Scotland’s investor base 'most self-contained outside of London' but report raises concerns

Scotland’s investor base is the most self-contained outside of London, but disparities in access to finance are leading to “wasted economic potential”, a new study suggests.

The British Business Bank’s first annual regions and nations tracker shows that while Scotland’s 9 per cent share of UK equity deals since 2011 outperformed its 6 per cent proportion of the SME (small and medium-sized enterprise) population, its value of private debt investment was just 2 per cent.

The report notes that this imbalance reflects regional disparities in access to equity finance and private debt across the UK.

According to the tracker, 81 per cent of equity investment stakes in Scottish companies involved an investor within the country, behind only London’s 90 per cent on the same measure and ahead of north-east England with 66 per cent. About one-eighth (12 per cent) of equity investors in Scottish companies were based in London, while 7 per cent were based in other parts of the UK.

Catherine Lewis La Torre, chief executive of the British Business Bank: 'The lower flows of finance in certain regions and localities reflect a population of businesses operating with fewer choices.'

Companies in Edinburgh are the key focus of the Scottish equity market, with nearly half (47 per cent) of pairings between businesses and investors based in the Scottish capital. Glasgow is the second highest, with 16 per cent of pairings. North Lanarkshire and Aberdeen represented 9 per cent and 5 per cent, respectively.

Catherine Lewis La Torre, chief executive of the British Business Bank, said: “The lower flows of finance in certain regions and localities reflect a population of businesses operating with fewer choices.

“These gaps in growth finance are undoubtedly holding back ambitious entrepreneurs and lead to wasted economic potential. This is something the British Business Bank is committed to changing.”

The bank said the UK’s uneven distribution of growth finance is not driven by a lack of high growth potential business in certain areas of the country, but by the presence of local investors.

Those investors are far more likely to pump cash into businesses close to home with 82 per cent of equity investment stakes within two hours travel of each other, while 61 per cent are within one hour of each other.

In Scotland, three-quarters of business-investor pairings were within two hours of each other.

The preference for short-distance deals has not been impacted by the increase in remote working due to the pandemic, with the data showing only a slight uptick in the mean and median travel time in 2020.

The bank said it was committed to addressing regional imbalances in access to external finance. Some 86 per cent of businesses supported by the bank’s programmes are based outside of London, with £943 million invested between 2020 and 2021.

Mark Sterritt, UK network director, Scotland at the British Business Bank, said: “Our tracker’s findings underline the fact that Scotland has a vibrant and largely self-contained financial ecosystem, with the vast majority of equity investment coming from within the country.

“That said, while the number of equity deals has outperformed Scotland’s share of the UK’s SME population, the level of private debt investment is significantly lower. This highlights the fact that regional imbalances in access to finance still exist and need to be addressed.”

A message from the Editor:

Thank you for reading this article. We’re more reliant on your support than ever as the shift in consumer habits brought about by coronavirus impacts our advertisers. If you haven’t already, please consider supporting our trusted, fact-checked journalism by taking out a digital subscription: www.scotsman.com/subscriptions