Equity investment in small UK businesses hit record in 2021

Equity investment in small UK businesses almost doubled in 2021, hitting a record £18.1bn across 2,616 deals

Equity investment into UK small businesses increased by 88 per cent in 2021 to £18.1bn, according to new research.

The British Business Bank’s annual Small Business Equity Tracker report, using data from Beauhurst, found there were 2,616 deals into small businesses in 2021. British Business Bank programmes supported 18 per cent of all announced equity deals in the UK.

UK tech companies fared particularly well over the course of the year, doubling from £4.1bn to £8.2bn. Investment into software start-ups alone more than doubled from £2.3bn in 2020 to £4.8bn.

The analysis also showed a 30 per cent increase in the number of clean-tech deals with £436m invested across 72 deals.

This strong momentum has continued into the first quarter of 2022, with £7.6bn of equity investment reaching smaller businesses, the highest amount invested in a single quarter at nearly double 2021’s first quarter figure of £4.3bn.

One contributor to the growth is the 58 per cent increase in overseas investors, who were involved in equity deals to the value of £13.5bn and amounting to 75 per cent of the total invested in the year. The US ranks the highest for number of deals its investors make in UK companies.

The findings mean the UK retains its position as the largest venture capital market in Europe, larger than France and Germany combined.

But the UK still trails the US which has also experienced a year of record growth. VC investment in the US has nearly doubled in the same period from £128bn to £254bn.

However, Catherine Lewis La Torre, CEO of the British Business Bank, told the Financial Times that the bank would use uncommitted funds to support tech start-ups seeking to raise capital as the economy weakens.

Lewis La Torre told the newspaper that the bank had access to large amounts of “uncommitted capital” that can “respond to market contractions” as needed. She said that international investors “can be flighty” so the BBB could step in to support larger parts of future fundraisings.

Lewis La Torre said: “The UK’s small business equity finance market has continued to grow, achieving a new record last year. The momentum continued in Q1 of this year – a clear sign of investor confidence in UK smaller businesses following the pandemic.

“The UK’s position as a hub for the technology sector is apparent and the growth in clean tech deals shows an increasing investor demand for sustainable businesses to grow. We will continue to provide businesses of the future with the capital they need to start up and thrive in the UK.”

Further reading

HSBC to lend £250m to tech scale-ups

Labour to review support for tech startups

Dom Walbanke

Dom Walbanke

Dom is a feature writer for Growth Business and Small Business, focused on matters concerning start-ups and scale-ups. He has also been published in the Independent, FourFourTwo magazine and various lifestyle...

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