Majority of UK Startups Prefer to Bootstrap

The majority of UK-based entrepreneurs are choosing to self-fund, or “bootstrap” their startups, research from The Company Warehouse, a UK-based company formation agent shows.

According to the company formation agent’s research among early-stage entrepreneurs, 82% of UK startups are self-funded. This is surprising, given the rise of numerous funding options available in the UK.

Host to leading peer-to-peer lending sites Zopa, Ratesetter and Funding Circle, the country’s fintech scene is thriving. UK-based crowdfunding companies such as Seedrs have also been making it increasingly possible for would-be entrepreneurs to source cash.

For the more conventionally minded, the UK government has been doing its’ utmost to provide traditional funding solutions. Backing schemes such as Startup Loans, which offers loans of up to £25,000, the government is keen to encourage entrepreneurship among its citizens.

In spite of all this, it would appear that the majority of UK startups prefer to finance their startups themselves. Until now, it has been difficult to say just how popular both alt and traditional sources of finance are among UK entrepreneurs. Research has investigated entrepreneur’s willingness to use bank loans, but there has been little, if any, research into the proportion willing to use alt finance. Similarly, studies have looked into the take-up of government grants, but these haven’t examined the popularity of specific UK government-backed schemes, such as Startup Loans.

Why aren’t UK startups using external funding?

The Company Warehouse’s findings therefore come as something of a surprise. According to their 2016 Startup Funding Report, awareness of alt and traditional finance sources isn’t the problem. Among the entrepreneurs the formation agent spoke to, recognition of external funding sources was high. However, only a very small minority actually resorted to these options.

Of all the funding options available to UK startups, the government’s Startup Loans scheme had the highest awareness, with 85% of entrepreneurs having heard of it. Given the amount of publicity the scheme has received in the UK, it’s not surprising that the government’s extensive marketing efforts managed to reach their target market. What may come as more of a shock is the extremely small percentage who chose to use the scheme: only 5% of entrepreneurs, according to The Company Warehouse’s research. Of these, 100% supplemented the loan with other sources, such as government grants, mortgage, or family investment. None chose to completely rely on Startup Loans.

After Startup Loans, crowdfunding had the second-highest level of awareness – 43% were familiar with the popular alt finance solution. Again, given the extensive media coverage that crowdfunding has received in the UK, relatively high awareness is to be expected. When it comes to actual take-up, however, we see a similar phenomenon as with Startup Loans: only 1% of UK startups chose to crowdfund their startups.

But what about peer-to-peer lending? According to The Company Warehouse’s report, the same rule applies. Slightly less entrepreneurs had heard of P2P – only 32%. That said, this is still not a small enough number to account for its miniscule take-up – only 1%.

So, why the distrust? Are UK entrepreneurs inherently suspicious of government-backed schemes? Do they distrust alternative finance?

The Company Warehouse’s report suggests that low usage of external funding does not necessarily stem from any especial aversion towards fintech, or government-backed schemes. Rather, these figures are as a result of UK entrepreneur’s positive preference for self-reliance. This was demonstrated not just in the statistics, but also when The Company Warehouse asked entrepreneurs what advice they would give to those looking to start up their own business: most encouraged would-be business owners to plan ahead as much as possible, keeping costs low, so as to minimize the need to borrow.

Can UK startups be persuaded to use alt finance?

Will the UK’s startups continue to bootstrap, instead of using external funding? On Tuesday 1st November, the UK government launched a scheme that aims to boost the number of startups using alt finance. The bank referral scheme will require many banks to refer candidates whose applications for funding have been unsuccessful, to alternative lenders. Will this increase the number of alt finance users? The Company Warehouse’s research indicates that entrepreneurs are making the choice to self-fund out of a preference for bootstrapping, not because they are unable to obtain funding.

We will be monitoring the UK’s startup scene to see whether its entrepreneurs will continue to bootstrap, in the coming years.

 

 

 

 

 

 

Why are More Women Becoming Social Entrepreneurs?

The ratio of women to men becoming social entrepreneurs is almost 50/50, according to recent data from the Global Entrepreneurship Monitor. According to GEM’s findings, women make up roughly 45% of social entrepreneurs worldwide. This is in stark contrast to the commercial sector, where men entrepreneurs still outnumber women by roughly 2:1.

