UK equity finance market for smaller businesses hit record highs in 2017

Featuring Richard Wadman | 5th July, 2018

My eyes lit up when I saw the headline in one of the financial news feeds I subscribe to. I have long been aware that the equity finance market for smaller businesses in the UK has lagged behind the US and Germany, for example.

Equity finance is not for all businesses/all situations, but I do feel that it is an underused type of finance. I have tried to do my bit over the years to at least make businesses aware of the range of equity options that are available, through seminars, blogs posts and fact-sheets etc.

So, the report…

Published today, it is the British Business Bank’s fourth annual Small Business Equity Tracker report that found that “total investment value soared in 2017 by 89% to £5.9bn, with the number of equity deals increasing by six per cent. This represents a 50% increase from the previous peak in 2015…”

A full copy of the report can be downloaded here and/or, there is a very nice info-graphic here.

Other key findings in the report include:

  • Equity investment in the technology and intellectual property sectors grew to a record high of £2.1bn in 2017
  • There was a large increase in equity investment in business and professional services – up from £680m in 2016 to £2bn in 2017
  • Average equity deal sizes have increased over the last few years, from £2.2m in 2013 to £4.9m in 2017
  • The seed stage – which makes up nearly half the market by number of deals (47%) – has seen an increase in investment value of 91% compared to 2016
  • The venture stage is the most volatile, but has seen an increase in value of 72% in the same period
  • The growth stage has seen the strongest increase in value – rising 100% compared to 2016

Equity investment in the South West

Presumably, the South West is one of the “imperfections in equity markets for smaller UK businesses”, referred to in the report due to “persistent regional imbalances in equity provision” – the South West only accounted for six per cent of all equity deals in 2017. The report outlines some actions taken to address the regional imbalance and, nicely, the Cornwall & Isles of Scilly Fund (CIOSIF) gets a mention in this context. I am also encouraged to read statements such as:

  • “We are also establishing a new commercial programme to support developing clusters of business angels outside London later this year.”
  • “We will use the comprehensive picture of smaller business equity markets provided by this report to hone our programmes further to focus on the parts of the market which need our support most…”

I am aware of a number of locally originated initiatives to develop a more dynamic equity finance market in the South West, and I hope the British Business Bank will look to dovetail with these as applicable.

That is not to say that my colleagues in the PKF Francis Clark Corporate Finance team are only active in raising equity for clients in the South West – we have national and international coverage, and I am sure that they are keen to see initiatives increasing the supply of equity for ‘smaller deals’ in the South West.

Other material of interest in the report…

(and a renewed enthusiasm from me for our ‘Finance in’ events)

I will be reading (and maybe blogging) further on the £2.5bn British Patient Capital programme and The Information Hub website, in due course. I will also be keen to speak to someone at the British Business Bank about the potential of working together on our ‘Finance in’ events, as the dissemination of information on the different types and sources of finance available to SMEs appears to be a shared agenda.

But for now, I would suggest that those smaller businesses interested in equity finance have a glance at the British Business Bank’s report, in terms of a review of 2017 and indication of future developments.

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