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

Belfast Telegraph - Business Telegraph - - News - By pa­trick gra­ham, Busi­ness growth fund (BGF) Paddy Gra­ham is in­vestor, 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 scale­ups 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.

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 scale­ups 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.

Steve Jobs over­came early ad­ver­sity to make Ap­ple a house­hold name

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