Equity investment in smaller UK businesses reached a record £8.8bn last year
- Investment into the UK deep tech sector has grown significantly in the past five years, rising 291% to £2.3bn, but still lags behind the US, the market leader
- Total value of equity investment in smaller businesses reached £4.5bn in Q1 2021, the highest amount ever recorded in a single quarter
- British Business Bank programmes supported 21% of all announced UK equity deals in 2020
Equity investment in the UK’s smaller businesses increased by 9% in 2020 to £8.8bn, the highest 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 2021, with the total value of equity investment in smaller businesses reaching £4.5bn, by far the highest amount ever recorded in a single quarter.
Catherine Lewis La Torre, CEO, British Business Bank, said: “The UK’s small business equity finance market had a record year in 2020 with activity ramping up in the second half. This momentum continued into the first quarter of 2021 with record breaking levels of investment – a clear sign of returning investor confidence in UK smaller businesses and the country’s economic recovery.
“The Bank supported 21% of all announced UK equity deals in 2020, and as the impact of Covid-19 continues to affect businesses across the country, the work we do and our focus on investing with purpose has never been more important. Building on the UK’s position as a science superpower, we will continue to provide the world class businesses of the future with the capital they need to start up, scale up and remain anchored in the UK.”
UK deep tech investment soars
Investment in UK deep tech companies has continued to grow rapidly in the past five years, rising 291% to £2.3bn in 2020. The number of deals also increased by 78% to 440 in the same period. This is higher than the increases seen in the number of deals in the US and rest of Europe – 66% in the US and 73% in the rest of Europe.
However, when it comes to the overall value of investment, the UK still lags behind. UK deep tech companies receive substantially smaller rounds of funding than the US. The average UK deep tech company raises £24m after six rounds of funding, compared to the £113m raised by the average US deep tech company after six rounds.
US deep tech companies received almost twice the level of investment than those in the UK, even after accounting for size differences between the two economies. Between 2018 and 2020, UK deep tech companies received investment equivalent to 0.09% of UK GDP whilst US deep tech companies received investment equivalent to 0.16% of GDP.
Future Fund: Breakthrough, a new £375m UK-wide scheme due to launch this summer, will help address the later stage equity finance gap faced by innovative UK deep tech and R&D-intensive companies.
The British Business Bank effect and the Future Fund factor
The Bank supported around 21% of all announced equity deals in 2020 (13% from the Bank’s existing equity programmes and 11% from the Future Fund) compared to 10% in 2019. The increase in market coverage last year is mainly due to Future Fund activity. The report shows the overall number of equity deals in 2020 increased by 5% to 2,044, in part due to the impact and contribution of the Future Fund which is estimated to have supported 11% of the announced UK equity deals last year.
The commercialisation and growth of the UK’s science-based companies, crucial for building the future economy, is well supported by the Bank’s equity programmes. Funds supported by the British Business Bank were more likely to invest in technology and IP-based businesses than the overall equity market in 2020, with 49% of British Business Bank supported deals in this sector compared to 40% of the wider market.
Addressing regional imbalances remains core to all British Business Bank activity. As a result, Bank-supported equity deals are becoming more regionally diverse. Concentration of deals undertaken in London has reduced sharply, from 68% in 2016 to 42% in 2020.
Levels of investment vary widely by sector
The levels of investment vary widely by industry, with the UK’s thriving tech sector remaining the most attractive to investors and accounting for 46% of total equity investment in UK smaller businesses. Investment into smaller UK tech businesses increased 7% to £4bn with the number of deals rising 12%, as the sector benefitted from an increase in digitisation and remote working caused by Covid-19. Within tech, software continued to receive the largest share of deals (500 deals worth £2.5bn).
Investment into smaller businesses within the life sciences sector rose 70% to £631m. The number of deals also increased by 26% compared to 2019. However, equity investment into sectors heavily impacted by social distancing measures, such as retail, personal services and leisure and entertainment fell, with deal numbers decreasing by 13%, 17% and 10% respectively.
 Some equity deals involving Bank supported fund managers may have also used co-investment from the Future Fund or participated in a funding round led by another investor using the Future Fund.
 Due to different methodologies, Beauhurst data on tech sector investment is not directly comparable to PitchBook data on deep tech investment.
Notes to Editors
About the Small Business Equity Tracker
The Equity Tracker uses Beauhurst data for announced equity deals into SMEs. Not all equity deals are publicly announced.
The British Business Bank has identified equity deals involving funds it has supported (including the Future Fund) by matching deals in the Beauhurst dataset using Company House ID and name of the investor.
223 announced deals involved companies drawing down a Future Fund Convertible Loan Agreement (CLA) were captured in Beauhurst, which is 24% of all Future Fund deals. CLA funding rounds involving the Future Fund were less likely to be announced than other equity deals. In comparison, 61% of equity deals involving other British Business Bank supported funds were identified. Therefore, numbers presented in the report may differ to the British Business Bank MI data which cover the full population of deals, but these figures allow a robust comparison to the wider equity market.
PitchBook data is used for analysis on deep tech sector as it allows international comparisons.
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 make finance markets for smaller businesses work more effectively, enabling those businesses to prosper, grow and build UK economic activity. 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 programmes were supporting nearly £8bn of finance to almost 94,800 smaller businesses at end of June 2020. Since March 2020, the British Business Bank has launched four new Coronavirus business loan schemes, delivering tens of billions of pounds of finance to 1.5m businesses.
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.
As the holding company of the group operating under the trading name of British Business Bank, British Business Bank plc is wholly owned by HM Government and is not authorised or regulated by the Prudential Regulation Authority (PRA) or the Financial Conduct Authority (FCA). The British Business Bank operates through a number of subsidiaries, none of which are authorised or regulated by the FCA or the PRA.
British Business Bank plc and its principal operating subsidiaries are not banking institutions and do not operate as such. A complete legal structure chart for British Business Bank plc and its subsidiaries can be found on the British Business Bank plc website.