Small firms renew appetite for equity investment
Smaller businesses have renewed their appetite for equity investment with equity investment on track to double from the £8.8 billion seen in 2020.
The British Business Bank’s eighth annual Small Business Finance Markets report, published today, found there were 147 equity deals in Scotland in the first three quarters of 2021.
The £403 million invested was more than double the same period a year earlier and equates to 8% of the UK’s equity deal activity – higher than Scotland’s 6% share of the business population.
Last year saw growth in Scotland’s local venture capital sector, with 65 unique investors now involved in venture capital investing, nearly double the 33 identified in 2017.
Despite the positives seen in Scotland, geographic imbalances in finance remain, resulting in an uneven economic landscape across the UK.
In the October 2021 Spending Review, the government announced £150 million to provide a new fund for Scottish businesses, administered by the British Business Bank. The Bank will be working with Scottish Enterprise, the Scottish National Investment Bank and local stakeholders to deliver this increased support, with further details to be announced in due course.
A further £150 million for the Bank’s Regional Angels Programme, which committed £15 million to Edinburgh-based Par Equity in 2020, was also announced in the Spending Review.
Mark Sterritt, UK network director, Scotland at the British Business Bank, said: “Last year saw the Scottish business community focusing on recovery, with both investor confidence and demand for finance picking up accordingly.
“As illustrated in the latest figures, it was a particularly strong year for equity investment in smaller businesses, with the value of deals in 2021 significantly ahead of 2020 by the end of the third quarter.
“This year will hopefully see more of a return to normality and continued economic recovery, which should lessen the impact of debt repayments on smaller businesses. That said, there may be additional economic issues to contend with in the form of energy price increases and supply chain pressures.”
In addition to the growth in equity finance, the report indicates that UK debt markets overall are returning to near pre-pandemic levels. Challenger and specialist banks accounted for just over half of the bank lending market (51%) – a record share, up from 32% in 2020.
The amount of debt held by smaller businesses has significantly increased compared to pre-pandemic levels due to businesses accessing the government’s Covid-19 emergency finance schemes.
At their peak in March 2021, smaller business debt stocks were estimated to be 30% up. Encouragingly, however, debt repayments are becoming a smaller share of businesses cash flow as UK economic recovery helps boost their turnover.