Equity investment into smaller businesses surges in 2021 - PKF Francis Clark
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Equity investment into smaller businesses surges in 2021

By Issac Moore

We have been forecasting since 2010 at least that ‘next year’ will be the year that equity investment into smaller businesses takes off. Well for 2020 into 2021 we were bang on, according to the research conducted by British Business Bank.

The recently issued British Business Bank’s Small Business Finance Markets 2021/22 report highlights a surge in equity investment into smaller UK businesses last year.

Whilst this was an eye-catching statistic there are a number of others that showcase developments in the funding market for smaller businesses in 2021, some of which have been extracted below.

Headline statistics from the report

Below are some of the headline statistics/ findings:

Equity ·         Equity investment in smaller businesses surged 130% to £14bn in the first three quarters of 2021 relative to the same period in 2020 (£6.1bn) and on course to double compared to 2020

 

Debt ·         Bank lending returned to close to pre-pandemic levels, with 2021 lending down 45% from 2020

·         The proportion of small and medium sized businesses with debt repayments making up more than 50% of turnover has declined since early 2021. For businesses with between 100 and 249 employees, just 2.5% report debt repayments above 50% of turnover, down from a peak of around 5.5% in February last year

·         Challenger and specialist banks accounted for just over half of the bank lending (51%) – a record share, up from 32% in 2020 – while private debt, asset finance, invoice finance & asset-based lending, and alternative finance all experienced rebounding levels of activity after a difficult 2020

·         At their peak in March 2021, smaller business debt stocks were estimated to be up 30%

Access and appetite ·         Disparities in access to finance remain, with Ethnic Minority-led firms around twice as likely to cite access to finance as a barrier

·         Long-run data covering 2019 to mid-2021 show London businesses remain more open to using finance, with 37% happy to use finance to grow compared to 29%-32% of smaller businesses in most other parts of the UK

·         While the UK hosts a large number of rapidly growing businesses, external finance remains highly concentrated in the capital compared to other regions. London firms attracted 70% of 2021 Q1-Q3 investment value

·         Appetite for using finance has significantly increased amongst female-led businesses (31% in Q2 2020-Q2 2021, up from 26% in Q1 2019-Q1 2020), but remains lower than for male-led businesses at 39%

The environment ·         Almost half of smaller businesses see reducing their carbon emissions as a priority; over a fifth would use external finance to improve their environmental impact

·         A survey of UK VC fund managers conducted by the British Business Bank indicated that the vast majority (83%) are now taking into account environmental factors within investment decision making, and more than half (52%) see ESG factors as a significant part of their investment decision making process. This has in turn led to an increase in clean tech investment in the market

This only scratches the surface of the depth and breadth of material covered in the 155 page report so I would suggest that if the matters covered above interest you then have a look at the report itself, it is nicely laid out and easy to navigate through.

PKF Francis Clark

As is hopefully demonstrated by the content of our recently issued “Deals Review 2021 – Southern Region of the UK” we do try and keep a handle of all aspects of the funding eco-system.

We also get involved in a number of events during the course of the year aimed at assisting businesses to understand the range of funding opportunities potentially available.

One of these events which could be of interest to Cornish businesses is our “Valuation Seminar” co-hosted by regional equity fund, Cornwall and Isles of Scilly Investment Fund, and the British Business Bank.  I hope to see some of you there.

If you would like to speak to us about fundraising please do get in touch with the usual point of contact or PKF Francis Clark Corporate Finance team.

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