issue of capacity,” he says.

“Businesses are likely to be experiencing new challenges they

haven’t necessarily faced. Do they have the skills and

qualities to cope? Most business owners are not

unreasonably reluctant to give up too much control of their

business to external partners, but they need to strike the

right balance here and be open if it will take their business

forward.”

Some traits of high-growth businesses

The Sunday Times Fast Track 100 league table ranks Britain’s one hundred private companies with the fastest-growing

sales over their latest three years. Over the past 17 years it has become the definitive barometer of privately owned

growth companies in the UK.

• Overseas expansion. More than half of the companies (56%) in the Fast Track 100 league table for 201312 have

expanded overseas to boost revenue growth. Some, such as knitwear retailer WoolOvers, have launched international

websites to target non-UK customers. Others have opened overseas offices to expand their geographical reach, such

as LION Trackhire, which supplies temporary trackways from offices in Worksop and Stuttgart. “Growth in the UK in

many industries has been pretty stagnant until now, so the fastest growing companies are often looking for

opportunities overseas, something you would have seen less of 10 years ago,” says Hamish Stevenson, Founder and

CEO of Fast Track.

• More B2B than B2C. Many of the companies making it into the Fast Track 100 have focused on identifying a problem

faced by large corporates and then filling that gap with a niche product or service. A prime example is Centek, which

makes “centralisers” for the oil and gas industry – devices that keep pipelines centred in holes before they are

cemented into place. It sells to customers such as Shell and BP.

• Exploiting technology. Many of the companies exhibiting exceptional growth in the UK are better at exploiting

technology than their rivals. Uttoxeter-based cashback website operator, TopCashback, offers deals from thousands of

companies and has more than 2.5m registered users. In February, it launched Snap & Save, a mobile app already

downloaded by 200,000 people, which lets users take a photo of a receipt and claim cash back on selected in-store

products.

12 http://www.fasttrack.co.uk/fasttrack/downloads/fasttrack100rep.pdf

20

CASE STUDY: The Cennox growth story

Clive Nation founded Cennox as a specialist ATM services group in 2004. He managed to build the business organically until 2009, using his own cash and expertise in ATM systems, but, by 2009, he was at a growth juncture.

In 2010, Nation made a small acquisition, mainly to increase the skill base of his business, and later that year obtained a government-secured bank loan that allowed him to make the first major acquisition for his business. “I’d been self-investing until that time and recognised that I needed to make an acquisition to really achieve that next phase of capital growth. After the integration was finished he continued to pursue his acquisition strategy which meant finding external funding, and in June 2012, Nation approached BGF.”

BGF made a £3m equity investment for a minority stake in Cennox, which Nation says has been vital to prevent the business from running into some of the difficulties that can hurt companies in this growth phase. “As we see the economy grow, I think the danger for entrepreneurs is they can expand too quickly and don’t have sufficient cash,” says Nation. “I’ve spent a lot of time making sure we have sufficient working capital as it is important for our growth and our credibility. There are some very large projects coming out of the banks for us now, but before the investment it would have been beyond our ability to consider them because we just didn’t have enough working capital, and that’s the danger,” he adds.

Following successful acquisitions, Cennox has grown to comprise two main businesses: ATM Parts and Field Services. A recent acquisition in the US has seen its international operations grow to generate 40% of overall revenues. Nation says for businesses to remain on a high-growth trajectory – as Cennox has done – the key is in careful planning that looks as far ahead as possible. “The important thing to recognise is you must look for funds way before you actually need them, because if you are on the back foot or your performance misses a beat, it becomes very hard to convince anyone to invest in your business,” he says.

“we just didn’t have enough working capital.” Clive Nation

21

Chart 9: Top three performing regions: key data

Source: ONS; Experian for BGF; BVD for Ledbury

ConnectingNumber of companies with share sales

H2 2012 H2 2013 % change

Midlands 669 665 -1%

Yorkshire & Humberside 412 418 1%

London 1,866 1,151 -38%

Growing% high-growth companies

2012 2013

Midlands 17.1% 26.3%

Yorkshire & Humberside 18.4% 25.3%

London 19.0% 22.1%

Starting Number of VAT and/or PAYE based enterprises

2012 2013 % change

Midlands 315,730 317,040 0.4%

Yorkshire & Humberside 150,050 150,725 0.4%

London 359,880 372,340 3.5%

Star regional performers: Good news for London, Midlands, and Yorkshire & Humberside

22

Perhaps one of the most reassuring trends in our data,

as far as the UK’s fledgling economic recovery is concerned,

is that it reflects strong growth in cyclical sectors. According

to data collected for this report, the biggest proportional

increases in high-growth companies have been in

construction (55%), manufacturing (47%) and transport

(37%).

