About the report
David Schwimmer, CEO, London Stock Exchange Group
Ensuring that dynamic growth companies can realise their potential is vital to the UK’s future prosperity. Small and medium-sized enterprises (SMEs) – accounting for 60% of all private sector employment – drive growth, innovation and job creation and are the lifeblood of the British economy. In the context of wider macro-economic uncertainty, supporting these businesses is critical to economic success and the creation of a society that works for everyone.
London Stock Exchange Group is proud to publish the sixth annual edition of our widely tracked report 1000 Companies to Inspire Britain, which identifies the UK’s fastest-growing businesses. On behalf of LSEG, I warmly congratulate all the companies selected for inclusion in the 2019 edition.
Key findings from the report
This year’s report features companies from a range of sectors and regions, reflecting the entrepreneurial drive seen across the UK. We are pleased that over two-thirds of the companies are newly identified in this report, while we also welcome back companies that continue to thrive, including six firms that are making their fifth consecutive appearance.
While services account for about 80% of UK GDP, the report showcases the depth and breadth of high-growth British businesses across all sectors. The top five industries, accounting for 44% of the list, are Engineering & Construction, Information Technology, Retail, Manufacturing and Healthcare. London and South East England continue to have the greatest number of companies, followed by North West England, East of England and the West Midlands.
Overall revenue growth of the companies featured in the report was 108%, up significantly from 70% last year. This trend is a real cause for celebration and is a measure of the immense contribution that these companies make to the economy overall. Companies from North East England exhibited revenue growth among the highest in the country at 95%, and the number of companies on our list from this region increased by 55%.
Companies in this year’s report together created 95,827 jobs over the past two-year period, a 39% increase compared to last year’s report. This is positive and the potential for further job creation is clear, with studies estimating that even just a 1% increase in the number of high-growth companies would represent an additional 238,000 jobs.
Ensuring that companies with high-growth potential can continue to grow, innovate and create jobs requires access to growth finance. One of the UK’s great strengths is the wide variety of finance available to companies, from traditional debt and equity to newer platforms such as crowd-funding and peer-to-peer lending. However, a lack of awareness of the finance options available to growth companies has meant that too many entrepreneurs are scaling back their ambitions, rather than scaling up their businesses.
Research by the British Business Bank released this year suggests that more needs to be done to create awareness of the range of financing options available to growth companies. It found 56% of SMEs are still not aware of venture capital, equity crowd-funding and angel investment and have not considered using equity finance. What’s more, the proportion of SMEs seeking external finance decreased to 36% in 2018 from 44% in 2012. In addition, seven in ten firms said they would prefer to forgo growth rather than take on external finance.
The vast majority of early stage finance still comes in the form of debt. While debt financing is often suitable for larger companies, it is not always the most appropriate route for start-ups and high-growth businesses. What these firms often need to grow their business is long-term patient equity capital, either through individual investors, private equity or public capital markets.
More needs to be done to ensure companies across the UK are aware of their financing options and have access to both financial and non-financial support for their development. That is why we are so proud to offer ELITE, our platform for high-growth companies that provides business support, mentoring and access to finance for fast-growing businesses. More than 180 UK companies have joined since 2015 and, this year, we launched ELITE Scotland, with a tailored offering and network specifically to support Scottish high-growth companies.
Encouragingly, the use of equity finance investment in the UK is growing. Measuring such investment as a proportion of GDP, the UK is catching up with the US, which has a robust equity culture. In 2015, the level of equity finance in the US was twice as large as in the UK, but that gap has narrowed to 1.5 times. There is a direct correlation between equity finance and the growth rates of SMEs. Companies exhibiting higher turnover growth, up to and beyond 100%, and higher employee growth, up to 100%, are proportionally more likely to have used equity finance.
High-growth companies aren’t just young scaleups. According to The ScaleUp Institute, companies in existence for 10 to 15 years are most likely to be growing in excess of 80% per year, and those in existence for 20 years have higher revenues from exporting.
There remain fiscal barriers to equity finance. While debt is tax deductible, equity growth finance is taxed several times over in the form of corporate income tax, capital gains tax, dividend tax and the financial transaction tax, known as stamp duty.
Despite this, the potential of equity finance is clear. When the UK Government made changes to the taxation system that allowed shares in high-growth companies to be eligible for ISA inclusion, £4bn flowed into these companies, helping them to grow and invest. The exemption of AIM shares from stamp duty decreased the cost of capital for growth companies and supported further investment.
These changes have contributed to AIM’s continued success as Europe’s largest and most dynamic growth market. In 2018, it was responsible for raising 59% of the total equity capital raised across all of Europe’s growth markets. As the UK focuses on building an export-led economy, it is notable that companies quoted on AIM – the world’s most successful growth market – are five times more likely to export than the national average.
An economy that truly works for everyone should see capital flow to innovative companies and entrepreneurs, creating the jobs of tomorrow. LSEG supports the UK Government’s Patient Capital Review and welcomes the £2.5bn British Business Bank fund, which directs billions of extra pounds of vital investment flows into the UK’s most dynamic businesses. We look forward to continuing to work with policy makers to unlock access to patient capital and create more inspiring companies of the future.
Our sincerest thanks go to the sponsors of this report. The unwavering support of Cenkos over six years is testament to its dedication to championing UK growth companies.
The British Business Bank continues to champion the UK’s small businesses, supporting greater access to finance; Duedil - which has itself featured in previous reports – has been instrumental in identifying the participating companies; while our media partner The Telegraph continues to demonstrate its long-standing commitment to highlighting the critical role entrepreneurship plays in the wider UK economy. We are also grateful to a wide range of expert contributors - British Chambers of Commerce, the UK Business Angels Association, Tech Nation, Scottish Chambers of Commerce, The ScaleUp Institute, the UK BioIndustry Association and Quoted Companies Alliance – for their unique and insightful perspectives on the growth finance landscape.
Finally, I would like to extend my personal thanks to the Prime Minister, The Rt Hon Theresa May MP; the First Minister of Scotland, The Rt Hon Nicola Sturgeon MSP; and the Shadow Economic Secretary to the Treasury, Jonathan Reynolds MP. This cross-party recognition of the need to support our dynamic SMEs in scaling up will be crucial to the UK’s economic future.
I hope you enjoy reading the report and are inspired by the outstanding success of these companies from across the country.