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 firms whereas Personal 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 expertise hole. Founders are sometimes subject material consultants, however most have by no means scaled a enterprise earlier than. All which means whereas the UK is third on the earth for start-ups, it’s only thirteenth on the earth for scale-ups. With out funding or assist, a number of viable small companies are struggling to make it via the “troublesome teenaged years” and the UK is lacking out on jobs, innovation and progress in consequence.
ScaleUp Capital seems to be to plug each the funding and expertise hole to scale back the variety of small companies that plateau or fail. They delight themselves on truly enhancing the companies they spend money on. 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, we now 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, masking expertise, software program, content material and companies. Lots of our companies are constructed on SaaS, subscription, managed service or outsourcing income streams.
What downside does your organization clear up?
We imagine that many worthwhile small companies fail or plateau as a result of they lack the assist and funding they should attain the subsequent stage of progress. The UK financial system misses out on jobs, expertise and innovation in consequence. 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 Personal 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% every year and reinvesting all its income to fund the expansion struggles to boost cash from both the PE or VC neighborhood.
The problem is additional compounded by an expertise and expertise hole. Analysis by Crunchbase confirmed that 83% of founders are doing it for the primary time. Many founders are subject material consultants 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 carried out it 3 or 4 occasions earlier than are 2 – 4x extra prone to succeed.
We imagine that small companies at the beginning of their scale-up section want a brand new breed of investor, scale-up specialists like us who present the “palms on” assist and funding wanted to achieve the subsequent 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 firms, basically 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 imagine that mannequin works for rising firms of their scale-up section that have to undergo great change and which can be run by comparatively inexperienced leaders. These companies want methodology and course of, extra common contact factors, extra granular assist, 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 via our Scaler Programme and our devoted groups throughout Technique, Expertise, Change Administration, Finance and Funding all created to assist our portfolio via the scale-up section.
What are your organization values? Have you ever ever had them challenged and in that case how have you ever handled it?
We spend money on entrepreneurial companies and assist them to scale. To do that efficiently, we now 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 will study, change and take a look at once more. We relentlessly pursue extra progress and higher outcomes. We’re additionally rigorous in our method to scaling companies. We take note of particulars and ensure our choices are backed by knowledge. By embracing these values, we now have efficiently scaled 18 companies with zero failures.
How do you make sure that you recruit a group that displays your organization values?
Our final goal is to assist small UK companies attain their full potential by offering them with the funding and experience they should scale. We have now constructed a group that is ready to ship on that aim with specialists throughout technique, expertise administration, funding & finance – all of the issues you must scale a enterprise. We proceed to recruit folks that not solely have experience in these areas, but additionally share our dedication to getting the most effective out of UK companies.
Are you content to supply a hybrid working mannequin of house/workplace post-covid?
We have now a hybrid mannequin that gives our group with the pliability to have the ability to work most successfully. We have now discovered that the hybrid mannequin the place the group can nonetheless get to collectively in our workplace but additionally have flexibility to work remotely supplies stability.
Any finance or cash-flow suggestions for brand 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 firms they’ve invested in. For the 1 in 30 hypergrowth firms, VCs will put in plenty of money and time. Different companies which can be rising steadily (however not explosively) are put into an unloved class the place no more cash or time is on the market.
The fact is that VC funding isn’t proper for many early-stage tech firms that aren’t hyper-growth. Solely a tiny share of VC-backed start-ups make it – 4 % are offered for greater than $50m, one % make it to ‘unicorn’ standing, however seven in ten fail.
Small enterprise house owners ought to think about different kinds of funding which may be extra suited to their enterprise mannequin and supply higher ends in the long-term.
If you happen to might ask one factor of the federal government to vary for companies what wouldn’t it be?
We’re happy to see the federal government has recognised the significance of scale-ups to the UK financial system. Chancellor Rishi Sunak highlighted the “scale-up funding hole” in his Funds speech earlier this yr and has launched a number of initiatives to assist small companies together with the Assist to Develop coaching scheme and the Future Fund. We’d like the federal government to proceed this stage of assist whereas additionally guaranteeing the funding business steps up as properly.
What’s your angle in direction of your opponents?
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 neighborhood will start to recognise the significance of profitable scale-ups to the UK financial system and that we’ll begin to see extra specialist buyers like ourselves offering scale-ups with the mandatory funding and assist.
Any ideas on the way forward for your organization and your desires?
Our aim is to be the most effective 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 document of persistently scaling up firms at an accelerated fee, 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.