West Midlands shines as region sees 81% increase in equity investment for smaller businesses as London wanes…
The report, which provides an in-depth assessment of equity finance markets for growing businesses, found London’s dominance as the centre of the UK’s equity market is waning. 2018 saw 41 per cent of equity finance secured by companies outside the capital, up 7% points since 2017.
Epitomising the shift is the West Midlands, after investment in the region’s firms increased 81% in 2018 to £207m, with an increase in deal size being the key driver.
Within this, Birmingham City Council ranked in the top 25 Local Authority Districts in the UK for volume, boasting 14 announced equity deals alone in 2018, with software companies the biggest beneficiaries followed by professional services firms. This echoes the national trend that saw tech businesses receive 44% (£3bn) of equity investment in 2018, a 24% increase, and professional services receive £1.9bn.
The British Business Bank’s own Midlands Engine Investment Fund (MEIF) helped contribute to 20% of total equity deals in the West Midlands region.
The UK equity finance market has been on an upwards trajectory since 2016. The report found that the UK venture capital (VC) sector has grown faster than the US over the last decade. Since 2016 the UK now has a higher number of VC deals relative to GDP than the US. The UK had 570 VC deals per £1trn of GDP, 18% higher in than the US, which has 482. VC backed companies in the UK are now just as likely to receive follow-on funding rounds as US companies, although UK VC deal sizes remain smaller than US deals.
Keith Morgan, CEO at the British Business Bank, said:
“We are committed to maintaining a vibrant and healthy equity finance market in the UK, helping businesses to fulfil their potential while building a successful economy.
“This year’s Small Business Equity Tracker report reveals that the Bank is having a notable impact on access to equity through a range of initiatives, including through its Midlands Engine Investment Fund, where in 2018 it contributed 20% of equity deals in the Midlands.
“We are particularly pleased to see a 29% increase in investment outside of London. The British Business Bank continues to work to address regional imbalances in access to investment to ensure smaller businesses across the UK can access the equity finance they need to fulfil their growth potential.”
Elsewhere in the British Business Bank’s report, it was highlighted that the total number of equity finance deals fell 6% in 2018, with the largest decline seen at the seed stage.The overall value of funding increased due to larger deals being made. Total investment values increased at every stage of business growth – up by 4% for seed stage businesses, 10% for venture and 2% for growth stage businesses.
Alice Hu Wagner, Managing Director, Strategy Economics and Business Development, British Business Bank, said:
“The British Business Bank’s Equity Tracker report points to a maturing market for equity finance in the UK, with a small decline in the volume of investments and larger deals further down the pipeline increasing the overall value of investment.
“Standing at £4.5million, the average equity deal size in the UK has increased every year since 2013 and continued to do so in 2018 – up 11% on 2017. This is despite fewer ‘megadeals’ in 2018 showing the market is supporting a greater range of scale-up businesses than before.”
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