Statistics released this week have revealed that Britain is currently creating more $1 billion technology companies, known as Unicorns, than any other country apart from the United States and China.
In the last 20 years UK-based entrepreneurs have built 72 companies, including 13 in the past year, that have exceeded a valuation of $1billion. This is compared with 29 in Germany, Britain’s closest European rival, and India with 26. In that time, the US and China have created 703 and 206 respectively, according to research for the government’s digital economy council published this week.
One of these Unicorns – BrewDog – Utilised EIS funding through crowdfunding at the early stage of growth. This undoubtedly helped the start-up to get off the ground and reach the valuation not only of $1billion but over £1billion.
Part of the reason behind this growth and the success of these companies is the availability of investment both at start-up and scale-up level. Banks are often reluctant to lend to high-risk companies especially those that are not asset-backed or are IP-based such as those in the technology sector. This has meant that alternative finance routes have become more and more important for these tech-based businesses looking to grow and scale.
Since 2008 there has been an undoubted reticence by banks to lend to small businesses and start-ups, and especially those that are technology based and not asset-backed. 2017/18 saw more applications for the Enterprise Investment Scheme (EIS) than ever before, showing the huge demand for investment that SMEs and start-ups currently have in order to grow, scale and eventually reach the valuations seen in achieving unicorn status.
EIS is designed for the high-risk, high-growth start-ups and small business that go on to innovate and disrupt industries across the tech sector. It is no surprise that the 72 unicorns founded in the last two decades has coincided with the 25 years that the EIS has been in use. While not all of them will have used the scheme directly the rise of alternative finance has benefited this community enormously.