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What does the NESTA/Sage report on SME productivity offer crowdfunding investors?

Posted 3 years ago

What does the NESTA/Sage report on SME productivity offer crowdfunding investors?
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NESTA and Sage published a report on regional Small and Medium (SME) sized business productivity in the UK this week. It makes for fascinating reading and should certainly attract the attention of Westminster as it seeks to offer evidence to inform policy decisions that seek to encourage SME growth around the UK – for instance the much anticipated ‘patient capital’ report.

Was it surprising that the report found that London businesses were the most productive? Probably not. In a region where competition is rife and the network for funding SME growth is larger and more established you would expect to see this reflected in productivity levels. However the sheer scope of that difference is astounding. London has seen the highest growth in numbers of small businesses – 41% - and the City of London’s productivity is 26 times greater than West Somerset, the least productive region, at £1.45 million in company turnover compared with £56,500.

Of course there are differences in the types of business likely to be located in the City of London and those likely to be found in West Somerset. The City of London is dominated by technology and financial services companies that look to compete globally. The question for the Government and local authorities is – is it possible to encourage productive, fast growing businesses to other regions in the UK? Encouragingly the report suggests that yes it is indeed possible, highlighting regional hot-spots outside of London and the South East that include Ulster, Newport and Barnsley.

But why does it matter?  Small and medium businesses account for 60% of private sector employment but since 2010, they have created 73% of new private sector jobs across the UK. Which means that these types of businesses are punching above their weight as employers and more employees means more spending power, better living standards and more money into both central and local Governments through taxation.

Investors in growing businesses through UK equity crowdfunding or peer-to-peer (P2P) platforms should find the types of business that are doing well interesting. The report found that whilst the UK as a whole had seen 23% growth since 2010, technology dominated as a sector with 42% growth, double the average growth rate of other sectors. Also thriving was the education sector which had more than doubled in size over the same time period and enjoyed 65% growth in turn-over. In contrast the construction sector had seen just 8% growth, although it is worth noting that it was and remains a larger sector for which double digit growth was always likely to be difficult to achieve.  

Nesta and Sage want to see an end to the current ‘one-size-fits-all’ approach to encouraging SME growth as they see it. They have focused on the reports highlighting of a clear relationship between high productivity and high failure rates, suggesting that in regions where it was harder to survive as a small growing business it took innovation and creativity to thrive – something of a survival of the fittest and one that implies that innovation and productivity are intrinsically linked.

The report called for the Government to drive up standards in education, provide digital skills training and digital tools for entrepreneurs, offer easy access to productivity metrics and benchmarks and give local authorities the means and strategies to support, fund and educate SMEs in a targeted fashion.”

If future policy designed to encourage SME development takes new evidence like this into account it could be good news for both investors in UK SMEs, for whom greater productivity generally means stronger returns, and for the UKs existing and potential small and medium businesses that have proven that they can thrive with the right support in place. As NESTA and Sage point out in their report, SME growth can only be a positive move for the UK economy.

Tagged: equity crowdfunding peer to peer lending p2p lending NESTA Sage SMEs London competition businesses

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