UK smaller businesses receive a record £6.7bn equity finance investment

equity investment market

The amount of equity invested in smaller UK businesses soared to £6.7bn in 2018, the highest amount recorded, reveals British Business Bank’s.

The report, which provides an in-depth assessment of equity finance markets for growing businesses, found London’s dominance as the centre of the UK’s equity market is waning. 2018 saw the value of equity finance investment outside of London increase by 29%, and now stands at £2.8bn.

The East of England, North East and West Midlands are the three regions driving this increase, where equity finance investment deal sizes grew by 118%, 115% and 81% respectively.

Several UK regions also saw a significant increase in the overall number of deals – up by 65% in the North East, 15% in Yorkshire and Humber and 11% in Wales.

Tech sector dominates equity deals

Launched during London Tech Week, the report reveals the UK tech sector remains the focus for equity investors, with 44% of investment going to tech companies.  Equity investment in tech businesses increased by 24% in 2018 with £3.0bn invested, the highest amount to date, mirroring wider equity market trends.

UK venture capital sector growing faster than the US

The report also found that the UK venture capital sector has grown faster than the US for the first time. Since 2016 the UK has had a higher number of VC deals relative to GDP than the US. The UK had 570 VC deals per £1trn of GDP, 18% higher in than the US, which has 482. VC backed companies in the UK now also receive a similar number of follow-on funding rounds as US companies.

Deal values rise, while deal numbers fall

Elsewhere in the British Business Bank’s report, it was highlighted that although the total number of equity finance deals fell last year, the overall value of funding increased due to larger deals being made. Total funding values increased at every stage of business growth – up by 4% for seed stage businesses, 10% for venture and 2% for growth stage businesses.

Impact of the Bank’s programmes on access to finance for smaller businesses

British Business Bank’s equity programmes are helping to address regional imbalances in access to finance. The Midlands Engine Investment Fund (MEIF) and the Northern Powerhouse Investment Fund (NPIF) contributed 20% and 16% of equity deals in the Midlands and North in 2018 respectively. Meanwhile, the concentration of deals in London completed by Bank supported funds has reduced dramatically, from 70% in 2016 to 43% in 2018.

Bank supported deals for seed and venture stages are smaller than market average, tackling market failure for the availability of smaller deals, through its Enterprise Capital Funds programme. Whilst growth stage deals, through British Patient Capital, are larger than the market average, enabling larger deals so that scale-up companies are better funded.