According to PMI data, the UK construction sector saw a

near-record upturn across all subsectors, with January 2014

its best month for six-and-a-half years13. “This makes a lot

of sense,” says Jonathan Levie. “You have the government

measures to try and get the construction industry going

again, and first-time buyers buying houses, that have clearly

made a difference.”

Stephen Welton agrees, pointing out that the resurgence

of construction is amplified because of large infrastructure

projects, such as Crossrail. “This feeds through into a lot of

the supporting activities like building materials and logistical

support,” he explains. “It is often around these large public

spending projects, and big contract work for multinationals,

that entrepreneurs find niche opportunities and spring into

action.”

In the case of manufacturing, Jenny Tooth argues that

investors are focusing on the more technological end of the

sector. “Angels are still very much drawn to businesses that

have a technological base, where they can see strong IP and

scalability, and are investing in clean-tech, new

manufacturing technologies, such as 3D printing, and

transport technologies,” she says.

Star sector performers: The old economy reborn

While its proportional increase in high-growth companies

might not be as impressive as the “old economy” sectors,

the UK’s tech industry continues to be a huge success story.

London boasts Europe’s fastest growing tech cluster:

a staggering 27% of all job growth in London now comes

from the tech and digital sector, while the number of these

companies incorporated in London grew by 76% between

2009-201214. But the sector is growing across the regions

too, and new tech companies are springing up all over the

UK.

Imran Hakim, who owns and manages a number of

optometry businesses, says the focus of entrepreneurs will

clearly be on emerging technologies in the future. “There’s

a lot going on with cloud technologies and, if you look at

companies like Google, you can see where they think the

future is going. We have had web 2.0 and will be moving to

web 3.0 soon, with wearable tech such as wearable Internet

and wearable mobile,” he says.

Meanwhile, Alastair Walmsley points to considerable

developments in high tech engineering. “We had a couple of

Durham University spin-outs floated on the market last year,

one of which was Applied Graphene Materials15, which

some people are calling the new miracle material, and the

other was a business called Kromek16, which specialises in

digital colour x-ray imaging,” he says. “Medical technology,

renewables and clean energy are all areas where we’re

starting to see very interesting developments.”

Star sector performers: Tech remains key

13 http://www.markit.com/assets/en/docs/commentary/markit-economics/2014/feb/UK_Construction_14_02_04.pdf 14 https://www.gov.uk/government/news/tech-city-celebrates-third-anniversary-as-new-figures-show-economic-success-story 15 https://www.dur.ac.uk/chemistry/news/?itemno=1939716 https://www.dur.ac.uk/news/newsitem/?itemno=18972

23

In focus: Recovery yet to translate into wealth creationThe UK’s entrepreneurial environment appears to be in good health, with a strong rise in start-ups across the country and an increasing number of mid-sized SMEs achieving high growth. This positive picture is twinned with a return to real economic growth in 2013 and an upgraded IMF growth projection for 201417, as well as a strengthening investment appetite among CFOs of the UK’s largest companies18. Yet, despite this, we are seeing a seemingly less encouraging story in relation to entrepreneurial exits and wealth creation.

The most recent data from Companies House shows that there was a marked reduction in the number of UK companies with share sales during 2013, continuing the decline seen in these figures during 2012. Of course, there is a range of potential motivations for selling shares: raising growth capital; flotations; bringing new partners into the business; or exiting the company. Nevertheless, there is a clear trend for a reduction in share sale activity of all types.

Section 2

17 http://www.imf.org/external/pubs/ft/weo/2014/update/01/ 18 http://www.deloitte.com/assets/Dcom-UnitedKingdom/Local%20Assets/Documents/Research/CFO%20Survey/uk-insights-cfo-survey-2013-q4-full-report.pdf

25

In the first half of 2013, the number of active companies with

growing revenues of between £2.5m and £100m that

underwent share sales declined by 809 from the first half of

2012, an 11.2% year-on-year fall. For the second half of 2013,

the drop from the last six months of 2012 was 1109 (16.4%).

These figures vary across each turnover band, however.

Among companies with turnovers of between £2.5m to £5m,

there was a significant 55% year-on-year reduction in share

sales. Among those in the £50m-£100m bracket, the decline

was lower, at 25%. Then, among companies in the £10-20m

turnover band, there was an increase of 18% in share sales,

and an increase of 7% for those in the £20m-£50m range.

(See Chart 11 on page 27)

We should be aware, however, that our share sales data is a

lagging indicator, given that it covers only data recorded up

to December 2013, and at the time of extracting data, not all

companies would have registered the share sales they had

undertaken in 2013. Other data covering the second half of

2013 shows a more encouraging picture. For example, the

second half of 2013 saw an improvement in the number of

public offerings, particularly on the AIM. This suggests that

the trend for a decline in share sales could soon be reversed,

and may look much more positive in 2014.

