News

Equity investment in smaller UK businesses hit a record £18.1bn last year

  • Investment into UK smaller businesses in 2021 was almost double that of 2020, with a total of 2,616 deals
  • Momentum continued into 2022 with equity investment of £7.6bn in Q1 2022, the highest recorded in a single quarter
  • British Business Bank programmes supported 18% of all announced equity deals in the UK 2021

Equity investment in the UK’s smaller businesses increased by 88% in 2021 to £18.1bn compared to the previous year, the highest yearly amount since the Beauhurst data series began in 2011, reveals the British Business Bank’s annual Small Business Equity Tracker, published today. The strong momentum continued into Q1 2022, with £7.6bn of equity investment reaching smaller businesses, the highest amount invested in a single quarter at nearly double that of the £4.3bn in Q1 2021.

Catherine Lewis La Torre, CEO, British Business Bank, said:

The UK’s small business equity finance market has continued to grow, achieving a new record last year. The momentum continued in Q1 of this year – a clear sign of investor confidence in UK smaller businesses following the pandemic.

 

The Bank supported 18% of all announced UK equity deals in 2021, showing that the work we do, and our focus on investing with purpose, has never been more important. The UK’s position as a hub for the technology sector is apparent and the growth in clean tech deals shows an increasing investor demand for sustainable businesses to grow. We will continue to provide businesses of the future with the capital they need to start up and thrive in the UK.”

Small Business Minister Paul Scully said:

The British Business Bank is playing a vital role in helping smaller businesses across the country to not only recover from the global pressures we’ve been facing, but to grow and thrive into the future.

 

Equity investment is at the highest levels on record but we’re not going to rest on our laurels. We’re continuing to do everything we can to back UK businesses and livelihoods, including through Help to Grow, increasing the Employment Allowance and slashing fuel duty.”

UK technology investment soars

Investment in UK tech companies has continued to grow rapidly in the past five years, rising to £8.2bn in 2021, up from £4.1bn the previous year. Investment into the UK’s tech-based companies is crucial for building the future economy and strengthening its position as a tech hub in Europe.

Within technology subsectors, investment into smaller businesses in the life sciences sector rose from £800m in 2020 to £1.7bn in 2021 and software deals more than doubled from £2.3bn in 2020 to £4.8bn in 2021, in line with wider equity market trends.

As investors adapt to more sustainability driven equity investment, the Bank’s analysis showed a 30% increase in the number of clean tech deals with £436m invested into this sector across 72 deals. While clean tech may have previously been considered a niche sector, it is now attracting mainstream investment as more businesses look to reduce emissions and prioritise low carbon growth opportunities.

The venture capital market in the UK and Europe

The UK retains its position in 2021 as the largest venture capital (VC) market in Europe, larger than France and Germany combined. France, Germany and Sweden have seen faster growth in the size of their VC markets since 2015. In Germany alone, VC investment nearly tripled between 2020 and 2021 from £5.6bn to £14.1bn.

Despite the UK being the European leader in the VC market by investment, it still lags behind the US which has also experienced a year of record growth. VC investment in the US has nearly doubled between 2020 and 2021 from £128bn to £245bn¹. The funding gap between the UK and US is primarily driven by varying levels of funding going into R&D intensive sectors with the UK having a lower deal and investment share going to this sector.

Overseas investment into the UK continues to grow

In 2021, 753 deals involved an overseas investor, 58% higher than in the previous year and equating to 29% of all deals recorded. Overseas investors were involved in equity deals to the value of £13.5bn, which is equivalent to 75% of the total £18.1bn invested during the period. The US ranks the highest for number of deals its investors make in UK companies, with a yearly average (2019-21) of 303 deals followed by European investors.

The British Business Bank effect

The Bank supported around 18% of all announced UK equity deals in 2021, with funds supported by the Bank more likely to invest in technology and IP-based businesses compared to the overall equity market. Between 2019-21, 47% of the Bank’s supported deals were in this sector compared to 39% of the overall market.

Addressing regional imbalances remains core to all British Business Bank activity. As a result, Bank-supported equity deals are more regionally distributed throughout the UK. The Bank has a higher proportion of equity deals outside of London (53%) than the wider PE/VC market (48%).

Seed and growth stage deals supported by the Bank are generally smaller than the wider market, while growth venture deals tend to be larger, showing the Bank’s programmes are tackling market gaps at the key venture stage of the UK SME equity spectrum.

¹ This figure was previously incorrectly reported as £254bn, and was corrected on 23 June 2022.

ENDS

Further information

Suzanna Jebbitt
Senior Communications Manager
t. +44 (0)20 7898 5829
m. +44 (0)7827 552301
e. suzanna.jebbitt@british-business-bank.co.uk

British Business Bank team
at MHP Communications
t. +44 (0)20 3128 8589
e. bbb@mhpc.com

Notes to Editors

About the Small Business Equity Tracker

The Equity Tracker uses data from Beauhurst on publicly announced equity deals into SMEs. Not all equity deals are announced, and these numbers differ to those reported by Beauhurst themselves, which includes equity rounds going to large companies. Buyout, merger and acquisition deals involving a change in ownership are excluded from the Equity Tracker report.

PitchBook data is used for analysis on international comparisons, and is based on British Business Bank user defined search of the PitchBook platform. The results may differ to PitchBook’s own figures.

About the British Business Bank

The British Business Bank is the UK government’s economic development bank. Established in November 2014, its mission is to drive sustainable growth and prosperity across the UK, and to enable the transition to a net zero economy, by improving access to finance for smaller businesses. Its remit is to design, deliver and efficiently manage UK-wide smaller business access to finance programmes for the UK government.

The British Business Bank’s core programmes support over £8.5bn[2] of finance to almost 95,000 smaller businesses[3]. The British Business Bank is responsible for running the government’s Coronavirus business loan schemes and Future Fund, together responsible for delivering £80.4 bn of finance to 1.67m businesses. The schemes are now closed to new applications.

As well as increasing both supply and diversity of finance for UK smaller businesses through its programmes, the Bank works to raise awareness of the finance options available to smaller businesses. The British Business Bank Finance Hub provides independent and impartial information to businesses about their finance options, featuring short films, expert guides, checklists and articles from finance providers to help make their application a success. In light of the coronavirus pandemic and EU Exit, the Finance Hub has expanded and it now targets a wider business audience. It continues to provide information and support for scale-up, high growth and potential high growth businesses, but now provides increased content, information and products for businesses in survival and recovery mindsets. The Finance Hub has been redesigned and repositioned to reflect this, during this period of economic uncertainty.

British Business Bank plc is a public limited company registered in England and Wales, registration number 08616013, registered office at Steel City House, West Street, Sheffield, S1 2GQ. It is a development bank wholly owned by HM Government. British Business Bank plc and its subsidiaries are not banking institutions and do not operate as such. They are not authorised or regulated by the Prudential Regulation Authority (PRA) or the Financial Conduct Authority (FCA). A complete legal structure chart for the group can be found at www.british-business-bank.co.uk

[2] Figures as at 31 March 2021

[3] Figures as at 31 March 2021