Whilst the UK struggled through the longest, deepest recession to hit the economy in the post-war era, every good entrepreneur sensed an opportunity.
Downturn in an industry or, more widely throughout an economy, is counter-intuitively often the most promising time for new businesses to pop up. The competition is weakened by obligations shouldered in more profligate times. Business models developed on assumptions formed in ‘simpler’ times are found to be hopelessly unrealistic. And, in the face of every new challenge lies the opportunity for progress and innovation by those who are more fleet of foot.
However, whilst the conditions may be conducive to developing leaner models that serve customers more efficiently, that is not to say that building a high growth business is easy, particularly when the banks have all but stopped lending. Access to external finance remains critical for any with aspirations to grow beyond their local markets. By definition, that group includes high growth businesses.
But why should we focus on funding high growth tech businesses? There are a number of reasons. Their success generates employment opportunities, often within their local communities. And, for those that fight their way successfully through to the next level, they generate money – which produces tax revenue. Or, to put it another way – cash that can then filter down through society for everyone’s benefit. That’s without even mentioning the more abstract positive effects experienced by a community that is lifted by the inspirational success of ‘one of its own’.
It’s well-accepted that there is a funding gap in the early-stage funding process, around the so-called ‘Valley of Death’. Yet it is abundantly clear that there is still money available out there that can make a difference. It’s just not always reaching the areas that have been harder to find.
The current capital markets are broken. It’s a theme we’ll return to time and again on this blog. But the reality is that the gamble of buying and selling the shares of more established companies can only ever have a limited effect. Forgive me for stating the obvious, but exchanging shares does not mean that this vital cash transfers to the company itself. Ever. You’re simply paying the current owner of the shares. That is not a transfer of value that will help to build new businesses and drive the wholesale growth that’s required to drag the economy back onto its feet. For that, you need to support the high growth startups.
Of course, it is riskier to invest in high growth companies. Many won’t make it. But the benefits generated for many from those that do make it across ‘the valley’ have the potential to create disproportionate benefits that can help turn the economy around.
And who out there doesn’t want to see that?