Source: BVD

Chart 10: Number of companies with share sales.

2,000

0%

4,000

6,000

8,000

10,000

-13.1%

-11.2%

-16.4%H2 2013

7,7707,211

6,751 6,4025,642

H1 2013H2 2012H1 2012H2 2011

26

Riding the growth wave

Having adapted to survive during the challenging economic

climate of the recession, many entrepreneurs now find

themselves with a resilient business model and new

expansion opportunities presenting themselves in a UK

economy experiencing renewed growth.

Julian Frankish says it is natural that, with optimism

returning, entrepreneurs want to hold onto businesses they

have worked hard to develop and sustain through the

difficult economic climate. The smart move, according to

Imran Hakim, is for entrepreneurs to take full advantage of

renewed consumer and investor confidence to heighten

their pace of growth and push up the sale price. “We are

going to get compound growth in a lot of these businesses,”

he explains. “This means that the ROI a year or two down

the line could be exponentially better than where you are

now.”

He adds that, while liquidity levels have certainly improved

since the immediate aftermath of the financial crisis, they

are still far below the levels seen before 2008. Over the next

two years, further improvements in liquidity will broaden the

potential investor pool and could increase the competition

for assets, driving up prices.

Chart 11: Change in the number of companies with share sales across turnover bands (% change year over year).

Dec-12

20%

10%

0%

-10%

-20%

-30%

-40%

-50%

-60%Jun-13 Dec-13

Source: BVD

18%

7%

-16%-17%

-25%

-55%

£2.5M to £5M

£5M to £10M

£10M to £20M

£20M to £50M

£50M to £100M

Total

Turnover bands

27

The big corporate spend

Another reason delaying an upturn in share sale activity

may be that large companies are only just beginning to shift

their focus away from preserving capital and rebuilding

balance sheets toward growth19. With a recovery now

underway, these companies are coming under pressure to

spend their cash on new business opportunities. This may

lead to a resurgence in M&A activity that, to date, has

remained muted despite large quantities of cash on many

corporate balance sheets.

Low spending by large corporates also has a knock-on

effect on smaller deals. For example, if angel investors lose

confidence that exit opportunities will become available

further down the line because M&A activity is stagnant,

they will be less willing to invest initially, or will find it harder

to restore liquidity from existing investments, rendering

further investments into new businesses impossible.

19 http://www.deloitte.com/assets/Dcom-UnitedKingdom/Local%20Assets/Documents/Research/CFO%20Survey/uk-insights-cfo-survey-2013-q4-full-report.pdf

28

Selective buyers

Jeff Hinton, Managing Director of M&A at Barclays Investment Bank, outlines why larger corporates are ready

to invest again, but why some entrepreneurs will struggle to realise an exit.

How would you characterise the current environment for M&A?

When good quality companies come to market, they tend to fetch very strong prices. A key difference between today

and pre-crisis is that companies with weaker fundamentals may find it more difficult either raising capital or being

sold for a competitive price. Buyers have become much more selective. Among trade buyers, boards are very

meticulous about what they are willing to sanction, and will do a lot of detailed work to make sure that there is a really

good fit between the target and their core business.

How does the UK perform as an environment for M&A?

The UK is a good market for M&A. It has a large number of participants – whether private equity firms or trade buyers

– and there is a very clear framework for how companies deal with each other. It’s a transparent market and there is a

very strong advisory community across legal, banking and accounting firms. Another attractive feature of the UK is

that there are a lot of potential acquirers from overseas who are willing to carry out cross-border deals. If a company

wants to acquire in Europe, then the UK could be a good place to start.

Do you expect companies will start investing the cash they have accumulated on their balance sheets over the

past few years?

It’s a perennial question for cash-rich companies. Do they return it back to shareholders, do they expand via

acquisition, or do they hold it on their balance sheet? It’s very much a case-by-case basis. Post-crisis, companies think

a lot more carefully about how much cash they need on the balance sheet to feel comfortable. Just because a

company has lots of cash, it doesn’t necessarily mean the right thing for them is to make an acquisition or pay out a

dividend. On balance, we are likely to see some companies either considering some form of share repurchase or

finding a good use for the proceeds, whether it’s organic or inorganic, but I don’t think that you’re going to see

companies making sizable non-core acquisitions.

29

The valuation gap

Many of the conditions are falling into place for M&A levels

to rise during 2014. There is growing confidence in the

economic outlook, enhanced credit availability, pressure on

company leaders to capitalise on economic growth, and the

expectation to create jobs. Yet, despite these signs of

optimism, confidence in the UK remains tempered by

caution around risk and the potential volatility of the

recovery, leading to a lingering reluctance to do deals, or a

desire to pursue smaller, lower-risk investments.

