Equity investment in the UK’s tech businesses increased by 27 per cent in 2019 to £4.0 billion, the highest amount since the series began in 2011, the British Business Bank has revealed in its annual Small Business Equity Tracker report.
The UK’s thriving tech sector remains highly attractive to equity investors, accounting for 47 per cent of total equity investment in UK SMEs through 691 deals in 2019.
Within tech, the sectors receiving the largest share of deals were software (425 deals worth £2bn) and life sciences (78 deals worth £540m). The verticals attracting the greatest amount of equity investment in 2019 were Software as a Service (471 deals worth £2.5bn), FinTech (193 deals worth £1.8bn) and AI (173 deals worth £880m.
Software as a Service companies in particular were highly attractive to equity investors, with investment value increasing by 69% in 2019 compared to 2018, a much larger increase than that seen in the overall market.
The Small Business Equity Tracker report, which analyses Beauhurst data on equity investments throughout the UK in 2019, provides an important benchmark of the market immediately prior to the Covid-19 pandemic. It shows the value of total equity investment in the UK’s smaller businesses rising 24% to £8.5bn in 2019 – the highest amount recorded – and a record number of deals, rising 4% to 1,832 with deal sizes up by 21%.
52% of deals by number took place outside of London, with South West, Scotland and Northern Ireland showing a strong increase by deal number in 2019, rising by 34%, 26% and 24% respectively. Several regions also saw investment levels by value increase strongly in 2019, including Northern Ireland (191%), Scotland (51%), North West (50%), London (37%), West Midlands (36%), and the South East (27%).
Equity investments into growth stage companies rose by 39% to £5.3bn. The average growth stage deal size, where the UK has lagged behind the US, also grew by 27% driven by a small number of very large deals. Such financing is important as it is often used to help international expansion and to enter new markets, demonstrating both the increasing strength and maturity of private UK SME equity markets and the broader potential of later-stage private companies.
Keith Morgan, CEO, British Business Bank, said: “The UK’s small business equity finance market saw a record year in 2019 with investment amounts soaring to £8.5bn. This was a clear sign of investor confidence in UK smaller businesses located across the country and their potential for growth as well as the strong fundamentals of the UK economy as a place to start and grow a business.”
“The British Business Bank’s equity programmes are estimated to have supported around 11% of all equity deals in UK SMEs in 2019. As the economic impact of Covid-19 continues to affect businesses across the country, the work of the Bank has never been more important. Ensuring a wide range of innovative and ambitious smaller businesses continue to have access to equity investment to support their growth plans will be essential to the UK retaining its world-leading position in science, innovation and technology.”
British Business Bank programmes are estimated to have supported 11% of UK equity deals between 2017 and 2019, compared to 9% between 2016 and 2018 as reported in last year’s report. The increase in market coverage is due to British Patient Capital fund activity, which has grown considerably over the same period.
Seed and venture stage deals supported by the Bank are generally smaller than the wider market, while growth stage deals tend to be larger, showing the Bank’s programmes are tackling market gaps at both ends of the UK SME equity spectrum.
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 – 50% of our deals between 2017 and 2019 went to technology/IP-based businesses.
Addressing regional imbalances remains core to all British Business Bank activity, with two funds in particular specifically targeting underserved regions. The Northern Powerhouse Investment Fund and Midlands Engine Investment Fund (MEIF) contributed to 16% and 19% of deals in their respective areas.