‘It is in ev­ery­one’s in­ter­est the Euro­pean fund­ing ecosys­tem is main­tained’

Yorkshire Post - Business - - FRONT PAGE - Nikhil Rathi

As we leave the EU we must con­tinue to col­lab­o­rate and build bridges. Lon­don Stock Ex­change Group was proud last month to launch the 2018 edi­tion of our pi­o­neer­ing 1000 Com­pa­nies to In­spire Europe re­port, high­light­ing 1000 of the fastest grow­ing small and medium sized busi­nesses (SMEs) across Europe.

These com­pa­nies are the back­bone of the Euro­pean econ­omy. With ex­cep­tional three-year com­pound an­nual growth rates of 24 per cent and av­er­age two-year job cre­ation rates of 37 per cent, it is no sur­prise they have the ca­pac­ity to tackle unem­ploy­ment across the con­ti­nent.

The eco­nomic po­ten­tial of these com­pa­nies is clear. The prob­lem we need to solve is how we en­sure these com­pa­nies con­tinue to re­alise their full po­ten­tial. Ac­cess to growth capital is vi­tal but Euro­pean cen­tral bank stud­ies cite there are too many bar­ri­ers to ac­cess­ing it for SMEs.

Much of the cor­po­rate fi­nance in Europe comes in the form of debt, pri­mar­ily from banks, which is tax de­ductible. This is fine for larger estab­lished com­pa­nies to man­age their obli­ga­tions but does lit­tle to sup­port dy­namic com­pa­nies. They need to ded­i­cate all their eco­nomic capital to in­vest­ing, in­no­vat­ing and grow­ing, rather than ser­vic­ing a re­pay­ment plan every 30 days.

In the cur­rent macroe­co­nomic cli­mate, fur­ther bar­ri­ers would com­pound this and lead to frag­men­ta­tion, illiq­uid­ity and in­ef­fi­ciency. Not only would this make it harder for com­pa­nies to scale-up but it would make Europe less com­pet­i­tive as a whole.

Pol­i­cy­mak­ers must put en­trepreneurs at the heart of our eco­nomic model. We must give our fledg­ling growth com­pa­nies ac­cess to long-term Pa­tient Capital, like eq­uity, where peo­ple seek in­vest­ment to grow their busi­ness ei­ther through in­di­vid­ual in­vestors, on capital mar­kets, or through crowd­fund­ing and peer to peer plat­forms.

At Lon­don Stock Ex­change Group, we work in part­ner­ship with our global cus­tomers to make longterm pa­tient capital more read­ily avail­able.

We are proud to have wel­comed Fund­ing Cir­cle, the global small busi­ness loans plat­form, to our mar­kets this month. The com­pany raised £300m to sup­port SMEs, while Crowd­cube, the UK crowd­fund­ing site, is part of ELITE, our global busi­ness sup­port and capital rais­ing pro­gramme.

Be­cause just as the eco­nomic po­ten­tial of the fastest grow­ing SMEs is clear so too is the po­ten­tial of eq­uity fi­nance.

Our global capital mar­ket for high-growth com­pa­nies, AIM, has raised over £110bn for nearly 4000 com­pa­nies in over two decades. When the UK government made shares in Euro­pean growth mar­kets, in­clud­ing AIM, el­i­gi­ble for in­clu­sion in ISA ac­counts, nearly £4bn of ex­tra capital flowed into AIM com­pa­nies, prac­ti­cally overnight, help­ing them to in­vest, in­no­vate and grow fur­ther.

Their ex­cep­tional level of in­no­va­tion is ev­i­dent too, Com­pa­nies in this year’s 1000 Com­pa­nies to In­spire Europe re­port count an as­ton­ish­ing 10,000 patents and reg­is­tered trade­marks be­tween them.

In Italy, AIM Italia, part of Lon­don Stock Ex­change Group, has raised over €1.4bn in the first half of this year for high-growth com­pa­nies, an eight­fold in­crease on the same pe­riod last year. In fact, two thirds of growth mar­ket fi­nance raised across Europe in the first half of this year has come from AIM mar­kets in Lon­don and Mi­lan.

So, we con­tinue to seek to make the Euro­pean Union’s

Capital Mar­kets Union pro­ject a re­al­ity. It is vi­tal to break down bar­ri­ers and sim­plify ac­cess to mul­ti­ple sources of fi­nance for com­pa­nies, in­clud­ing mak­ing it eas­ier to ac­cess fi­nance from other coun­tries within and out­side EU.

It is in ev­ery­one’s in­ter­est that the Euro­pean fund­ing ecosys­tem is main­tained and en­hanced, not frag­mented.

Research shows that a one per cent in­crease in the num­ber of high-growth busi­nesses can add two per cent gross do­mes­tic prod­uct.

Amid the global po­lit­i­cal de­bate about the shape and struc­ture of our fu­ture economies and in­ter­na­tional trade flows, get­ting more capital flow­ing bot­tom up from in­vestors to in­no­va­tors and small busi­nesses, would be a wel­come il­lus­tra­tion of the capital mar­kets work­ing ef­fi­ciently through­out Europe.

And ten years on from the fi­nan­cial cri­sis, let’s not for­get the role over­lever­age played. Re­cal­i­brat­ing the econ­omy away from debt to eq­uity will make our economies more re­silient.

Healthy com­pa­nies sup­port the wider econ­omy and so­ci­ety, and good pol­i­tics fol­lows good eco­nom­ics.

GROW­ING THE ECON­OMY:A one per cent in­crease in the num­ber of high-growth busi­nesses can add two per cent gross do­mes­tic prod­uct.

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