As the UK’s economic recovery takes hold, and transaction

volumes accelerate, a greater than normal divergence

between buyer and seller expectations on pricing can

emerge, because expectations adjust to the new market

environment at different rates. Such valuation gaps can

translate into a reluctance by smaller businesses to sell, and

cautious buyers being unwilling to stretch their investment

budgets.

The large degree of start-up activity observed in the last 12

months can also be a double-edged sword when it comes

to share sale activity, according to Jenny Tooth. “Although

the angel community has been investing more this past

year, angels have reported a lack of quality deals available,”

she says. “You’ve got an awful lot happening at the start-up

end, you’ve got angels willing to invest there, but there

could well be a gap in the investment readiness of some of

those businesses to take on angel finance.”

According to Jonathan Levie, a reduction in distressed

selling could also be adding to this picture. “With the

economy growing, it may be that the pressure is now off

some of those businesses that were looking to sell six or 12

months ago,” he says.

30

Finding the exit: An entrepreneur’s perspective

Joanne Smith is CEO of The Consulting Consortium (TCC), which specialises in providing compliance services and

resources for financial firms. Having founded the business in 2000, she has overseen rapid growth that has helped

push TCC to reach 45th place in the 2013 Fast Track 100 league table.

Is now a good time for entrepreneurs looking to exit their business?

I still think we are yet to see the market fully recover, and while there is a lot of private equity cash out there, the

appetite to spend is still not there, as companies are being more cautious. Private equity investors have been sporadic

in their purchases, but we have not seen the level of trade buyers we would have done six or seven years ago.

Are more entrepreneurs struggling to find buyers that will meet their valuation expectations?

Those really strong businesses will always do well if they want to sell at this time. But, whereas six years ago you could

have sold almost anything (there was almost a feeding frenzy), buyers are now finding the smallest points not to

proceed. I think that what we will start to see now is multiples for businesses increase from 5-7% to 8-10%, but you

do caveat that by saying it is only for really robust businesses. And I would add that, in the tech space, we are also

starting to see those unusual stratospheric multiples where you have loss-making businesses returning 50 or 70

times revenue, which is being led by Google and Facebook’s onslaught into the tech market. That is very encouraging

for new entrepreneurs starting up tech businesses.

If you were selling your business now, what exit strategy would you pursue?

My personal preference would be for a trade sale or a flotation. Private equity has a role to play but I think that a lot of

entrepreneurs will struggle there because of misalignment of values. Flotations have been difficult for the past two

years and many have proved unsuccessful. This might change but I think the equity market is overheated and, if that’s

the case, it might not be the best time for a flotation.

Do you think there may be a feeling among entrepreneurs that they should delay a sale in order to capitalise on

the recovering economy for growth?

I don’t know of anybody who runs their own business and is not looking to take the business to the next stage,

whether through organic growth, acquisition or some other strategy. Entrepreneurs are always driven by the need to

get to the next level, so for those who do have that passion and drive, I am sure they will be looking to take advantage

of any signs of economic recovery, as it is the way they are hardwired.

31

Our research suggests a more nuanced picture, however.

Although the absolute number of entrepreneurial

businesses is indeed greatest in London and the South-

East, other regions are proving to be very effective at

fostering high-growth entrepreneurial companies. For

example, Wales, the Midlands and the North-West have all

seen much more significant growth in the percentage of

high-growth companies than London and the South-East.

In the face of constant media attention that London and the

South-East dominate the UK economy, this is a refreshing

trend to highlight.

Many cities outside the capital have developed successful

clusters of entrepreneurial businesses. Currently, the biggest

entrepreneurship cluster – with the exception of London – is

in Cambridge, where around 1500 technology-based firms

reside, benefiting from close ties to the university which

provides a rich source of science and technology knowledge

and skills. There are signs, however, that other regions are

starting to make good progress on creating their own hubs.

In Liverpool, for example, a cluster known as the Baltic

Triangle has become home to dozens of digital, music and

gaming businesses. Manchester has its Media City, and

other clusters in cities such as Birmingham, Bristol and

Portsmouth, are also becoming well established.

In the longer term, if the rebalancing of entrepreneurship to

the UK’s regions is to continue strengthening, cost will be an

important factor. London and the South East may be key

centres for business and entrepreneurship, but the cost of

living and doing business in these regions is extremely high.

Over the coming years, more and more entrepreneurs may

need to look outside the capital for locations that provide

the right combination of growth opportunities and cost-

effectiveness.

