Simon believes the UK is lacking out on some nice tech success tales due to a structural failing within the enterprise capital and personal fairness mannequin that has resulted in a “scale up funding hole”.
ScaleUp Capital is a hybrid working and funding fund that specialises in scaling small tech companies (£1-10M in revenues). Enterprise Capital solely works for 1 in 30 hypergrowth corporations whereas Non-public Fairness solely works for companies that may maintain debt. Worthwhile companies which can be rising steadily (however not explosively) aren’t given the time of day.
On prime of this, there’s a abilities hole. Founders are sometimes subject material specialists, however most have by no means scaled a enterprise earlier than. All which means whereas the UK is third on this planet for start-ups, it is just thirteenth on this planet for scale-ups. With out funding or help, a number of viable small companies are struggling to make it by way of the “tough teenaged years” and the UK is lacking out on jobs, innovation and progress consequently.
ScaleUp Capital seems to plug each the funding and abilities hole to scale back the variety of small companies that plateau or fail. They delight themselves on really bettering the companies they put money into. In 18 years, they’ve by no means had a failure. Simon talks to Enterprise Issues …
What services or products do you present?
We’re a specialist scale-up investor that helps small companies with revenues of between £1 – £10 million to scale to vital mass, profitability and long-term success. Over time, now we have constructed our experience into our Scaler Programme – a confirmed methodology for scaling that may be utilized to any digital B2B companies.
What sort of companies do you’re employed with?
We specialise within the B2B digital sector, protecting know-how, software program, content material and companies. A lot of our companies are constructed on SaaS, subscription, managed service or outsourcing income streams.
What downside does your organization remedy?
We consider that many worthwhile small companies fail or plateau as a result of they lack the help and funding they should attain the following stage of progress. The UK economic system misses out on jobs, expertise and innovation consequently. We purpose to plug each the scale-up funding hole and the talents hole to make sure that extra small companies within the UK have the chance to flourish.
Many small companies battle to draw funding as a result of they don’t match the Non-public Fairness (PE) or Enterprise Capital (VC) mannequin. PE buyers search for mature and worthwhile companies that may be acquired with leverage. In the meantime, VC buyers run a “hits”-based mannequin the place they search for the 1 in 30 hypergrowth moonshots. So an rising enterprise with revenues of £1 – £10 million, rising at 10 – 25% each year and reinvesting all its earnings to fund the expansion struggles to boost cash from both the PE or VC group.
The problem is additional compounded by an expertise and abilities hole. Analysis by Crunchbase confirmed that 83% of founders are doing it for the primary time. Many founders are subject material specialists who know their product and market inside-out, however have by no means scaled a enterprise earlier than. The identical analysis exhibits that founders who’ve finished it 3 or 4 occasions earlier than are 2 – 4x extra prone to succeed.
We consider that small companies firstly of their scale-up part want a brand new breed of investor, scale-up specialists like us who present the “palms on” help and funding wanted to achieve the following stage of progress.
What’s your USP?
Whereas conventional PE and VC are stuffed with good people who find themselves unimaginable buyers and may advise and information their investee corporations, essentially their mannequin is passive or palms off. They’re lively as buyers, however there’s a clear dividing line between managing and investing, with usually the primary interface being board conferences.
We don’t consider that mannequin works for rising corporations of their scale-up part that have to undergo super change and which can be run by comparatively inexperienced leaders. These companies want methodology and course of, extra common contact factors, extra granular help, extra assist with the execution. They want true working companions, not simply lively buyers. And that is precisely what our mannequin is constructed round, each by way of our Scaler Programme and our devoted groups throughout Technique, Expertise, Change Administration, Finance and Funding all created to help our portfolio by way of the scale-up part.
What are your organization values? Have you ever ever had them challenged and in that case how have you ever handled it?
We put money into entrepreneurial companies and assist them to scale. To do that efficiently, now we have to be entrepreneurial ourselves. At ScaleUp Capital, we worth tempo and rigour. Tempo delivers outcomes extra shortly. If we fail, then we fail quick so we are able to study, change and take a look at once more. We relentlessly pursue extra progress and higher outcomes. We’re additionally rigorous in our strategy to scaling companies. We take note of particulars and ensure our selections are backed by knowledge. By embracing these values, now we have efficiently scaled 18 companies with zero failures.
How do you make sure that you recruit a crew that displays your organization values?
Our final goal is to assist small UK corporations attain their full potential by offering them with the funding and experience they should scale. We have now constructed a crew that is ready to ship on that objective with specialists throughout technique, expertise administration, funding & finance – all of the issues it’s good to scale a enterprise. We proceed to recruit folks that not solely have experience in these areas, but in addition share our dedication to getting one of the best out of UK companies.
Are you cheerful to supply a hybrid working mannequin of house/workplace post-covid?
We have now a hybrid mannequin that gives our crew with the flexibleness to have the ability to work most successfully. We have now discovered that the hybrid mannequin the place the crew can nonetheless get to collectively in our workplace but in addition have flexibility to work remotely offers an excellent stability.
Any finance or cash-flow ideas for brand spanking new companies beginning out?
Discover the investor that’s best for you and your online business. A whole lot of small companies search VC funding however are unaware of what sort of enterprise these buyers are after. VCs will very intently monitor the efficiency of all of the 30 or so corporations they’ve invested in. For the 1 in 30 hypergrowth corporations, VCs will put in loads of money and time. Different companies which can be rising steadily (however not explosively) are put into an unloved class the place no extra money or time is accessible.
The truth is that VC funding just isn’t proper for many early-stage tech corporations that aren’t hyper-growth. Solely a tiny share of VC-backed start-ups make it – 4 % are bought for greater than $50m, one % make it to ‘unicorn’ standing, however seven in ten fail.
Small enterprise house owners ought to contemplate different forms of funding that could be extra suited to their enterprise mannequin and supply higher leads to the long-term.
For those who may ask one factor of the federal government to vary for companies what would it not be?
We’re happy to see the federal government has recognised the significance of scale-ups to the UK economic system. Chancellor Rishi Sunak highlighted the “scale-up funding hole” in his Finances speech earlier this 12 months and has launched a number of initiatives to help small companies together with the Assist to Develop coaching scheme and the Future Fund. We want the federal government to proceed this stage of help whereas additionally making certain the funding trade steps up as effectively.
What’s your perspective in direction of your rivals?
The issue is there are only a few specialist scale-up buyers like us within the UK. In the end, we need to see extra small companies efficiently scaling to vital mass and profitability. We hope that the funding group will start to recognise the significance of profitable scale-ups to the UK economic system and that we’ll begin to see extra specialist buyers like ourselves offering scale-ups with the mandatory funding and help.
Any ideas on the way forward for your organization and your desires?
Our objective is to be one of the best scale-up specialist within the digital sector, and to pioneer a brand new hybrid mannequin that fuses an operational scale-up platform with personal fairness funding.
We have now a monitor report of constantly scaling up corporations at an accelerated charge, with improved high quality and extra strong efficiency.
We need to construct nice companies and ship world-class returns to founders, managers, co-investors and our personal fund buyers.