Written Submission from Fundability Limited (SBS0028)

Call for Evidence Response – Small Business Strategy

Introduction
Fundability Ltd is submitting a response to the Business and Trade Committee because our founder knows the problems small businesses, experience. In particular, we know the problems related to fundraising and comment specifically on questions related to this.
 

Strategy

1. What key issues should be addressed through the Small Business Strategy?

The core issue is the persistent inability of small businesses to obtain investment as opposed to grants and loans, particularly in the early and scale-up stages. Despite the British Business Bank (BBB) and Innovate UK (IUK) working closely together, access to public and private sector investment remains extremely limited. Evidence includes:

• 90% of applications are rejected by public and private sector investors.
• Only 8,000 UK businesses received VC funding in 2023. (Source: BVCA)
• 70% of new businesses fail within three years, largely due to funding gaps.
• Economic cost: estimated at over £90 billion per year in lost growth.

Traditional routes for investment are inefficient and exclusionary, relying on pitch decks, personal networks and manual assessments. 000s of startups/small businesses with great potential cannot obtain investment, particularly those outside London / South East.

Key systemic problems include:

• No public or private sector rating system for investment, only loans
• Limited support on helping businesses become investment-ready
• Lack of standardised application and assessment processes.
• Investor risk aversion, particularly from pension funds.
• Poor quality deal flow for investors due to applicant un-readiness.
• Regional disparities limit funding access.
• Widespread bias and lack of transparency in investment processes.

These issues undermine innovation, hinder scale-up potential and reduce the small business sector’s contribution to economic growth.

Starting a business

3. How straightforward is it to start a business, and what difficulties do entrepreneurs face when starting up?

Starting a business is administratively straightforward and there is substantial support available. However, entrepreneurs face steep barriers in securing funding:

Major challenges include:

• Funding access:
• BBB does not offer business startup loans, only personal.
• IUK rejection rates over 80%.
• Venture capital and angel investors reject over 90% of applications.
• Regional inequality:
• Less than 3% of VC funding goes outside London and the South East.
• Growth Hub support lacks investment-readiness training.
• Assessment and application flaws:
• Investment decisions rely on unstandardised pitch decks and personal introductions.
• No standardised evaluation framework for investment-readiness.
• Application processes are not standardised, costly, and often favour well-networked applicants.
• Structural bias:
• Female and ethnic minority founders face barriers due to subjective evaluation systems.
• Lack of investor alignment:
• Pension funds and other institutional investors lack standardised risk assessment metrics for early-stage businesses.
• Support ecosystem problems:
• Service providers like pitch-deck consultants sell "hope", not real value.
• Many small businesses don’t have business plans and /or lack basic knowledge in finance, sales, and market validation.

Without reform, these barriers will continue to stifle entrepreneurship, innovation and regional development.

Business support

10. Does the Government’s current business support offer meet the needs of SMEs, and how could the offer be improved?

Less than 10% of businesses engage with the UK's network of Growth Hubs. Whilst good general support is provided by Growth Hubs, BBB and Innovate UK Business Growth, they collectively fail to adequately help small businesses become fundable/investment -ready, a critical gap at the beginning of the fundraising journey.

To address this market failure, Government should improve it’s support offer by providing a standardised assessments and ratings service. This would improve the quality of applications, reduce investor risk, increase investor appetite and increase transparency and inclusion in application processes.
 

Implementation

14. How should work across multiple government departments, mayoral strategic authorities, and local authorities be coordinated to support the growth of SMEs?

To better support the growth of SMEs, we propose a National Fundability Ratings Service (NFRS) be established to coordinate public and private sector efforts to improve SME access to investment.

NFRS: Key Features

• Delivers standardised, transparent "investability" scores — akin to credit scores — for startups and SMEs.
• Benchmarks key dimensions of readiness (e.g., team, market-fit, business model, traction).
• Ratings would be scored or tiered (e.g., Gold, Silver, Bronze), enabling investors to identify quality deal flow and enable founders to improve their readiness.

In terms of funding the NFRS, it is suggested that tender requests could be issued by e.g. DBT or DSIT for a third-party service provider. For example, on behalf of Innovate UK Business Growth or BBB.

Implementation

The NFRS would be delivered in partnership with public stakeholders e.g. IUK, BBB, Growth Hubs/Local Authorities, Catapults, Universities and private stakeholders e.g. BVCA, UKBAA, PLSA and FSB.

• Stakeholder engagement programme launched
• Pilots conducted through e.g. Growth Hubs, Catapults and Accelerators.
• BBB’s British Growth Partnership, for example, could use NFRS ratings as filters to co-invest with pension funds in de-risked, high-quality businesses.
• A dedicated, BBB equity finance programme could, for example, provide automatic £50,000 investments to "Gold"-rated businesses

NFRS Benefits

• Improves ability of SMEs to obtain investment: the ratings process would identify weaknesses and tasks to rectify them, leading to improved scoring.
• Reduces investor risk and increases capital flow to credible but underserved businesses.
• Encourages pension fund participation, overcoming barriers identified under the Mansion House Accord (only 17 signatories to date).
• Supports levelling-up by eliminating bias and providing objective validation beyond networks or geography.
• Stimulates innovation by enabling earlier identification and support of scalable businesses in priority sectors.

Case for Government Leadership

There is a clear market failure related to investment in small businesses that requires Government intervention: 90% of investment applications rejected. 70% of new businesses fail within three years. Cost to the UK - over £90 billion per year in lost growth.

The UK cannot afford to let this situation continue. Previous Governments established IUK and the BBB to address market gaps in access to grants and loans.
The current, Government should now address market gaps related to helping small businesses access investment.

Detailed information on the NFRS proposal is available on request.

Submitted by: Fundability Ltd
www.fundability.org.uk
Date: 11 July 2025