Commentary: Here’s why you should invest in SMEs

Amid reports that SMEs (small and medium-sized enterprises) will receive a further 10% in government funding in 2024, some investors are turning their attention towards the potential of SMES, which have proven to be pivotal in both innovation and growth.1,2 With this in mind, the investment experts at Oxford Capital have shared why investors should consider SMEs in 2024.

Mark Bower-Easton comments on why investors should consider SMEs in their portfolio:

“Going into 2024, investors are turning their attention to the potential that SMEs offer. They often embody innovation and agility, making them strategic investments in our ever-evolving market. Not only this but their entrepreneurial spirit and in particular, adaptability offers a unique edge.

The playbook for investing in SMEs is simple: diversify smartly, focus on innovation, do your research and be patient for growth. It’s not just about the financial gain, it’s about believing in the growth and potential of small businesses to thrive.

As you contemplate your investment strategy for the future, don’t underestimate the potential of SMEs. With careful consideration, these ventures can become valuable assets in your investment portfolio, offering a unique blend of innovation, adaptability, and growth potential.”
 

1. Innovation and Potential 

 
SMEs leverage their compact size to facilitate agile decision-making and experimentation, making them a source of great innovation. This dynamic environment serves as a breeding ground for pioneering ideas and technological breakthroughs.  While larger corporations often dominate the limelight, SMEs represent a reservoir of untapped potential, where their small size allows for swift adaptation to evolving market conditions. 

Many SMEs find themselves in the early stages of development, presenting a unique opportunity for investors to engage at the foundation level. While such investments may carry risks, they equally present the potential for substantial returns as the business grows.
 

2. Flexibility and Adaptability 

 
The business landscape is undergoing rapid evolution, with small and medium-sized enterprises at the forefront. Their inherent adaptability positions them to pivot and flourish in dynamic environments, of which investing in fortifies your portfolio against the uncertainties of the future.

Investing in SMEs signifies a deliberate move towards diversifying your investment portfolio, which is fundamental for effective risk management.3 SMEs, characterised by their unique market niches and growth trajectories, offer a valuable level of diversification which can help shield your portfolio from the impact of economic downturns or industry-specific challenges.

3. Local Impact with Global Reach

 
Supporting SMEs isn’t just about the financial gain; it’s about making a positive impact for yourself, for the business and the broader economy. Often serving as the backbone of local economies, SMEs play a crucial role in job creation and community development. Through strategic investment in SMEs, you actively contribute to the growth of both local communities and the global economy.
 

4. Technological Advancements

In a world where technological advancements unfold at an unprecedented pace, innovations of yesterday swiftly become today’s standards. SMEs, particularly those in the technology sector, often drive innovation and disrupt traditional business models. Allocating investments to tech-savvy SMEs provides a gateway to the forefront of the latest advancements, ranging from artificial intelligence to biotechnology. 

What to look for when investing in SMEs

 
It’s important to conduct thorough research when investing in SMEs; assess its business model, financial health, and leadership. Don’t be afraid to scrutinise financial statements, industry dynamics, and ensure legal compliance. It’s important to build relationships within the SME ecosystem which will help you gain valuable insights, and have a clear exit strategy. 
 

[1] – Cottons Group | “Forecasting the landscape for SMEs in 2024” 

[2] – Azets | “Positioning SMEs at the heart of the UK economy”

[3] – Linkedin | “Diversification: A Key Strategy for Mitigating Risk in Your Portfolio”

About Oxford Capital

Founded in 1999, Oxford Capital offers individuals and families access to some of the most innovative early-stage companies in the UK. Over the last 20 years, they have invested approximately £500 million in over 100 companies and have pioneered investing into early-stage companies via the Enterprise Investment Scheme.

From their base in Oxford, one of the greatest knowledge clusters in the world, Oxford Capital invests across the UK and supports early-stage companies to grow in international markets with the potential for rapid value growth. Specialising in investments focusing on the future of UK technology in sectors such as ecommerce, fintech, digital health and Artificial Intelligence.

Authorised and regulated by the Financial Conduct Authority under number 585981.