Our analysis of regional entrepreneurial activity focuses on

three sources of data. First, we use ONS data on the

number of enterprises to provide a proxy of how the level of

business activity is changing in each region. We also look at

the percentage of high-growth companies and change

within each region to determine whether these figures have

shifted over the past six months. Finally, we look at the

number of share sales among active, growing companies

and ask if this is rising or falling.

Regional spotlightIn the wake of the financial crisis, policy makers and business leaders have repeatedly stressed the need for economic growth to be more balanced across every region of the UK. If the economic recovery is to be sustained, entrepreneurs need an environment in which they can start and grow successful ventures anywhere in the country. They need access to funding and talent, policies that remove growth barriers, and support networks to guide and encourage them onto a strong growth trajectory.

For now, Greater London and the South-East continue to dominate UK entrepreneurship. Data from StartUp Britain show that 136,939 new businesses were registered in London during 2013, with the nearest rival Birmingham at 16,281 and Manchester at 11,76520.

Section 3

20 http://www.startupbritain.co/news/2014-01-26/new-figures-reveal-regional-entrepreneurial-hotspots

32

Chart 12: UK and Ireland regional enterprise activity

56,425 21.5% 106

North East

Key

Number of enterprises Proportion of high-growth companies Number of companies recording share sales

Source: ONS; Experian for BGF; BVD for Ledbury.

339,980 21.7% 805

South East

372,340

22.1%

1,151

London

317,040 26.3% 665

Midlands

206,815 25.1% 498

North West

150,725 25.3% 418

Yorkshire and Humberside

201,150 21.5% 346

South West

87,685 25.2% 108

Wales

151,115 22.3% 307

Scotland

66,685 19.2% 93

Northern Ireland

217,620

24.3%

477

East Anglia

33

London

1,151 companies with share sales from July-December 2013

-38%

22.1% of high-growth companies in 2013

17%

372,340 enterprises in 2013

3.5%

London continues to make up the largest share of the UK’s

growth in output. Output per head for the capital is 171%

of the national average, according to 2012 data21and it

accounts for 22% of economic value added, according to

ONS22. Not surprisingly, it has a higher overall number of

enterprises than any other UK region at 372,340. This

represents a 3.5% year-on-year increase between 2012 and

2013, which is also higher than any other UK region.

The capital also has a strong track record of converting

today’s promising start-ups into tomorrow’s high-growth

businesses. Based on figures covering 2010 to 2013, 22%

of active companies with revenues between £2.5m and

£100m in London can be categorised as high growth, and

this share has increased by 17% over the past year. Creating

a high-growth business relies on a combination of ready

access to capital and talent, strong support networks and

an entrepreneurial culture – all of which London has in

abundance.

Companies based in London continue to attract a large

share of venture capital funding. According to the BVCA,

36% of all venture capital investment in 2012 went to

companies in the capital. London also has the highest

number of private equity backed companies at 191, and

the highest amount invested, at £2.06bn23.

According to our analysis, London also had the highest

number of share sales in the UK during H2 2013, at 1151.

Less encouragingly, however, the capital recorded the

biggest drop in share sales year on year, with a decline of

38%. One explanation for this could be that entrepreneurs

are becoming more optimistic about future economic

growth, and this is encouraging them to hold on to assets

for longer in order to benefit from further increases in value.

21 http://www.ft.com/cms/s/0/b91d7d4c-2cb9-11e1-8cca-00144feabdc0.html#axzz2tBxdzIDk 22 http://www.ons.gov.uk/ons/rel/regional-trends/region-and-country-profiles/economy---may-2012/economy---london--may-2012.html 23 http://www.bvca.co.uk/Portals/0/library/Files/News/2013/RIA_2012.pdf

For further detail please refer to the methodology. Source: ONS; Experian for BGF; BVD for Ledbury.

change in number of companies reporting share sales YOY( July-December 2012 vs. July - December 2013)

change YOY (2012 vs.2013) change in percentage of high-growth companies YOY (2012 vs.2013)

34

South East

After London, the South-East has the highest number of

enterprises compared with other regions at 339,980. But

the growth in the number of enterprises was relatively slow,

at just 0.6% between 2012 and 2013.

The South-East does perform strongly, however, at turning

promising start-ups into high-growth ventures. Among active

companies with revenues between £2.5m and £100m, 21.7%

can be categorised as high growth, and the region has seen

a 22% increase in the percentage of these companies since

last year. Other research corroborates this. The London Stock

Exchange’s 1000 Companies to Inspire Britain, a list of the

firms that the LSE considers to be the most exciting small

and medium-sized companies in the UK, contains 127

companies from the South East, or 12.7%.

