Half of Scottish businesses fail to secure external finance 

The findings are based on a survey of the founders of 501 scale-up companies, and more than 500 non-scale-up SMEs in 2018. Total sample size in Scotland was 54 companies.

Despite a significant failure rate, businesses based in Scotland fare better than the UK average (70 per cent) when it comes to raising external finance.

It is a process that is often critical to helping businesses scale quickly and maximise their potential. However, it’s often not plain sailing. Nearly a quarter (24 per cent) of Scottish businesses seeking investment have failed to secure funding more than three or more times and 7 per cent have made five or more unsuccessful attempts.

The reasons behind this are varied. The most common explanation given by Scottish founders was that their business didn’t meet the criteria for investment (30 per cent), exceeding the number of firms which said their business model wasn’t good enough (26 per cent) – bucking the trend seen across the rest of the UK which cited a weak management team as the most common problem. A fifth (20 per cent) had an issue with their credit history and 17 per cent didn’t have a good enough handle on their finances.

The main motivators behind Scottish businesses looking to secure finance include; building infrastructure (44 per cent), financing R&D (39 per cent) and increasing employee headcount (35 per cent). However, of the various funding routes available, the majority of Scottish founders aren’t confident accessing venture capital (70 per cent), private equity (52 per cent), and despite the rise of peer-to-peer lending platforms in recent years, 91 per cent still aren’t confident in accessing them.

Barrie Brown, associate director, Smith & Williamson Financial Services, Glasgow, said: “Securing business investment shouldn’t be a blind leap of faith. Preparation is key. To be investor-ready, Scottish businesses must ask themselves difficult questions and demonstrate they have a strong management team in place, something that is crucial for investors. Equally important is the level of ambition displayed and a degree of certainty on future plans and objectives.

“Even with these measures in place, securing investment is never easy. Getting high-quality and relevant advice right from the outset can significantly improve the chances of Scottish businesses securing funding. This mind-set will see the number of firms successfully raise external finance increase and, importantly, reduce the number of those experiencing funding regret.”

The full report and further information can be found here: www.smithandwilliamson.com/dreambigger