Chief executive of the British Business Bank, Catherine Lewis La Torre, said a specific equity fund for Wales is under consideration as an intervention to address the domination of the south of England on the value of deals in the 海角视频.
New research from the economic regeneration bank of the 海角视频 Government, shows that while Wales has a 3% share of the 海角视频’s business population of high-growth firms and SMEs, in terms of the value of equity deals it secures just 0.9% of the 海角视频 level - despite having 4% in the actual number of deals. On debt and overdraft provision Welsh firms are slightly above its share of the 海角视频 population measure.
The report, Regions and Nations Tracker: Small Business Finance Markets, 2021, found London, the south-east, the north-west and the east of England accounted for 86% of equity investment and 69% of private debt investment despite having just 55% of 海角视频 businesses.
Read more: Latest equity deals in Wales
Ms Lewis La Torre, who was born in Pontygwaith in the Rhondda Valley, said the British Business Bank would now consider how to respond to the findings of the report, which will shape its strategy over the next three to five years. The research also identified more challenges faced by firms in rural areas in securing growth finance compared to those in urban areas within the same nation or region, as well highlighting that the vast majority of investors back firms within a two-hour travel radius - suggesting that they have little appetite to venture further afield to seek investment opportunities.
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While firms in Wales can access 海角视频 funds from the British Business Bank, including its successful Start-Up Loans scheme, it currently doesn’t have an equity fund specifically for Wales, although it does for the north of England, the Midlands and the south-west.
While the Development Bank of Wales, wholly owned by the Welsh Government, is active in the Welsh marketplace with equity investments up to £5m per round, and other funders like the Business Growth Fund have stepped up investment in recent months, having more investors on the ground, rather than creating over supply, could stimulate greater deal flow.
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The Chancellor’s spending review later this month could provide the bank with more financial firepower for investment.
Asked about the merits of the bank establishing an equity fund for Wales, Ms Lewis La Torre said: “There are large discrepancies in access to equity finance across the 海角视频 and what the data shows us is four regions accounting for 55% of businesses [海角视频 population] soak up 86% of equity investment. So, that means there are companies located in regions and nations outside of these four big areas that aren’t getting the equity finance that they need. These gaps in growth finance are undoubtedly holding back ambitious entrepreneurs and lead to wasted economic potential. This is something the British Business Bank is committed to changing.”
The chief executive said where investors are based is also an important factor on investment activity. She added: “So, you have to look at the landscape of investors that you have in any region or country and in the case of Wales you would want to explore whether the existing investor community is suitably sized to respond to the potential (for investment) within the country overall. So, if you come to the conclusion that actually the base of investors in Wales is not large enough to support the economic potential of the company footfall that you have, then you have to find ways to build that out.
“It is not only our companies missing out on the funding sources that they need, but potential investors are missing out on investment opportunities too. So, it is both sides of the equation that you need to work on to encourage more commitment to certain regions and nations across the whole of the 海角视频.
“We are excited by this research as there are some key takeaways in what we see in the data which will help inform what the bank does as well as looking forward to the next three to five years.”
The research shows that on equity investment “distance matters.” The chief executive added: "In 82% of the transactions between an investor and an investee company, the investors are based within a two hour radius or driving distance of that company. So, that proximity is really important, especially on the equity side. The last takeaway [report], is that rural businesses find it more difficult than businesses in urban conurbations to get the equity and capital they need. Rural businesses do use external finance, but the types of external finance they need may look different and they are more likely to have to put their hands in their own pockets and inject personal finances to take their company forward. So, it is not just regional disparities, but there are inter-regional disparities as well.”
She recognises that female entrepreneurs faced more challenges then men in securing equity finance.
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She said: “We have also done research on that ourselves, specifically at how easy and difficult it is for them to get money out of mainstream venture capital funds, and the answer is it is very hard.
" And the reasons for that are multiple and complex, but a lot of it is around the networks and the way that deals are introduced into these funds. Women tend to have different networks from men, VCs are mainly staffed by men with traditional networks and ways of finding opportunities.
"You have that disconnect between opportunities out there and the networks that source the opportunities and back propositions. So, that is something we are very passionate about in terms of trying to breakdown barriers... and it is not just a gender thing but also for entrepreneurs from certain ethnic backgrounds.”
On advice to start-up firms seeking to raise equity finance she said: “My biggest piece of advice would be do your research and identify companies that look like you or are sort of doing what you want to do and talk to them. So, how did your peers do it and where did they get their funding from... and then network, network, network. It is very time intensive, but worth it.”
Ms Lewis La Torre, whose father was a miner, left Wales aged 11 when her family moved to the Midlands for work.
She said: “I definitely consider myself Welsh and my parents went back to Swansea to retire.”