Like most other regions, the South-East has also seen

a decline in the number of share sales. Compared with

London, however, this drop was less pronounced, with a

fall of 13% to 805 transactions.

805 companies with share sales from July-December 2013

-13%


22%


0.6%For further detail please refer to the methodology. Source: ONS; Experian for BGF; BVD for Ledbury.



35

Midlands

After London and the South-East, the Midlands has the

highest number of active enterprises at 317,040. This is an

increase of 0.4% compared with last year. It also has the

highest percentage of high-growth companies out of any

region, at 26.3%. Share sales have held steady, with a decline

of just 1% to 665.

The Midlands has a long heritage of entrepreneurship,

particularly in manufacturing. Today, a new generation

of entrepreneurs continues to build on this heritage.

For example, Made in the Midlands, a networking group,

represents around 265 companies with a combined turnover

in excess of £1.8bn and aims to support manufacturing and

engineering in the region.

The Midlands is also becoming an important centre for

creative industries. Birmingham’s Custard Factory Quarter,

a retail and office destination, is home to more than 500

businesses. A recent report by StartUp Britain named

Birmingham the UK’s most entrepreneurial region outside of

London and a start-up hotspot, with more companies being

formed there than in any other UK city outside the capital.


-1%


54%





36

North West

There were 206,815 enterprises in the North West in 2013,

a small increase of 0.5% compared with the previous year.

Among companies in the region with turnover between

£2.5m and £100m, 25.1% are recognised as high growth,

and the percentage of these companies has grown by 44%

over the past year.

Christian Spence, Head of Business Intelligence, Greater

Manchester Chamber of Commerce, says that these results

are in line with what he has been seeing in the region in

recent months: “The economic recovery has been continuing

to gain pace over the past six months, so it is no surprise

that we’re seeing this kind of growth,” he said. “In recent

months, Manchester has further cemented its place as the

second city in the UK, with major companies increasingly

looking to relocate and invest here.”

Spence believes the secret to the region’s success is the

good mix of industries operating in the area: “There’s a good

balance of sectors,” he said. “From manufacturing, to green

energy industries, to the professional services and the huge

retail presence – it’s all here. We are also the second largest

creative and digital centre in Europe. All of this combines to

create a strong, balanced, mature economy.”

There have been 498 share sales in the North West during

2013, a fall of 2%. Spence sees this as a normal trend in the

entrepreneurial journey however, saying: “Equity has always

been a problem for SMEs, so this is not totally unexpected..

Cities across the North West are becoming well established

hubs for entrepreneurs. The Manchester Science Park is

home to more than 150 science and tech companies, while

workspaces such as TechHub and the Sharp Project provide

valuable spaces in the city where entrepreneurs can gather,

support each other and share ideas.

Meanwhile MediaCityUK, a £950m development in Salford,

has created a hub for small production and media

companies, as well as a new home for the BBC, which has

been operational here since 2011, and ITV, which relocated

part of its operations in 2013.


-2%


44%





37

Yorkshire & Humberside

The number of enterprises in Yorkshire and Humberside

has remained fairly steady, with 0.4% growth to 150,725

in 2013. But among companies in the region with turnover

between £2.5m and £100m, one in four is a high-growth

company. Since last year, the region has also seen a significant

38% gain in the number of high-growth companies.

These results are of no surprise to Mark Goldstone, Head of

Business Representation & Policy at the West & North Yorkshire

Chamber of Commerce. He said: “We started seeing a

noticeable pick-up for business as far back as July, and in the

last quarter of last year, we found from surveying company

owners and directors in the region that business confidence

was at a 10-year high, which is very encouraging. There are

certainly still hurdles out there, but it appears that companies

are getting more confident and this is reflected in the growth

we are seeing in the region.”

Goldstone attributed the success in the region to recent

construction projects that he believes have rejuvenated the

area: “Development is coming out the ground,” he said.

“If you come to Leeds city centre and look at Trinity Leeds

shopping centre or the Leeds Arena you can feel the noticeable

effect it has had on the city – there’s a real buzz around.”

At the other end of the entrepreneurial journey, Goldstone

claims that this trend is to be expected as we begin to come

out of a period of recession however: “The economy is on a

growth cycle,” he said. “So I think entrepreneurs are thinking,

why not ride the wave? Now is the time to consolidate and

grow, not to sell.” 418 companies have undergone share sales,

a 1% increase compared with the previous year.

Like many regions around the UK, Yorkshire and Humberside

has benefited from an influx of investment capital in recent

years. As part of Local Enterprise Partnerships (LEP), a

Business Grant Programme provides grants of between £5,000

and £1m to cover up to 20% of the costs of creating new jobs

and business growth. The region also has an active private

equity community. In particular, the Yorkshire Business Angels

Community has become a well-established source of funding

for early-stage ventures.