GEM defines social entrepreneurs as “individuals who are starting or currently leading any kind of activity, organisation or initiative that has a particularly social, environmental or community objective.”

What attracts women to the social sector? 

So, why are women more likely to become social entrepreneurs? Some have speculated that barriers such as access to venture capital and flexible working hours pose more of an issue in the commercial sector. Social enterprises are often perceived as having a more collaborative, lower-risk business model. If true, this could mitigate some of the challenges women face.

That said, the female/male ratio of social entrepreneurs varies according to world region.

The social/commercial divide by region

In the Middle East, North Africa and Europe, women are far more likely to become social entrepreneurs. However, in South East Asia, Latin America and the Caribbean, the number is about even.

female-social-entrepreneurs-gem

As we mentioned in a previous blog post, Ecuador, Colombia and Panama have made year-on-year increases in gender parity among entrepreneurs.

Social entrepreneurs – young and idealistic?

Social entrepreneurs are usually imagined to be young and idealistic. GEM’s findings support this perception to a point, but perhaps not to the extent we would have imagined. The report looked at the ratio of social to commercial entrepreneurs across seven world regions.

In three of the world’s regions (the Middle East and North Africa, sub-Saharan Africa and Western Europe), 18-34 year olds were more likely to be social entrepreneurs. However, in the remaining four regions (Eastern Europe, Latin America and the Caribbean, South-East Asia, Australia and the US), young people were more likely to go into the commercial sector.

These findings focused mainly on the differences between entrepreneurs at the nascent (beginning) stage of starting a business.

social-entrepreneurs-age

Which Countries Have the Most Female Entrepreneurs?

Senegal has the highest number of female entrepreneurs, according to statistics from the Global Entrepreneurship Monitor. 37% of working-age women in Senegal run their own businesses, according to statistics from the GEM’s 2015 report. The percentage of male entrepreneurs is 40%.

Vietnam currently has the highest ratio of female-to-male entrepreneurs – Vietnamese women are 33% more likely to be entrepreneurs than men.

Why do certain countries have more female entrepreneurs?

According to the 2015 report, women are still less likely than men to engage in entrepreneurial activity. However, this is not always the case, in countries with a lower GNI per capita. This is largely due to necessity: women in countries such as Senegal and Vietnam are more likely to be looking for ways to supplement their household income, than those in the Netherlands.

Overall, the report found that although women in factor-driven economies were more likely to become entrepreneurs, they were still far less likely than men to cite “opportunity” as their reason for engaging in business. By contrast, although women in efficiency and innovation-lead economies were less likely to become entrepreneurs, when they did, they were more likely to do so for opportunity-lead reasons.

female entrepreneurs

Graph taken from GEM data.

Morocco, Bulgaria, Italy and Malaysia had the lowest number of female entrepreneurs, with less than 3% of working-age women engaging in entrepreneurship. In Morocco and Italy, men are twice as likely to become entrepreneurs, as women. In Malaysia and Bulgaria, entrepreneurial activity is low for both genders. In Malaysia, men are even less likely to start their own business than women. Malaysian men and women are both as likely to start their own business out of necessity.

Luxembourg, Greece, Ecuador, Colombia and Panama have all showed year-on-year increases in gender parity among entrepreneurial rates and motivations.

Opportunity vs necessity 

In general, the main divide between female and male entrepreneurship in economies across the globe is one of opportunity. Women in factor-driven economies may be more likely to start a business than those in efficiency or innovation-lead economies, but they are still less likely to start a business for reasons other than necessity. In economies where entrepreneurism is less necessity-driven overall, women are less likely to start a business at all. This suggests that whilst women worldwide are capable of starting businesses when they perceive no other option, they are not enough opportunities to motivate non-necessity driven entrepreneurship. In their report, GEM recommended that policy makers “design specific interventions to encourage females to enter the world of entrepreneurship”.

This lack in perceived opportunities could be due to women’s increased difficulty in accessing venture capital than men, some have speculated.

This may indicate why some women are choosing to pursue social entrepreneurship, where collaboration and alternative funding sources are opening up greater opportunities than the commercial sector.

 

 

 

Company Formation Numbers in Norway Continue to Increase

New enterprise registration numbers have gone up by 4.2% in Norway, this year. This is in spite the fact that the country has moved down one place on the World Bank’s “Ease of Doing Business” ranking, from last year.

