British Business Banks’ Small Business Equity Tracker 2020 report provides an in-depth picture of equity finance for smaller businesses. It is intended not only to inform the development of the Bank’s own strategy, but also to inform wider developments in both the market and government policy.
This is the sixth edition of the report the Bank has published.
- Equity finance in UK smaller companies reached record levels in 2019. Equity investment reached £8.4bn – up 24% on 2018 and over double the amount recorded in 2016. The number of deals also increased by 4% to 1,832.
- The UK tech sector remains the focus for equity investors, with 47% of investment going to tech companies. Equity investment in tech businesses increased by 27% in 2019 with £4bn invested, the highest amount to date. Software as a Service (£2.5bn), FinTech (£1.8bn) and Artificial Intelligence (£880m) were the verticalsattracting the greatest amount of equity investment in 2019.
- There were emerging signs of market changes before Covid-19 which could have an impact on the pipeline of companies receiving future equity investment. Seed stage investment fell by 1% to £823m – although the scale of decline is small, there had been previously been continuous year on year growth since 2011. The number of companies raising finance for the first time has been trending downwards since 2015 and in 2019 the number of follow on funding rounds exceeded the number of deals involving companies raising equity finance for the first time.
- Although it is currently too early to assess the full impact of Covid-19 on UK equity finance, the availability of equity finance to growing businesses is likely to be affected. The number of deals in Q1 2020 fell 15% since Q4 2019 but this is likely to underreport the full scale. Insights from the 2008 Financial Crisis, show the seed stage was hardest hit with the number of deals and investment value declining.
- The British Business Bank increased its market share. British Business Bank supported programmes are estimated to have supported 11% of UK equity deals between 2017 and 2019, forming 14% of the overall invested equity amount. British Patient Capital (BPC) was a key factor in this increased market share. The Bank’s Midlands Engine Investment Fund (MEIF) and the Northern Powerhouse Investment Fund (NPIF) supported 19% and 16% of equity deals in the Midlands and North in 2019 respectively.
- London continues to dominate the UK’s equity market – London based companies received 48% of equity deals and 66% of equity investment in 2018 – but other hotspots of equity activity continue to develop. Cities such as Manchester, Bristol, Oxford, Cambridge and Edinburgh all saw significant equity activity in 2019.