Scots entrepreneurs face funding gap with a third turning to family and friends for cash

New report reveals that many entrepreneurs are resorting to bootstrapping as a predominant means of funding their ventures.

Scotland boasts a “vibrant” entrepreneurial ecosystem but significant challenges in securing capital are hindering the country’s growth potential, a new report has warned.

Almost nine in ten entrepreneurs north of the Border have experienced barriers to accessing finance, with many having to borrow from family and friends, according to the research by capital provider YFM Equity Partners. It said the study’s findings underscored the “urgent need” to address the barriers that impede entrepreneurial businesses’ access to finance to achieve their growth ambitions.

Scottish entrepreneurs exhibit a strong propensity for seeking professional funding, with 26 per cent having accessed funding from private equity and 12 per cent from venture capital trusts (VCTs) to fuel their business growth.

Almost nine in ten entrepreneurs north of the Border have experienced barriers to accessing finance while trying to get their ventures off the ground.

Set against that, key challenges identified include difficulties in finding the right investors, with 32 per cent of Scots entrepreneurs citing this as a major obstacle compared to the UK national average of 29 per cent. In addition, 35 per cent expressed a lack of clarity regarding the best funding options, while 32 per cent highlighted the absence of appropriate contacts or business networks to navigate funding avenues effectively.

The report reveals that many Scottish entrepreneurs are resorting to bootstrapping as a predominant means of funding their ventures, with half of them tapping into personal savings to support growth. More than a third (35 per cent) turn to friends or family for loans, significantly higher than the 17 per cent UK average.

Mike Clarke, a partner at YFM Equity Partners, said: “Scotland’s entrepreneurial landscape is brimming with potential, yet the prevalence of funding gaps poses a formidable barrier to growth. There is a clear need for concerted efforts to bridge these gaps and provide Scottish entrepreneurs with the necessary resources and support to thrive.”

The firm said it was committed to addressing these challenges by “leveraging its expertise and network” to empower small and medium-sized enterprises (SMEs) in Scotland. Its research was based on a survey of 520 UK entrepreneurs, from family businesses to start-ups and scale-ups.

Earlier this year, Scotland emerged as the most entrepreneurial of the UK’s devolved nations, with a high proportion of serial entrepreneurs. Almost a third (32 per cent) of Scottish entrepreneurs surveyed were motivated to start their current business because they had founded others in the past, compared to 17 per cent UK-wide.

The analysis from YFM and the Centre for Economics and Business Research (CEBR) also found that Scotland’s gross value added (GVA), or the value generated by the production of goods and services, is expected to grow by 8.4 per cent between now and 2028.

Clarke added: “When it comes to the consumer tech businesses that would have struggled for investment last year, we are starting to see an acceptance that the shock has come out of the system and people are still going to book holidays, go out to eat and the like. There are company founders now looking at the general backdrop and saying ‘I put my plans on pause but now I need to get on with things’.”

Scotland represented on prestigious Hurun UK Under30s and Hurun UK Under35s 2023 ranking of entrepreneurs