Analysing Early-Stage SME Growth and Opportunities

About The FSE Group

At The FSE Group, our focus is to support the rise of high growth UK SMEs, especially in underrepresented areas of the UK. As a dedicated early-stage investor and lender with over 20 years’ of experience in the early-stage SME market, we have seen how, over time, the ecosystem has started to mature.

The growth of the VC market

In particular, the European Tech industry has seen significant growth over the last 10 years, with the UK at its focal point. A recent report published by Mountside Ventures (access here), found that UK start-up expenditure has increased from £2 billion in 2011 to £12 billion in 2020. This is welcome news for the UK tech ecosystem, but is it realistic to expect this level of growth to be sustained?

The British Business Bank’s recent report on VC returns in the UK, found that Funds which are based outside of the Golden Triangle (London, Oxford and Cambridge) offer the potential for higher returns.  

The report also mentions that early-stage VC’s have the potential for higher returns than other stages of the market – this is particularly positive news given the historical reluctance of institutional LPs in Europe to invest in early-stage Venture Funds. However, the capital raised by Buyout Funds in Europe, was still 3.7x higher than the capital raised by Venture Funds in Europe (Atomico’s State of European Tech 2019), so there is still quite some way to go.

As the UK SME investment industry matures, Funds start to specialise in specific areas or sectors due in part to the potential availability of more businesses in these sectors who are looking to raise capital.

SMEs and the current economic climate

Whilst there is uncertainty in the current markets due to COVID-19 and it is still too early to know what the real impact of this crisis will be on the SME ecosystem, the inherent qualities of Venture Funds allow them to be resilient, because they are designed to cope with uncertainty and market cycles due to their long fund lives. This can be taken a step further with regard to Evergreen Funds, which do not, unlike many Venture Funds, have a fixed fund cycle. Thus allowing for long-term, patient capital to be re-invested into SMEs, especially in the early-stages.

In Summary

It is clear that the early-stage SME market in the UK is growing and needs a strong early-stage finance industry in order to support its growth. At The FSE Group, we are committed to supporting eligible, ambitious, innovative, high growth and scalable SMEs to help fuel their growth ambitions, as an essential part of helping the UK’s economic bounce back.

To find out more, why not join us for a fireside chat with Mountside Ventures on the 10th of December at 12:00? We will be discussing early-stage fundraising for SMEs and how they can improve their chance of success. To attend this event, please register on the Eventbrite link here: https://bit.ly/2V4QHlr

For more information on FSE’s funds under management visit: www.thefsegroup.com/overview-of-funds/

Words by Julie Silvester, Head of Commercial at The FSE Group.