Britain has an excellent start-up ecosystem, but this is only the first stage of a company’s journey. The Quoted Companies Alliance (QCA) are calling on the Department for Business and Trade (DBT), who have committed to backing British business and cultivating an environment where they can thrive, to ensure that quoted growth companies are included in the British Business Bank’s strategic mandate. Our latest piece of landmark research, Banking on Britain, sets out how the British Business Bank can channel capital into UK growth companies so they start, scale and stay in the UK, rather than being forced to seek investment elsewhere.
We are urging DBT to consider the recommendations we make in Banking on Britain to expand the Bank’s remit to allocate £1bn, which is equivalent to 4% of its capacity, into quoted companies, with a specific focus on those under £100m market capitalisation. Here’s why it matters.
As it stands, the British Business Bank has invested billions into British Business, but its investment portfolio remains solely focused on private companies. Banking on Britain makes the case for an investment-led strategy that would support DBT achieve its objective to help unlock finance for companies operating in many of the sectors identified as central to the UK’s future growth. AIM companies are already a driver of economic growth. In 2023, as a whole AIM companies contributed an equivalent of £68bn in Gross Value added (GVA) and over 778,000 jobs. Companies on AIM are also 50% more productive than the national average.
In Banking on Britain, we estimate that around 365 AIM companies find themselves in a funding gap between early-stage venture capital schemes and £100m market cap, the point at which institutional investment typically starts. This challenge to raise growth capital reflects broader trends in UK capital markets yet is particularly acute for AIM companies. Small and mid-cap companies have been caught in a negative feedback loop for several years. Outflows from UK equities have reduced valuations, weaker valuations have affected liquidity and weakened investor confidence in growth markets. The result has been fewer IPOs, more delistings and an increasing funding gap for quoted growth companies.
Banking on Britain sets out how this cycle can be reversed. The first step is the British Business Bank allocating funds to quoted companies. Our report argues that targeted interventions at any stage of this feedback loop would have a ripple effect on the health of the market. An intervention of £1bn from the Bank would kick-start a positive cycle of investment on AIM by reducing outflows and signalling the Bank’s commitment to AIM. This would boost market confidence, reduce valuation concerns and improve expectations of future liquidity, therefore, we estimate such an intervention would stimulate a ‘crowding-in effect’ of at least another £1bn of private capital in quoted growth companies.
Failing to address this funding gap directly conflicts with DBT’s ambition to help innovative businesses “start, scale and stay” in the UK. By extending support to quoted growth companies, DBT could help bridge a funding gap facing many of the UK’s quoted growth companies. Tax incentives and support for entrepreneurs can only go so far if growing companies struggle to access necessary growth capital. Allocating just 4% of the Bank’s existing capacity budget into quoted UK growth companies would be a practical step to encourage quoted companies to scale and stay in the UK.
At the QCA, we champion UK growth companies. We are urging DBT to do the same.
