Innovators are being 'hamstrung' by lack of fundraising knowledge — report

Pioneers of early stage companies require better signposting to external funding, according to new research published by the UK's Venture Capital Trust Association.

VCTA polled 240 small enterprise decision makers. Over four in ten agreed they needed better information on how to access external funding, with a clear majority, 92%, anticipating their next capital raise within two years.

While the report is UK specific, its findings will surely resonate across Europe.

Two thirds (66%) of UK participants agreed enhanced venture capital provision would accelerate startup growth, far more than those grappling with local talent (48%) or infrastructure (34%) deficits.

Some 43% of respondents saw funding slip away because they couldn't agree on a valuation. More than four in 10 (42%) said their startup's threadbare track record had deterred investors, regardless of its growth potential.

The report also features regional data insights.

Leaders of startups outside of London and South East England more frequently considered their location a "significant" benefit (24%), versus startups located in those two regions (13%).

Conversely, location was seen being net beneficial by an overwhelming majority of business owners in both regional UK (88%) and the country's historically prosperous southeast (90%).

Responding to the data, VCTA chairman Will Fraser-Allan said further work was required to help scale up "young-fast growing companies". A form of tax benefit for UK VC investments, known as a Venture Capital Trust, usually a public listed vehicle, was posited by Fraser-Allan as a possible solution.

Fraser-Allan said: "Young companies often find it difficult if not impossible to obtain debt funding because they are too small and young to fit most lenders’ criteria, leaving equity finance as the preferred route to fulfil their growth ambitions.

"Venture Capital Trusts are specially designed to address these barriers as they invest into young, innovative businesses.

"By their nature, entrepreneurs often lack a proven business record, and their business model may need to be refined and improved by an experienced external investor. VCT managers are used to overcoming difficulties around valuing early-stage firms and are more likely to find a solution that works for both sides.”