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South West Founders
Nina Searle, corporate associate, TLT
You've ploughed all your time, energy and finances into your start-up, you've proved that the concept works
and that the business is viable. It is time to scale up….
So what is stopping you? This is the question being asked by experts analysing why, when levels of
entrepreneurial activity in the UK are high, relatively few start-ups are managing to scale up and achieve
significant growth.
In our experience of acting for start-up and scale-up companies, one of the main obstacles to growth is
funding. Businesses need enough money to be able to bring in the right people and implement the systems
and infrastructure they need to scale-up.
A recent report convened by Barclays from the business schools at Oxford and Cambridge Universities
identified a number of challenges to funding scale- ups, and made the following recommendations:
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More Venture Capital funds, managed by skilled and experienced venture partners with extensive
international networks, and of sufficient size to support the financing of scale-ups over large funding
rounds;
Venture debt should be developed in parallel to venture capital;
London Stock Exchange (LSE) should become the leader for listing European scale-ups; and
Create a new market for secondary private company shares.
Our team acts for start-up/scale-up businesses and individual and institutional investors, and whilst we agree
in broad terms with the recommendations set out in the report, we are working with investors who are
increasing active in providing the growth capital/debt needed by scale-up businesses. Venture Capital
Trusts, who may have favoured buy-out transactions (where they provide an exit to existing shareholders),
have been forced to re-focus on growth capital transactions by changes in law that took effect in November
2015. The market for growth capital has been expanded by the creation of the Business Growth Fund (who
have a large office in Bristol), and we see lots of more traditional private equity houses looking to do smaller
deals where they can fund businesses that are capable of rapid growth.
This time last year, Barclays introduced its £100 million investment fund providing venture debt of up to
£5million repayable over 3 years to fast growing tech companies who have secured venture capital
investment, and are also providing smaller amounts of venture debt through European Investment Bank's
InnovFin programme. We have been involved in a number of these deals to date and it is a product that is
getting significant traction.
There is no doubt that scale-ups, particularly in tech are underrepresented on the AIM Market (the alternative
investment market (AIM) of the LSE focusing on smaller growing companies). Listing on the stock market,
whether AIM or the main market, provides an opportunity for fundraising, and liquidity to the existing
shareholders. The more active a market, the more liquid the shares traded on that market become, and the
more liquid an investment is the greater and broader its appeal. Founders cite regulatory compliance, loss of
control and the costs associated with listing as barriers, and perhaps to the ambitious founders of tech scaleups, a full listing feels a more appropriate target. We recently acted for fashion tech business boohoo on its
admission to AIM, and will track its progress with interest.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at 3 August 2017. Specific advice
should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this
publication.
TLT LLP is a limited liability partnership registered in England and Wales (number OC 308658) whose registered office is at One Redcliff Street Bristol BS1
6TP. A list of members is available for inspection at that address. TLT LLP is authorised and regulated by the Solicitors Regulation Authority number
406297.
We are beginning to see innovative moves to address the illiquid nature of private company shares, with
platforms such as Asset Match providing a market place for trading private company shares. While these
platforms may appeal to the flexible and disruptive nature of scale-up businesses, they are likely to take
some time to become 'the norm'. Companies will need to balance the benefit of perceived liquidity with the
loss of control over both their own structure and shareholder base, and we anticipate that most will not see
the advantages as being sufficiently attractive.
It is clear that the challenge is to create the right ecosystem, where scale-ups have access to the funding
they need in order to flourish and there is an active and liquid market for trading their shares. Investment
funds should then be able to raise funds more easily on the back of good returns to their investors within
relatively short timeframes, and those funds can be invested in scale-ups continuing the cycle.
If you'd like to talk to us about our experience of venture capital or venture debt, or share your experiences
with us, please contact Nina Searle, [email protected] or 0333 006 1804.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at 3 August 2017. Specific advice
should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this
publication.
TLT LLP is a limited liability partnership registered in England & Wales number OC 308658 whose registered office is at One Redcliff Street, Bristol BS1
6TP England. A list of members (all of whom are solicitors or lawyers) can be inspected by visiting the People section of this website. TLT LLP is authorised
and regulated by the Solicitors Regulation Authority under number 406297.