UK entrepreneurs have never had it so good. We have a favourable tax regime, stable political system and a culture of innovation. And we’ve come a long way in 30 years, with a litany of success stories inspiring this enterprising generation of young entrepreneurs. There will always be risks on the horizon – as the recent turbulence in China makes clear – but it would be hard to think of a better time in recent history to start and scale a business.
Not all business owners want to grow at the same pace. Some are too strongly attached to their businesses to give away equity with a view to a future exit. Many, however, are typical in their desire to grow, exit and start another business or retire. And the UK has the necessary pool of private capital to ensure the best entrepreneurs have the firepower to fulfil their ambitions.
When it comes to private equity, the UK remains closer to the culture and mind-set of the US than Europe. While family businesses dominate in much of Europe, our stable of private business owners seem more focused on growth with a view to achieving a liquidity event. We rightly envy Germany’s Mittelstand, but what we have is arguably more dynamic. To create, grow and exit a firm in a single generation is seen as one of the defining characteristics of success.
Growth doesn’t come without risks, though. Many successful entrepreneurs are natural control freaks, but this can be problematic, as scaling up often requires outside investment and with it the potential to lose some element of control. Also, scaling tends to require taking on debt. Increasing the level of gearing can make any company more vulnerable to the vagaries of the market – there are plenty of spectacular growth stories that have gone even more spectacularly wrong to prove the point.
Taking good advice early is critical, particularly on the terms of funding. It is vital to carefully weigh up the pros and cons of equity versus debt funding. It is also important to recognise that the first offer may not always be the best. The wide range of capital available from private equity, venture and other investment funds, through to business angels and family offices, means there is always money competing for the best opportunities, and therefore room for negotiation. Lastly, consider what else potential financial partners may bring in terms of experience and contacts to add value to a business.
The government clearly recognises the value of companies scaling up, and has shifted its attention from startups to scaleups. Of course, our law and regulations need to be amenable to firms of all sizes and all industries. Our superb tech and consumer-based businesses grab a lot of headlines, but UK innovation is happening in every sector.
It will be for each entrepreneur to decide whether to try to scale his or her business quickly or to grow it organically. To some degree this will be determined by the needs of the business, but perhaps to a greater extent it will be decided by the entrepreneur’s temperament. They all possess fire in their bellies, but some will prefer organic growth in a more tightly controlled environment, while others will want to grow fast, sell and start over, even if they never need to work again.
A generation ago we were a country struggling to rediscover our place in the world. Now, thanks in large part to successful entrepreneurs from industries as diverse as tech and fashion, the “Great” in Great Britain almost takes on a whole new meaning.
Michael Nouril is private equity partner at Mishcon de Reya.