Early-stage businesses to outpace listed companies in growth next year

A new report from Syndicate Room projects a relatively rosy 2017 for early-stage companies and those who invest in them. The biggest barrier to investment, however, remains a lack of access to information.

Countering the Office of Budget Responsibility’s modest economic forecast for next year, new research from Syndicate Room suggests that early-stage companies have the potential to be the true growth leaders at a time of uncertainty.

Despite the traditional high failure rate for start-ups, the report suggests only one in 30 early-stage businesses will face this risk within the next year. Of the nearly 600 early-stage businesses with an average valuation of £3 million, 90 businesses (or 15 per cent) had their valuations written down to zero in the span for five years.

Analysing the  sentiment and expectations of over 1,000 retail investors alongside five years of company growth data from Beauhurst, the report reveals that early-stage businesses will, on average, demonstrate a 33 per cent compound annual growth rate (CAGR), overshadowing the expected 5 per cent CAGR of listed companies in the main market.

Around two-thirds of investors see ‘the prospect of higher returns’ as a big incentive to move into investing in early-stage equities. This is matched by the facts on the ground, with investment in early-stage companies seeing a rate of growth in the past five years that is more than six times faster than that of the FTSE all-share index. With an estimated £25 billion available to be invested next year into early-stage businesses, if historic CAGR trends continue then 2017 should see up to £7 billion of wealth created in the UK through investment in early-stage businesses.

“Fast-moving, high-growth technology companies continue to provide a vital stimulus for our capital markets and economy at large, and the findings from this research are a solid endorsement of just that,” said Suranga Chandratillake, general partner at Balderton Capital. “Where the main markets can be volatile and performance of traditional assets has slowed, early-stage investments present a compelling opportunity for higher returns in the long term – and it is encouraging to see close analysis which supports this. So many young, ambitious companies have been able to come to market in the past few years and have gone on to do great things, whilst delivering long-term value in the process. What this research shows is the considerable value that these companies can unlock in an environment of growing demand and greater access to finance.”

According to Syndicate Room’s CEO, Gonçalo de Vasconcelos, the report was initially to provide information for the platform’s members – individuals investing alongside professionals –
about where to find strong return on investment. Soon enough, the figures started to speak for themselves.

“In a low-yield environment, compounded by recent macro-uncertainty caused by Brexit and the US election, reliable information on high-growth investment is more important than ever. Our research discovered a fast-emerging part of the UK’s investment market that is hunting for greater growth and willing to accept a higher risk to achieve that investment return,” he said.
For de Vasconcelos, the multibillion-pound opportunity for small business investment is clear, but it is currently the preserve of the professional investment community. With market concerns and an air of uncertainty hanging over the nation, opening up investment opportunities can only help stimulate the UK’s economy.

“The ultra-wealthy seem to be getting greater access to investment opportunities and better information on the businesses looking for investment. That is not okay. It is selective disclosure and if equity investment is to shift from large-cap to early-stage companies next year, this needs to change,” Syndicate Room co-founder and CTO, Tom Britton, explained. “The growth of the online investment industry can serve as a catalyst to increase transparency and fairness.”

Praseeda Nair

Praseeda Nair

Praseeda was Editor for GrowthBusiness.co.uk from 2016 to 2018.

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