Scottish companies looking to expand in growing markets such as Asia should rely on investors not banks to raise funds to grow, says London Stock Exchange boss Xavier Rolet
The future’s bright for Scottish entrepreneurs and small business owners hoping to expand in booming markets such as Asia – and the key to success is smarter funding. That was the upbeat message from Xavier Rolet, CEO of the London Stock Exchange, when he flew to Edinburgh to address the Asia Scotland Institute.
Speaking to a large audience at the University of Edinburgh Business School, Mr Rolet – an entrepreneur as well as distinguished businessman – said start-ups and growing small businesses should reject bank debt as their main source of capital to grow.
Instead, Mr Rolet said small and medium-sized enterprises (SMEs) should be looking to alternative means of funding involving investors taking medium-term stakes in innovative businesses.
“If you’re an entrepreneur and you’ve got a great idea – perhaps a scientific one – the last thing you want to do is to mortgage your house to secure a bank loan,” Mr Rolet said. “The last thing you want to do is have to pay interest from Month One upon starting up. And, frankly, the bank itself is not going to be getting a return by lending to a startup.”
By contrast, entrepreneurs who reject bank lending can avoid interest payments, he added, while the investors who are prepared to take a chance on risky new businesses are potentially looking at unlimited returns.
Such an overhaul of our “financing ecosystem” is unlikely to happen overnight. More than 75 percent of corporate financing in Europe today comes from the traditional banking sector, in the form of loans and credit cards, compared to just 18 percent in the United States.
But Mr Rolet said alternative sources of capital are readily available for growing SMEs who want to use them: “There is today in the European Union two trillion Euros of unused cash sitting on the balance sheets of large corporations.”
And he said the benefits of doing so are potentially enormous: SMEs can play a key role in creating growth and new jobs and helping to rebuild people’s confidence in the world of business, shaken in recent years by the “abuses and excesses that we continue to read about in the press”.
Mr Rolet’s recent visit to China with David Cameron offered a glimpse of the way forward. The British prime minister took 100 companies with him, 90 of them small or medium-sized, many of them relatively unknown. “He came back full of contracts,” said Mr Rolet.
And Mr Rolet urged the many young people among the Asia Scotland Institute’s audience to pick up that baton and run with it. “It’s an opportunity for all of you – as young people of ambition – to start up your own business. That is a fantastic experience.
“Being an entrepreneur, to me, is one of the most satisfying experiences there is. Being in control of your destiny as much as you can. Building a business around a team of people, leveraging that innovation, leveraging the business or scientific skills that you’ve learned.
“That’s the future for Europe today. That’s the future for the UK. That’s the future for Scotland.”
Our thanks go once again to the Business School for kindly hosting this ASI event