Introduction
In November 2024, the Place-Based Impact Investing Network came together at Bristol City Hall to discuss a critical question: How can we unlock more institutional and private capital to support SMEs in regional economies and drive sustainable and inclusive growth?
This blog captures key takeaways from the session, where we heard perspectives from across the SME Finance investment ecosystem, including:
- Policy perspective:
- BVCA perspective on the role of private capital in driving inclusive growth in the regions (Tom Taylor, Head of Policy)
- Sharing experiences:
- Foresight on regional SME Finance investing: Greater Manchester (Amy Crofton, Managing Director)
- Creative UK on the role of the creative industries (Caroline Norbury, CEO)
- BBRC on SMEs and Net Zero in the South West (Jari Moate, Investment Director)
- Midlands Mindforge on investing in university spinouts (Lisa Smith, CEO)
- Impact Investing Institute on CDFIs (Jamie Broderick, Deputy Chair)
Get Involved
If you are interested in exploring the ideas set out in this note, including being part of the Place-Based Impact Investing Network and sharing your own case studies, contact Sam Monger who leads Place-Based Impact Investing at The Good Economy.
Executive Summary
The Role of SMEs in Places
SMEs are the backbone of the UK economy; they accounted for 60% of UK employment and 48% of business turnover in 2024[1].
SMEs fuel innovation and growth at local, regional and national levels across all sectors of the economy, contributing to economic, ecological and social outcomes.
Yet many SMEs face barriers to accessing finance, particularly in regions outside London and the South East, as demonstrated by the EY and BVCA paper, Economic contribution of UK private equity and venture capital in 2023.
Place-based investing focuses on aligning financial capital with local economic and social priorities, ensuring that investment strategies address regional disparities, support local businesses and unlock sustainable growth.
Key Themes
Key themes that emerged from this SME Finance event and which are explored in greater detail below are:
- Addressing the investment gap: There is a need for tailored finance solutions that match the diversity of SME needs across sectors and growth stages. There is a well-documented gap in finance availability for SMEs that sit between:
- Early-stage funding (such as seed capital and Enterprise Investment Scheme funding)
- Large-scale institutional investment (which often requires higher ticket sizes)
- Catalysing growth beyond capital: Finance alone is not enough – SMEs need management expertise, networks, and market access to unlock scale. This can be enabled through:
- A place-based approach to SME finance with strong partnerships between local government, investors, and business communities, providing targeted support for local contexts and different sectors e.g. creative businesses, life sciences.
- Investment models that integrate business advisory services.
- Innovative companies require innovative financing: The UK is a leading global hub for private capital investment, but current models are often inaccessible or not suitable for many SMEs, e.g. demanding larger ticket sizes or near-term returns. Institutional investors could mobilise funding by:
- Acting as cornerstone investors in regional SME finance funds or specialist funds e.g. investing in the commercialisation of new technologies developed by university spinouts or creative businesses.
- Support innovative financing models such as blended finance, ‘lending to lenders’, and evergreen funds.
- Use long-term patient capital to scale regional businesses and prevent the ‘scale-up gap’ leading to business relocations outside the UK.
Roundtable Insights
1. Addressing the Investment Gap: Ecosystem approaches can catalyse SME access to institutional capital
Local and regional government can mobilise seed funding, but institutional investors need to adapt their investment models to serve regional businesses effectively.
Insights
The discussion highlighted the fragmentation in SME finance, with institutional investors often hesitant to commit capital to SME funds due to concerns over risk and scalability.
Appetite for SME investment exists – 90% of the companies that BVCA members invest in are SMEs – but often investors must navigate the challenge of less publicly available data on fund performance and longer-term holdings. Other challenges include London-centric investor mindsets, ticket size constraints and the lack of standardised impact measurement frameworks.
There was strong consensus that unlocking institutional capital requires structuring investment vehicles with smaller ticket sizes, allowing for a more diverse and regionally distributed portfolio.
Regional SME investment funds may provide a viable model. Foresight have successfully launched a series of regional funds across equity, credit and ventures that have raised institutional investment, including from LGPS, and delivered good returns while backing local businesses.
