In Scotland we have long celebrated our ability to punch way above our weight when it comes to SME and high growth funding and, although a significant part of that is from our thriving angel network, European money sits right alongside it. The two are so intertwined that it is now hard to tell whether angels would have had the same impact had we not had the European funding input.
Funds such as the Scottish Co-Investment Fund originate from Europe and, with match funding from the angel network, have significantly boosted the fortunes of high growth SMEs. Funds such as this have been around for some 20 years, providing ambitious businesses with support when sources such as the big banks couldn’t, or wouldn’t.
However, many are unaware that despite the name, the funds actually originate in the EU.
High growth Scottish SMEs, and in particular those in the tech sector, have become exceptionally dependent on European money, without many of them being aware of its source.
Collectively, Scottish businesses have benefited from the European Regional Development Fund and the European Social Fund, and these have had a marked impact on our economy. If this funding stops, there will undoubtedly be some extreme challenges to the Scottish business infrastructure in the future.
The SMEs regularly hailed by development agencies and others as exemplars of innovation, growth and success are almost all European funded in some way. Earlier this year, a £70m fund, £30m of which came from Europe, was established to support innovation in Scottish manufacturing. A further £60m programme to support young people in South West Scotland into secure and sustainable employment was also launched. These are just two Scottish programmes that have the thread of Europe running right through them. Whether the support they receive is from initiatives like these, or from other seed funding and grant support, many Scottish SMEs simply wouldn’t exist without Europe.
If the funds go, and it seems they might, as they are nearly all rooted in European money, then it’s unlikely angels can fill the gap. This could leave high growth companies with banks, Government and non-traditional funding models to rely on. These companies find it hard to get bank funding; they will go to the back of the queue behind health, education and defence when it comes to securing Government funding; and although they are naturally suited to non-traditional funding models, these cannot yet deliver all the funding that Scotland’s high growth SMEs require.
A new comprehensive, well-funded and supported model will be needed in the near future to maintain the sector, and underpin Scotland’s future economic growth. Is now, just on the other side of a recession, the best time for a radical ‘blank sheet’ approach? With the reality of Brexit looming, until new systems are in place, we run the risk that innovative ideas could be lost, SME growth could slow, and the clock will have been wound back many years.
Gareth Magee is a partner and head of business development at Scott-Moncrieff, leading
accountants and business advisers in Edinburgh, Glasgow and Inverness.