Simon believes the UK is missing out on some great technology success stories due to a structural flaw in the venture capital and private equity model that has resulted in a ‘funding gap at scale’.
Scale capital is a hybrid operation and investment fund that specializes in scaling small technology companies (between 1 and 10 million pounds in revenue). Venture capital only works for 1 in 30 hyper-growth companies, while private equity only works for companies that can maintain debt. Valuable companies that grow steadily (but not explosively) are not given the time of day.
In addition to this, there is a skills gap. Founders are often subject matter experts, but most have never scaled a business before. All this means that while the UK is third in the world for start-ups, it is only 13th in the world for expansions. Without funding and support, many viable small businesses are struggling to get through the ‘difficult teenage years’ and the UK is losing jobs, innovation and growth as a result.
ScaleUp Capital seeks to close the gap in both funding and skills to reduce the number of small businesses that stagnate or fail. They pride themselves on truly improving the businesses in which they invest. In 18 years, they have never had a failure. Simon talks to Business Matters …
What products or services do you offer?
We are a specialist expansion investor helping small businesses with revenues between £ 1 and £ 10 million to scale to critical mass, profitability and long-term success. Over time, we have incorporated our expertise into our Scaler program, a proven methodology for scaling that can be applied to any digital B2B business.
What type of companies do you work with?
We specialize in the B2B digital sector, encompassing technology, software, content and services. Many of our businesses rely on SaaS, subscription, managed service, or outsourcing revenue streams.
What problem does your company solve?
We believe that many worthwhile small businesses fail or stagnate because they lack the support and funding they need to reach the next stage of growth. As a result, the UK economy loses jobs, talent and innovation. Our aim is to fill both the expansion funding gap and the skills gap to ensure that more small businesses in the UK have a chance to prosper.
Many small businesses struggle to attract funds because they don’t fit the private equity (PE) or venture capital (VC) model. PE investors are looking for mature, profitable businesses that can be acquired with leverage. Meanwhile, venture capitalists run a “hit” model in which they seek 1 in 30 hypergrowth moon shots. So a startup business with revenue of £ 1 – £ 10 million, growing at 10-25% per annum and reinvesting all of its profits to fund growth struggles to raise money from the PE or VC community.
The challenge is compounded by an experience and skills gap. Crunchbase research showed that 83% of founders are doing it for the first time. Many founders are subject matter experts who know their product and market from the inside out, but have never scaled a business before. The same research shows that founders who have done it 3-4 times before are 2-4 times more likely to be successful.
We believe that small businesses at the beginning of their expansion phase need a new generation of investors, expansion specialists like us, to provide the “hands-on” support and funds necessary to reach the next growth phase.
What is your USP?
While traditional PEs and VCs are full of smart people who are incredible investors and can advise and guide their investee companies, fundamentally their model is passive or hands-off. They are active as investors, but there is a clear dividing line between managing and investing. often the main interface is board meetings.
We don’t think that model will work for scaled-up startups that need to go through tremendous change and are led by relatively inexperienced leaders. These companies need methodology and process, more regular touch points, more granular support, more help with execution. They need real business partners, not just active investors. And this is exactly what our model is based on, both through our Scaler Program and our dedicated teams in Strategy, Talent, Change Management, Finance and Investment, all created to support our portfolio through the expansion phase. .
What are the values of your company? Have you ever challenged them, and if so, how have you handled it?
We invest in entrepreneurial companies and help them scale. To do this successfully, we have to be entrepreneurs. At ScaleUp Capital, we value pace and rigor. Pace delivers results faster. If we fail, we almost fail so that we can learn, change, and try again. We tirelessly seek more progress and better results. We are also rigorous in our approach to scaling business. We pay attention to detail and make sure our decisions are backed by data. By embracing these values, we have successfully scaled 18 businesses without fail.
How do you ensure that you recruit a team that reflects your company values?
Our ultimate goal is to help UK small businesses reach their full potential by providing them with the funding and expertise they need to scale. We’ve built a team that can meet that goal with specialists in strategy, talent management, investment and finance – everything you need to scale a business. We continue to hire people who not only have experience in these areas, but also share our commitment to getting the best out of UK companies.
Are you happy to offer a hybrid post-covid home / office work model?
We have a hybrid model that gives our team the flexibility to work in the most efficient way. We have found that the hybrid model, in which the team can still meet in our office, but also has the flexibility to work remotely, provides a good balance.
Any financial or cash flow advice for startups just starting out?
Find the right investor for you and your company. Many small businesses seek venture capital investments, but are unaware of the type of business these investors are seeking. Venture capitalists will closely monitor the performance of the approximately 30 companies in which they have invested. For 1 in 30 hyper-growth companies, venture capitalists will invest a lot of time and money. Other businesses that are growing steadily (but not explosively) are placed in an unloved category where there is no more money or time available.
The reality is that venture capital financing is not suitable for most early stage tech companies that are not in hypergrowth. Only a small percentage of VC-backed startups make it: Four percent sell for more than $ 50 million, one percent reach ‘unicorn’ status, but seven out of ten fail.
Small business owners should consider other types of investment that may better suit their business model and provide better long-term results.
If you could ask the government to change one thing for companies, what would it be?
We are pleased to see that the government has recognized the importance of the expansions to the UK economy. Chancellor Rishi Sunak highlighted the “expansion funding gap” in his budget speech earlier this year and has launched several initiatives to support small businesses, including the Help to Grow training program and the Future Fund. We need the government to continue this level of support while ensuring that the investment industry also intensifies.
What is your attitude towards your competitors?
The problem is that there are very few specialist expansion investors like us in the UK. Ultimately, we want to see more small businesses successfully scale to critical mass and profitability. We hope that the investment community will begin to recognize the importance of successful expansions to the UK economy and that we will begin to see more specialist investors like ourselves providing the expansions with the necessary funding and support.
Any ideas about the future of your company and your dreams?
Our goal is to be the best scaling specialist in the digital industry and pioneering a new hybrid model that fuses an operational scaling platform with private equity investment.
We have a history of constantly expanding businesses at a fast pace, with improved quality and stronger performance.
We want to build great businesses and deliver world-class returns to founders, managers, co-investors, and our own fund investors.