The West of England Mayoral Combined Authority is supporting the launch of a Green Growth Fund, managed by BBRC, targeting a £100m capital raise, with the Combined Authority acting as a cornerstone investor providing £10m capital.
Calls to Action
- Develop regional SME investment models that are managed by investors with a presence and knowledge of local economies and business communities and can take an informed view on risk
- Raise awareness among institutional investors of SME finance fund models – including venture, equity and debt funds – and encourage greater deployment of capital to earlier stage and growth capital funds, in partnership with the strategic authorities and public financial institutions e.g. British Business Bank
- Advocate for policy reforms that encourage innovative investment models to enable pension funds and impact investors to allocate capital to smaller SMEs.
- Establish clear impact measurement frameworks to demonstrate the financial and social value of SME investments, including metrics that relate to place and communities e.g. skills development, job opportunities, social mobility, strength of local supply chains.
2. Catalysing Growth Beyond Capital: SMEs need more than just finance – business support is critical
Finance alone is not enough; SMEs require management expertise, strategic guidance, and access to markets.
Insights
Many SMEs fail to secure investment not due to a lack of potential, but because they lack investment readiness and management capacity.
‘Active ownership’ (not active management) is the value driver for investors; if done well, SME investment can outperform public markets.
The group emphasised the need for integrated finance and advisory models, where capital is combined with mentorship, technical assistance, and organisational guidance alongside supply chain procurement opportunities, as well as comprehensive ESG and impact metrics to monitor impact throughout the investment lifecycle. This approach has been successful in fostering SME growth in the creative industries and net zero sectors.
Calls to Action
- Create business advisory and market access programmes that operate alongside SME finance initiatives.
- Encourage investors to take an active ownership approach, supporting SMEs beyond funding.
3. Innovative companies require innovative financing: Spinouts and high-tech require tailored approaches
Strategic investment in university spinouts, high-tech and emerging industries can accelerate regional economic growth.
Insights
Spinouts present an appealing investment opportunity, but in many cases domestic investment is not readily accessible for leading innovators. The discussion noted that traditional finance mechanisms often undervalue high-risk, high-impact sectors, limiting the ability of SMEs to innovate and scale.
Short-term funding cycles fail to serve some high-tech sectors with longer term investment time horizons e.g. life sciences.
Many companies are being scaled offshore, owing to limited local pools of capital.
Blended finance models, where public funds de-risk private investments to encourage early-stage innovation.
Calls to Action
- Launch regional innovation funds targeting local priorities e.g. net zero and high-growth sectors.
- Encourage government-backed de-risking mechanisms, allowing institutional investors to fund SMEs in emerging industries.
- Develop impact-driven funding models that balance financial returns with long-term economic resilience.
Recommendations
1. Strengthen PBII Ecosystems
- Develop regional SME investment vehicles that blend public, private, and institutional capital, ensuring long-term, place-based funding for business growth.
- Nurture local SME hubs where investors, local authorities, and business networks collaborate to match SMEs with suitable funding and support.
- Create a centralised resource of case studies via the PBII network to develop replicable and scalable models.
2. Expand access to institutional and alternative capital
- Introduce flexible investment models with smaller ticket sizes and standardised impact reporting, making SME finance more attractive to institutional investors.
- Harness the potential of pension and impact investment reforms to increase allocations to SMEs, ensuring long-term capital is accessible for regional economic growth.
- Promote and engage in sector-specific SME investment strategies, such as net zero, creative industries, and high-growth innovation sectors, where funding gaps persist.
3. Integrate business support with SME investment
- Shape SME advisory and investment readiness programmes that provide mentorship, financial planning, and operational support, supporting SME growth and resilience.
- Adopt ‘active ownership’ approaches, where fund managers and institutional investors provide strategic oversight, helping SMEs transition from local businesses to national and international players.
Get Involved
If you are interested in exploring the ideas set out in this note, including joining the Place-Based Impact Investing Network and sharing case studies, contact Sam Monger who leads Place-Based Impact Investing at The Good Economy.
