By Patrick Graham

BUSINESSES across Scotland are facing a renewed wave of operational pressures, with acute supply chain, recruitment and inflation issues impacting many.

To achieve sustainable economic recovery, there is an urgent need to inspire a generation of entrepreneurs that risk being largely overlooked or insufficiently supported by the investment community. This is not necessarily down to the overall availability of funding, but instead reflects the fact that shortening investment cycles – the period between initial investment and subsequent exit - can disadvantage challenger businesses.

This is particularly true when businesses will likely need more time to trade through any uncertainty and ultimately scale to their full potential. In my experience, Scotland has companies with the potential to lead the world in sectors including bioscience, offshore engineering, data and green technologies but, in some cases, they have struggled to access the right long-term financial backing.

At BGF our ability to back businesses through the cycle hopefully helps with this, but in a nation where 99 per cent of private sector companies are SMEs, securing the right growth funding in current conditions can be a particularly daunting prospect.

Many banks are tightening lending restrictions, interest rates are rising rapidly, and smaller-scale private investors may be feeling the squeeze. According to BDO research, private equity investment remains robust, but some business owners in Scotland – particularly those with family businesses – may feel they don’t know enough about funding of this type.

Our minority investment approach, which saw £60 million deployed across Scotland last year, alongside significant sums already invested in 2022, provides the long-term capital that fuels long-term growth, without founders worrying about ceding control or a premature exit.

As well as capital, minority private equity investment can bring considerable in-house resources to assist the investee company and introduce talented, experienced individuals to serve as non-executive directors to help with the future.

In the first half of 2022, BGF portfolio companies in Scotland have used this sort of capital differently, driving developments in key growth sectors. Dundee tech firm Waracle saw its sales increase by nearly £12m, Stirling-headquartered Paint Shed opened its 18th store in March – with another to follow in summer, and independent coffee and food chain Bob & Berts is set to open its sixth Scottish site, with further expansion expected to follow. More recently, Scottish Dental Care used new BGF funding to assist with the acquisition of two well-regarded Edinburgh practices.

This spread of quality businesses across Scotland underlines the huge potential the right investment can unlock, even in the current climate. Alongside the stories of growth funding, Mergers and Acquisitions (M&A) activity and positive investor exits continue, demonstrating the ongoing appetite for new investment in Scottish businesses.

Of course, the very real headwinds should not be underplayed, but it is also vital that we find the space to support and celebrate the successes of Scotland’s brilliant and varied businesses as this will also inspire the next generation of entrepreneurs.

Patrick Graham is BGF Head of Scotland