The case for purposeful capital

Geoffrey de Mowbray, Chairman of the British Exporters Association, makes the case for investing in SMEs for long-term gain 

 

For years, investors have been focused on unicorns: startups with hypergrowth potential and eye-watering valuations. In the background, amidst this noise, a strong cohort of SMEs has been building with purpose and solving real-world problems, without huge budgets, media headlines, or fanfare.

 

SMEs, long dismissed as niche mom and pop shops, are in fact the lifeblood of the economy. They are where meaningful growth originates, where practical innovation emerges, and where entrepreneurial energy and diversity of culture infuse the business landscape. These businesses bring focus and ingenuity, often innovating quietly but effectively in specialised areas.

 

For investors and acquirers, they offer access to proven technologies and products, often with a strong customer base that provides valuable feedback loops for further development. While SMEs are not a new investment category, they have been underfunded for so long that their full potential has yet to be realised.

 

In fact, McKinsey data shows MSMEs (micro, small, medium-sized enterprises) account for two-thirds of business employment in advanced economies, as well as half of all value added. When we look at the global south, these figures are even more compelling, with MSMEs making up almost four-fifths of all employment.

 

Despite being the backbone of the economy in the UK and elsewhere, SMEs are still chronically underfunded. In the UK alone, data shows 40 percent of SMEs have had to stop or pause areas of their business in the last few years due to underfunding. The majority said funding was too difficult or too expensive to access.

 

Yes, this is a significant challenge for the economy – but within this challenge lies a huge opportunity, if investors are willing to grasp it. While the traditional investment model favours larger ticket sizes, often due to fixed transaction costs, technology and new funding structures are making it possible to streamline and scale SME investment.

 

With the same diligence and process applied to a £5 million deal now increasingly applicable to a £100,000 SME stake, the barriers to entry are lowering. The key is designing efficient mechanisms – from syndication and automation to shared services – that enable capital to flow into this vibrant, under-leveraged segment of the market.

 

 

Discipline and sustainable growth 

SMEs, particularly those that have grown without significant external capital, tend to hold themselves to a high degree of financial discipline. Limited access to funding has created a generation of business leaders who know how to make every pound count, not out of virtue, but necessity. These companies put profitability ahead of rapid growth, and are used to innovating on a shoestring budget.

 

Research by the British Business Bank found that SMEs with a turnover between £1 million and £10 million consistently outperform their larger counterparts on return on capital employed (ROCE). For investors, SMEs are efficient, cash-conscious enterprises that already know how to survive, and often thrive, in volatile markets. In contrast to many high-burn startups, these businesses are less likely to chase vanity metrics and more likely to focus on long-term value.

 

 

The role of impact investing 

Impact mandates and ESG investing now have a huge role to play in investors’ portfolios. In the UK, institutional investors expect impact and sustainable mandates will account for 45% of private markets portfolios by the end of 2026, compared with 37% in late 2024. For these investors, SMEs offer credible, measurable value. Many are born out of a strong social purpose or mission, often representing a direct extension of the founder’s values.

 

These SMEs are also hugely important to their local communities, embodying the ‘S’ in ESG. In the UK alone, SMEs employ over 16.7 million people, 61% of the total private sector workforce.

 

 

Looking at the mezzo level

Perhaps the biggest opportunity for investors lies in what we call the mezzo level: SMEs that are past the volatility and unpredictability of early-stage startup life, but aren’t yet weighed down by the complexity or bureaucracy of a large corporation.

 

These companies typically generate £5 million to £50 million in revenue, have stable leadership, and show strong product-market fit. They’ve proven their viability but often lack the strategic funding or support systems to take the next step. With the right capital and ecosystem around them - shared services, export facilitation, talent pipelines - they have the potential to scale.

 

Instead of merging small businesses into one larger company, where you risk losing culture or individual purpose, investors can support groups of independent businesses that work well together. For instance, investing in manufacturers, logistics firms, and digital services that complement each other. By backing these businesses as a network, rather than forcing them together, investors can help these businesses grow without losing their individual raison d’être.

 

 

Global potential 

Local SMEs already offer huge potential to investors. But when you look at SMEs that operate globally, this potential is supercharged. A lot of the global SMEs we work with have found a demand for niche products or services internationally before they’re fully recognised in the UK, drawing on specialist expertise and deep market knowledge.

 

Globally active SMEs are already outperforming their domestic counterparts. For instance, UK exporters are significantly more likely to survive long-term and report stronger revenue per employee. These companies have proven they are adaptable and ambitious, navigating challenges like customs, currencies, and language and cultural barriers - often without external support or funding.

 

As trade tools like export credit guarantees and blended finance become more accessible, the risks once associated with international SME investment should now be less daunting for investors. These businesses might not make the headlines, but they’re achieving something much more valuable - forging new trade routes and building long-term, sustainable growth.

 

 

Stop admiring the problem, start building the solution 

It’s time for the UK to stop admiring the problem of underfunded SMEs, and start recognising the opportunity they represent - not just for the economy, but for investors themselves. For too long, SMEs have been seen as too small, too complex, or too hard to scale. But this is no longer the case, especially with a new generation of tools and frameworks designed to reduce the risk around SME investment.

 

Export credit agencies like UK Export Finance (UKEF) offer guarantees, insurance, and working capital support to help SMEs grow internationally. Blended capital models combine public and private funding for sectors and regions that were once considered too risky. The rise of impact measurement standards means investors have to look at both financial and social returns on investment.

 

It’s not hard to understand the allure of the unicorn. But it’s time to look at the UK’s thoroughbreds instead: solid, resilient SMEs that are built with purposeful profit at their heart. These businesses won’t just deliver returns - they will define the next chapter of inclusive, sustainable capitalism. The tools are now in place. The proof points are there. The question is: who among the investment community is ready to lead? 

 

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Geoffrey de Mowbray is founder and CEO of Dints and Via, and Chairman of British Exporters Association (BExA)

 

Main image courtesy of iStockPhoto.com and Worawith Ounpeng