Funding the growth of UK technology-based small firms since the financial crash: are there breakages in the finance escalator?

Abstract

This paper presents recent research assessing the impact of the financial crisis on young and established technology-based small firms (TBSFs) and considers whether their ability to contribute to economic growth is being affected by ongoing problems in obtaining external finance. It reports on original findings from a survey of 100 TBSFs undertaken in late 2010 as well as 20 in-depth interviews with a range of finance providers. The surviving TBSFs exhibited considerable demand for external finance since 2007, particularly for working capital and early stage R&D, sought mainly from banks, but also with younger TBSFs seeking business angel finance and innovation grants and more mature TBSFs seeking venture capital finance. However, both debt and equity finance have become harder to access for TBSFs, particularly for early stage funding and for more R&D intensive firms, hampering their growth potential. Where external finance has been available, the terms and conditions set by providers were often unacceptable to business owners. The paper concludes that the smooth operation of the finance escalator has proved difficult to achieve under recent financial conditions and identifies a number of breakpoints relating to TBSFs which government policy needs to address.