SMEs account for 61% of employment and 52% of turnover for British businesses
Gaurav Singh, founder of the leading investment banking platform, JPIN, discusses the importance of SME growth for the future of UK economic stability
Last month, Labour launched a review of business startup funding, with an aim to make Britain ‘the best place in the world to start and grow a business’ – a sentiment echoed by ex-Chancellor, Rishi Sunak, during the Conservative leadership debate over the weekend. Despite a sharp sell-off in the market this year – amidst an ongoing war, global energy shortages and soaring inflation – SME productivity remains a beacon of hope for Britain’s declining economy. SMEs are crucial to shaping the UK economy, with a combined turnover of £2.3 trillion in 2021. This arena accounted for 61% of employment and 52% of turnover last year. However, Gaurav Singh, founder of leading investment banking platform, JPIN, explains that the government must do more than merely encourage the growth of the UK’s startup and SME ecosystem. He argues that spending needs to be dialled up alongside a significant reduction of bureaucracy.
A new report entitled Access all Areas: Government, found that despite policy ambition to increase SME spending to 25%, over the last five years, the government managed to spend just 10% of its total procurement directed towards this area. Currently, there are 5.5 million SMEs in the UK employing 16 million people – contributing to 99.2% of total UK businesses, according to The Federation of Small Businesses – which means that boosting this sector could lead to significant investment and productivity gains and ultimately, contribute to the long-term health of the economy. Amidst trends of high-growth tech firms listing their shares in New York rather than London, there is an increasing urgency to re-cement Britain as the leading global startup hub. In a world where tech growth plays a vital role in a country’s development, startups are set to serve as a lifeline for Britain’s economic prosperity.
Other routes of investment have risen to prominence in the past decade, helping to alleviate current pressures surrounding startup funding. Institutional investors such as banks, labour unions, insurance companies and pensions, require a longer and more protected due diligence process, which results in greater thresholds for longer investment hold times. Given the general economic uncertainty, family offices are likely to help aid the current market conditions by stepping in with a potentially attractive pool of capital for funds and private deals. With a staggering 42% of family offices, according to research from the UBS Global Family Office, worldwide looking to increase direct private equity allocations, the shift to the deep-pocketed investors from private wealth vehicles is set to prevent VC confidence from declining even further – providing an alternative route to boost investment for startups across Britain.
Gaurav Singh, founder of JPIN, comments on the importance of SME growth for the future of economic stability:
“Labour’s review into business funding to support startups is welcome news, as it highlights the importance of innovation in providing building blocks for the future of the UK economy. It’s great to hear especially given the challenging landscape that’s begun to emerge in the last few months.
“New and growing businesses primarily struggle with receiving funding; however, there are now various options that can help with boosting capital. It appears family offices could also come to the fore to fill investment gaps in the market at a time when valuations are dropping and confidence from some institutional investors is decreasing. This increased activity from a different branch of the investment sphere could provide startups with an injection of much-needed capital which will also help to stimulate the economy during these uncertain times.
“Startups are ultimately crucial to the economy, as countries need tech innovation to stimulate growth. SMEs across the country would benefit hugely from the government spending a higher percentage of its procurement budget on helping these firms. However, in the absence of this, there is still a wealth of options out there that can help fill this gap including institutional and private funding alongside the rising prominence of family offices.”