1%


38%





38

South West

The number of enterprises in the South West has remained

fairly steady, rising by just 0.3% to 201,150 since last year.

But again, like other regional areas of the UK, it performs

well at converting start-ups into high-growth companies.

Overall, 21.5% of companies in the region with a turnover

between £2.5m and £100m, can be categorised as high

growth, an increase of 25% compared with the previous

year.

These figures support sentiment amongst local

entrepreneurs, according to Phil Smith, Managing Director

of Business West. In the final quarter of last year, we asked

600 companies in the area about how positive they felt

about their business prospects in 2014 and 75% said they

were confident. This is the best result we’ve seen since

2007.

Smith attributes this improved confidence to the recent

growth of exports, especially among the region’s technology

and service firms. “The South West is, geographically, on

the periphery of the UK business scene, but we have

benefited greatly from faster broadband and a rise in

the number of companies providing online and technical

services and support”.

The number of companies that have carried out share sales

is, however, fairly low at just 346. “Entrepreneurs are

hanging on to their businesses at the moment,” Smith

confirms. “The recent upturn in business conditions has

given them greater confidence and aspirations for the

future and the majority could look to grow their businesses

for at least another year before giving up equity.

The South West has long been a home to industries such as

aerospace and microelectronics. More recently, cities such

as Bristol have established a reputation as hubs for creative

and tech industries. A Local Enterprise Zone near the city’s

main railway station, known as Temple Quarter, provides

financial incentives and a home for dozens of start-ups,

many of them clustered in the Engine Shed, formerly the

headquarters of Isambard Kingdom Brunel.


-3%


25%





39

North East

The number of enterprises in the North East has remained

steady at 56,425. Although the absolute number of

enterprises in the North East is relatively low, the region is

moving in the right direction. Over the past year, there has

been a 34% increase in the proportion of high-growth

companies, meaning that among companies in the region

with a turnover between £2.5m and £100m, 21.5% can be

defined as high growth.

Ross Smith, Director of Policy, North East Chamber of

Commerce, sees this increase as particularly impressive in

light of the region’s smaller number of enterprises. He says:

“What has been really noticeable over the past six months

is the construction industry starting to pick up again.

Manufacturing has also been doing very well, particularly

in electronics, which is not an industry that has always had

such success in the North East. The tech sector is also

starting to gain critical mass in the region; in this sector

you can really feel the buzz around entrepreneurship.”

The number of share sales is, however, relatively low at just

106. This is a fall of 10% compared with the previous year.

Smith does not see this as negative however, saying:

“There has been a general trend in the past nationwide for

businesses to sell too fast, so it is good to see entrepreneurs

in the North East having the confidence to continue to grow

their businesses in the region, rather than selling them on.

That can only be a good sign for the economic climate over

the next few years.”

Recent years have seen the development of a number of

initiatives to foster entrepreneurship in the region. For

example, Newcastle Science City is a partnership led by

Newcastle University and Newcastle City Council to provide

access to business support and investment. To date, the

partnership has created 43 companies in the North East

and supported more than 750 regional companies to

commercialise new ideas.


-10%


34%


0%For further detail please refer to the methodology. Source: ONS; Experian for BGF; BVD for Ledbury.



40

East Anglia

The number of enterprises in East Anglia stands at 217,620,

an increase of 0.5% compared with the previous year. What

is perhaps more striking is that almost one in four

companies in the region with a turnover between £2.5m

and £100m can be categorised as high growth. In addition,

there was a 42% increase in the percentage of high-growth

companies in the region in the 12 months up to March

2013. Share sales stand at 477, a relatively high number

compared with other UK regions. Yet, like most other

regions, there was a fall in the number of share sales – at

14%, the second biggest drop in the UK after London.

By far the most prominent centre for entrepreneurship in

East Anglia is Cambridge. The so-called “Silicon Fen” boasts

more than 1,500 science and technology-based companies,

including ARM, one of the UK’s most successful companies.

One recent study rated Cambridge as the third most highly

regarded university-based technology innovation ecosystem

in the world24. As a result, the city has become a major hub

for talent, and a key destination for venture capital and

other forms of funding.

24 http://www.rhgraham.org/RHG/Recent_projects_files/Benchamrking%20study%20-%20Phase%201%20summary%20.pdf


-14%


42%





41

The number of enterprises in Scotland in 2013 stands at

151,115, an increase of 0.4% compared with the previous

year. Almost one-quarter of mid-sized SMEs in the region

can be classified as high-growth companies. In addition, the

percentage of high-growth companies has increased by

30%. The total number of share sales in the period studied

was 307. Like most other regions, the number of share sales

has declined but, at 8%, by significantly less than regions

such as London and the South East.

