Just 12% of UK entrepreneurs expect to raise money from private equity, venture capital and angel investors over the coming year.
In a new report from business consultancy Deloitte, 53% of the 300+ entrepreneurs surveyed said the most likely source of funding is to come from their own operational cash flow, up from the 36% they predicted last year.
Although company lending is down to record lows according to the Bank of England, 18.5% of business owners are looking to banks as their primary backer, with 10.4% aiming to tap up existing shareholders.
In 2008, the same survey showed that 28% of entrepreneurs believed they would most likely raise capital from external sources, but this has fallen to just 12%, with private equity at 4.6%, venture capital at 3.8% and angel investing at 3.8%.
Deloitte argues this presents an opportunity for private equity and venture capital firms. With companies struggling with revenues and over a quarter (27%) saying they have to monitor their cash position daily, it will be very difficult for them to rely on working capital to grow, and this is where PE/VC can come in.
Paul Zimmerman, corporate finance partner advising entrepreneurial businesses at Deloitte, says: “Given the fall off in the mergers and acquisitions market and the drop in valuation multiples, many entrepreneurs have shelved their M&A plans. Instead their prime focus is on strengthening the operational performance of their business to emerge as ‘winners’ from the recession and this requires investment.
“For many businesses this investment will come from internal resources but for some, external capital will be required. The survey shows nearly a third of entrepreneurs say banks have reduced their lending facilities – clearly a dramatic change from two years ago. And therefore, this represents an opportunity for private equity to invest in ambitious entrepreneurs.”