Rethinking SME investments in a time of disruption

12 June 2020

According to the National Federation of Self Employed & Small Businesses, SMEs accounted for 99.99% of the UK business population in 2019. “Banks, finance providers and investors are the life-support systems for SMEs and have a critical role to play during this lockdown and beyond,” says Sophia Ahrel, Founder and Strategy Consultant at SCC member Ahrel & Co, highlighting the importance of investing in SMEs in unprecedented times, whilst embracing innovation and technological advancements.

Founded in 2007, strategic consulting firm Ahrel & Co aids SMEs in achieving their growth agenda and bringing vision and strategy to life. By joining clients’ leadership teams and advisory boards on an interim basis, Ahrel & Co benefits from a proximity upon implementing road mapping tools and strategic methodologies. “Our acceleration and co-innovation programs guarantee that you stay ahead of any competition, positioning your brand exactly where you want to be,” she explains. Being an advisory member of the BVCA and an active business angel in UKBAA, Sophia also works alongside private equity firms and high growth portfolio companies. “We transform businesses to achieve the valuation and multiples desired. Through our investment readiness programme, we aid businesses in optimising a pitch in front of the right investors.” 

Core of the world economy
Many experts agree that SMEs are at the core of the world economy as well as an essential force to its growth. Eric de Montgolfier, CEO of Invest Europe once said: “Small and medium sized enterprises are the backbone of the European economy, and private equity’s focus on and funding of SMEs reaffirms the sector’s commitment to Europe’s economic engine.” In similar manner, Sophia accredits these businesses for creating employment, generating tax revenue and putting money into the pockets of consumers. In order to ensure the survival of small and medium sized corporations, financial institutions play a vital role: “Banks, finance providers and investors are the life-support systems for SMEs and have a critical role to play during this lockdown and beyond,” says Sophia.

Embracing innovation  
In the main, Sophia stresses that fear is the most significant inhibitor of growth: “Fear is the biggest threat to growth amidst the COVID-19 crisis.” This is further reinforced by the abundance of multimedia in modern society: “In a world of ‘always on’ media that pump out content, some of which are opinions and biased views, create both fear and mistrust,” says Sophia. According to Sophia, innovation is an essential tool to adapt to new circumstances – especially in light of the ongoing COVID-19 pandemic. Although the Coronavirus only has been present for a few months, it has already caused substantial changes to all facets of business and society. In a long-term perspective, Sophia foresees that the crisis profoundly will impact patterns of work, travel and consumption, which has major ramifications for SME businesses. In order to mitigate the risk of bankruptcy and major economic losses, Sophia believes that embracing innovation is necessary. “Businesses adapting a modus operandi based on ‘test and learn’ and ‘fail fast’ principles, quickly innovating new products and services, developing new business models or changing to adapt to new market conditions, will be more successful.”

Benefitting from technology
In order to optimally adapt to unprecedented times, Sophia encourages finance providers to rethink their investment patterns. “Finance providers must change too. New forms of alternative funding help increasing the speed, transparency and therefore access to finance for a wider range of SMEs.” Through increasingly sophisticated digital investment platforms, SME finance providers – such as venture capitalists and private equity firms – are progressively prepared to support SMEs seeking ambitious growth. Sophia puts emphasis on that innovative technology platforms will be pivotal in aiding businesses worldwide in accessing the required capital to face times of economic difficulty and uncertainty ahead. “Technology will become even more important than we previously have thought. It will enable finance providers to address SME finance needs, as well as to provide working capital ’the life blood’ of our economies beyond COVID-19,” Sophia concludes.