Equity investment in the UK small business sector hit a record £8.8bn in 2020, according to research.
This investment drive into small businesses continued in the first three months of 2021, when a further £4.5bn was raised. This was the highest amount ever recorded in a single quarter, according to a report by the state-owned British Business Bank (BBB).
Nearly half of last year’s total equity investment into UK smaller businesses was in the tech sector.
The figures highlight the widening split in Britain’s small-business economy. Thousands of small companies struggled during the lockdown, forced to close or unable to trade fully in sectors such as hospitality, retailing and travel. Yet tech-driven businesses such as those involved in home delivery or Software-as-a-Service (SaaS) boomed as people worked from home.
And the average value of a UK growth stage company, defined as a business with multiple offices and substantial revenue streams, reached £100m in 2020 – up 92 per cent year on year.
For growth-stage tech companies, the valuation was even higher at £124m – an increase of 102 per cent.
But the real explosion was seen in investment in so-called “deep tech” businesses, those employing AI and data, which hit £2.3bn in 2020– up 291 per cent since 2015, according to BBB’s Small Business Equity Tracker. Deep tech accounted for 22 per cent of all UK venture capital deals in 2020.
Ian Connatty, managing director of BBB subsidiary British Patient Capital, said the investment boom demonstrated “investor confidence in UK tech”.
Conratty said: “This increase has been primarily driven by a small number of large, competitive investment rounds. These are most obviously seen where new unicorn companies have been created.”
However, Conratty said the figures showed a paucity of UK investors writing large cheques for later stage funding rounds in the UK. In 2020, according to a report by Tech Nation, the majority of capital for venture growth funding rounds came from overseas, primarily North America. The UK is the third largest pension market in the world, yet makes the smallest allocation to alternative assets, such as venture capital – 8 per cent versus the average of 26 per cent for large, mature pension countries.
To help correct this imbalance, British Patient Capital will shortly launch Future Fund: Breakthrough, which will invest £375m in deep tech and R&D-intensive companies.