According to figures from Statistics Norway, new enterprise registrations were up by 4.2% at the end of the second quarter of 2016, compared to the end of Q2 2015. Most new enterprises registered were in the science and tech sector (15%), construction (14%) and retail (10%).

The number of sole proprietors registered in Q2 2016 accounted for 58% of all new enterprises registered – 8.2% more than at the end of 2015’s second quarter. Private limited companies accounted for 36% of the total number – 0.6% than at the end of Q2 2015.

This is likely due to the fact that sole proprietors are one of the quickest, simplest and cheapest ways to start a business: sole proprietors do not need to use a payroll system, employ an auditor, or submit accounts. However, sole proprietors are fully liable for any debt that their business may incur, meaning that their personal assets can be seized if their business gets into debt. Additionally, sole proprietors are required to pay their taxes in advance. They may also struggle to get credit, and more established clients, who may prefer to deal with private limited companies.

company-formations-norway

 

This increase in enterprise comes in spite of the fact that last year, Norway’s ranking for ease of starting a business went down by 3 points, according to World Bank statistics.

Norway’s world ranking

Norway is currently the ninth easiest country in the world to start a business, coming after Singapore, New Zealand, Denmark, Korea. Rep, Hong Kong, the U.K., the U.S. and Sweden. A country’s ease of doing business is ranked based on several factors, including ease of starting a business. Last year, Norway’s ease of starting a business dropped 3 places. This could be due to a number of factors. However, it does not appear to have slowed enterprise.

This could be due to the fact that in 2016, the Norwegian government made reforms to allow new businesses to be registered online. Furthermore, the government have reduced the corporation income tax rate, making paying taxes less costly for companies.

The majority of these new enterprises were registered in Oslo and Akershaus, with total new enterprise registrations increasing by 5.2% in Olso and 2.7% in Akershaus.

In Norway, new enterprise registration statistics include changes in ownership, as well as newly formed enterprises.

 

 

Record Number of New Companies Registered in DIFC

The number of new companies registered in the Dubai International Financial Centre (DIFC) reached a record high last year. According to statistics from the DIFC, 27% more new companies registered in 2015 than the year before. 309 new companies were registered in 2015, compared with 242 in 2014. This is the highest number of new company registrations per year that the DIFC has yet seen.

The new “Smart City”?

This spike in company registration numbers follows the launch of the third phase of the DIFC’s new upgraded, fully-integrated client portal. The Portal offers a variety of company and government services, including company registration. The Portal’s recent upgrade comes as part of the Emirate’s “Smart City” initiative, which aims to establish Dubai as the smartest city in the world, by 2017.

Commenting on the DIFC’s technological initiative to upgrade its online interface, Alya Al Zarouni, Senior Vice President – Government & Registry Services, DIFC Authority, said:

“We acknowledge the importance of providing a simple and streamlined Client Portal for the wider benefit of customers and companies alike. As a leading financial centre, it is critical to ensure the implementation of cutting-edge technologies and provide single platform access to all government services.”

The UAE’s growth over the past 10 years

In 2012, we commented on the UAE’s growth as a business destination, when the cost of setting up a business in Dubai had decreased by nearly 30%. Since then, the cost has continued to remain low, but has increased by 0.2% since 2012.

At the time, the number of days it took to start up a business in the area had also decreased to an all-time low of just 8 days – nearly than half the time it took to set up a business in 2010. Since 2012, the number of days it takes to set up a business in Dubai has stayed the same, as we can see from World Bank statistics.

new companies registered DIFC time

Since 2012, the number of new company registrations being made per year has continued to increase.

Metrics such as the net cost and number of days it takes to set up a company indicate the ease of doing business in a region. This gives us an indication of an area’s entrepreneurial activity and economic growth. For a broader measurement of economic growth, we look at the region’s GDP.

Since the financial crash of 2008, the UAE’s GDP’s rose steadily over the next 6 years, increasing by 37% in total, from 253.55 billion US dollars in 2009, to 399.45 in 2014. However, in 2015, the GDP dropped by 7% to 370.29.

We will be closely monitoring economic developments in the UAE to see if the DIFC’s technological initiative continues to boost entrepreneurial activity, and whether or not Dubai will achieve its coveted “Smart City” status by 2017.