A recent study from the Global Entrepreneurship Monitor

found that, for the first time, total early-stage

entrepreneurial activity in Scotland matched the average

seen across 20 innovation-driven economies. The study

pointed to an increase in graduate self-employment and

low-aspiration start-ups driving this trend. However, the

report also recommended that more must be done to create

an entrepreneurial ecosystem in Scotland to capitalise on an

increase in the number of people starting their own

business.

There are numerous examples where this is already taking

place. In the past two years, for example, Entrepreneurial

Spark, an accelerator programme, has provided start-up

support, mentoring and facilities to more than 250 start-

ups in Glasgow, Edinburgh and the West Coast. In 2012,

Scottish Enterprise announced plans to help up to 400

companies secure funding through the Scottish Investment

Bank’s equity funds over the next three yeas. Scottish

Enterprise has also launched Scottish EDGE, a “Dragons’

Den”-style competition in which early-stage entrepreneurs

compete for financial awards and support.

Scotland


- 8%


30%





42

Wales

Compared with other regions, the number of enterprises in

Wales is relatively low, at 87,685, and has fallen by 1%

compared with the previous year. But what is more striking

is that, among companies in the region with a turnover

between £2.5m and £100m, 25% are categorised as high

growth. Moreover, Wales has seen a 66% increase in the

percentage of high-growth companies over the past year –

the highest rise out of any region in the UK.

A common characteristic of these high-growth companies

is the ability to export their products and services, according

to Graham Morgan, Director at South Wales Chamber of

Commerce. “These businesses are based in Wales but

delivering their products to elsewhere in the UK, as well as

Europe and further overseas in growth markets such as the

Middle East.”

There has also been growth in traditional as well as modern

industries, Morgan says: “We’re seeing a number of

businesses in the automotive sector posting significant

growth, as well as software firms, and specialist food and

drink businesses, like micro-breweries and tea makers. All

of these firms have a compelling, exportable product or

service.”

There have been 108 share sales in the period under study,

which represents a drop of 1% over the past year. In relative

terms, this makes Wales among the best performers on this

metric out of the regions studied.

On some measures, entrepreneurship in Wales has

strengthened in recent years. A recent report from the

Global Entrepreneurship Monitor found that the rate of

early-stage entrepreneurship among 18 to 29 year olds had

trebled over the previous decade25. But other data suggest

that Wales is lagging behind other UK regions. Wales

currently has 455 Active Enterprises per 10,000 of the

population, compared with a UK average of 580. Some

Welsh regions, such as West Wales and the Valleys, have

only 433 businesses for every 10,000 people26.

25 http://www.bbc.co.uk/news/uk-wales-2037657526 http://www.partyofwales.org/news/2014/01/02/action-needed-to-encourage-entrepreneurship-says-plaid-cymru/?force=1


-1%


66%


-1.0%For further detail please refer to the methodology. Source: ONS; Experian for BGF; BVD for Ledbury.



43

Northern Ireland

With the exception of the North East, Northern Ireland has

the smallest number of enterprises at 66,685. This number is

1.2% lower than figures from 2012. Northern Ireland also has

the lowest percentage of high-growth companies, at just

19.2%. Although this proportion has risen by 15% compared

with 2012, this is the lowest increase out of all the regions

studied. According to StartUp Britain figures, there were

6,057 new businesses set up in Belfast during 2013. Business

owners made 93 share sales in the second half of 2013, a fall

of 2% compared with the first half of the year.

The Northern Ireland Executive is working to position the

region as a hub for aerospace, defence, security and space.

It launched a Partnering for Growth programme in February,

which will see industry body ADS NI, Invest NI, the

Department of Enterprise Trade and Investment, and

Department for Education and Learning collaborating in an

attempt to expand one of the most successful sectors of the

country’s economy. The programme is aiming to more than

double revenues from the sector to £2bn within ten years, as

well as increasing direct employment from 8,000 to 12,000

high value jobs27.

27 http://secure.investni.com/static/library/invest-ni/documents/northern-ireland-partnering-for-growth-together-growing-the-northern-ireland-aero-space-defence-security-and-space-industry.pdf


- 2%


15%


-1.2%For further detail please refer to the methodology. Source: ONS; Experian for BGF; BVD for Ledbury.



44

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45

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BARCLAYS ENTREPRENEUR INDEX – SPRING 2014

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Barclays offers wealth and investment management products and services to its clients through Barclays Bank PLC and its subsidiary companies. Barclays Bank PLC is registered in England and authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered No. 1026167. Registered Office: 1 Churchill Place, London E14 5HP.

Item Ref: IBIM2931March 2014