New report looks at how smaller companies are benefiting the UK economy

Here’s a fact you may not have heard before. Of the 5.6m companies in the UK, 22,470 – less than 1% – create 22% of economic growth.

That’s one of the findings from the Octopus High Growth Small Business Report published this week.

Here’s another: this same group of companies creates one-in-five new jobs in the UK. Taken as a whole, these high growth small businesses (HGSBs) are also 18% more productive than the average UK company.

As the UK faces a future outside of the European Union, HGSBs look set to be even more important as a major contributor to economic growth and increased productivity.

Yet despite their strengths, as an asset class HGSBs remain under-researched by investors. For those comfortable with the risks of smaller company investing, this offers a great opportunity to invest in the country’s most dynamic businesses before most people have even heard of them.

HOW TO INVEST IN BRITAIN'S HIGH GROWTH SMALL BUINESSES

HGSBs are those whose annual turnover is between £1m and £20m, and which have grown turnover by 20% a year on average over a three-year period. They can be found in every corner of the UK, spread across a wide variety of sectors.

Several are listed on the AIM market. If you invest directly in AIM-listed shares, there’s a good chance you’ve come across some of them during your research.

Examples of AIM-listed HGSBs include cinema group Everyman Media (EMAN:AIM), Advanced Medical Solutions (AMS:AIM), which provides technologically advanced wound care, and Inspired Energy (INSE:AIM), which helps large businesses reduce their energy costs and carbon emissions.

Another approach is to invest in an actively-managed portfolio of smaller companies, run by investment teams experienced
in finding and researching the best opportunities.

That could be via a fund focused on UK smaller companies, or for those looking to invest tax-efficiently, a venture capital trust (VCT) or enterprise investment scheme (EIS). An EIS or VCT investment can also be a way to invest in HGSBs whose shares are not listed on a stock exchange.

THE HIGH GROWTH EFFECT

At Octopus we work closely with smaller companies and see first-hand the benefits they bring to their customers, their employees, their investors and to society as a whole.

HGSBs epitomise the qualities the Chancellor talked about in his Spring Statement, when he spoke of unleashing the UK’s creators, innovators, inventors and discoverers, and embracing the technologies of the future.

Investors who back these dynamic businesses are tapping into their future growth potential. Not only that, they’re making a vital contribution to our future economic growth.

Mr Market

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