SW equity deal slowdown

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Equity investment for smaller businesses has returned to 2019 levels following record levels of activity in the previous two years, according to the British Business Bank’s Small Business Equity Tracker, published today.

Full year data shows that following the market downturn in the middle of 2022, investment declined by 48% to £8.8 billion in 2023 in the UK, in line with other equity markets, while the number of deals fell by 25% to 2,152.

In the south west the number of equity deals in 2023 fell by 23% to 117 deals when compared to the year before. By number of deals, the region was ranked third in England excluding London, after the south east and east of England. The total equity investment value in the south west in 2023 fell by 67% to £266 million.

Data shows that the British Business Bank’s Cornwall and Isles of Scilly Investment Fund, which closed in 2023, supported 17% of deals in that LEP area during its final year of operation. It has now been replaced by the Bank’s £200 million South West Investment Fund which began investing in late 2023, with the first equity deal announced in December.

Looking ahead, the South West Investment Fund will continue to drive sustainable economic growth by supporting innovation and creating local opportunity for new and growing businesses across the region.

As has been the case in other markets, a tighter macroeconomic environment and heightened interest rates continues both to affect the relative attractiveness of the asset class and hamper exit opportunities for UK companies. However, equity investment for smaller businesses has remained at over £2 billion in each of the last five quarters, demonstrating some stability in the market.

While the equity market has seen two consecutive years of contraction, investment values have increased by 182% over the last ten years, with deal numbers 42% higher. Since 2014, more than 21,000 equity deals have been completed, collectively providing over £90 billion of equity finance to support the growth of innovative smaller businesses.

Internationally, UK has overtaken India as the third largest venture capital (VC) market in the world, now accounting for 5.8% of global investment as UK companies raised £72 billion between 2021 and 2023.

The UK has strengthened its international position over the past decade as its share of global VC investment has risen to 5.8% in 2021-2023 from 3.4% in 2014-2016, the largest percentage point increase of any of the top 12 global markets.

Steve Conibear, UK network director, south west for the British Business Bank, said: “2023 was a tough year for the equity finance market, not just in the UK but globally, and the picture in the south west reflects that. But it’s encouraging that UK investment does now look to be stabilising and as we’ve seen with other regional funds, the Bank’s £200 million South West Investment Fund, launched last year, is an important addition to the regional equity funding landscape, supporting small business growth across the region.”