Small businesses receive a record £6.7bn in equity funding
Last year, the UK’s small businesses received a record £6.7bn in equity funding, with regional VC funding on the increase. But SMEs are increasingly wary of investing in themselves, according to latest CYBG research
Small businesses received a record £6.7bn in equity funding in 2018, a 5pc increase year on year.
The average deal size was £4.5m, an 11pc increase compared with 2013.
The UK’s white-hot tech sector received 44pc of small business equity funding. Backing for tech businesses increased by 24pc in 2018 with £3bn invested, the highest amount to date.
Small business equity funding outside London increased by 29pc as the capital’s influence as an SME hub waned. The East of England, North East and West Midlands were the three regions driving this regional uptick, where equity finance investment deal sizes grew by 118pc, 115pc and 81pc respectively.
Several UK regions also saw a significant increase in the overall number of deals – up by 65pc in the North East, 15pc in Yorkshire and Humber and 11pc in Wales.
Keith Morgan, CEO of British Business Bank, said: “We are particularly pleased to see a 29pc 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.”
Indeed, the UK venture capital sector grew faster than the US for the first time ever. The UK had 570 VC deals close per £1trn of GDP, 18pc higher than the US, which had 482.
One criticism of the UK VC funding scene is that Britain has fewer funding rounds than America, so scale-ups cannot keep growing; this is no longer the case, according to the British Business Bank‘s annual Small Business Equity Tracker report.
Although the total number of equity finance deals fell last year, it could be argued this is good news: investors are putting money into bigger, more established businesses with greater chance of becoming fabled “unicorns” – ultimately valued at $1bn or more.
The overall value of funding increased at every stage of funding found: up for 4pc for seed-stage businesses, 10pc for venture and 2pc for growth-stage businesses.
However, the increased appetite for investors putting equity into small businesses was not matched by entrepreneurs borrowing money themselves.
Between July and September 2018, the value of outstanding loans and overdrafts to SMEs fell by almost a billion pounds, according to the latest CYBG SME Health Check Index. The survey suggests many firms remain reluctant to over-extend themselves given the climate of political and economic uncertainty.
The SME Health Check Index fell by 6.6 points to 48.5 in the first quarter of 2019, the lowest level for a year but higher than the 44 low point; with GDP and employment both slowly increasing, there are grounds for cautious optimism, despite persistent low confidence among British SMEs, says the report.
That said, six regions bucked the downward gloom trend: the East Midlands, East of England, North East and Wales all increased with Yorkshire and the Humber enjoyed the strongest confidence boost of 5.5 points to 53.8.
Liverpool has been the standout city for setting up a small business over the past four years, with the number of new businesses growing by 38pc compared with a national average of 18pc.
Gavin Opperman, group customer banking director at CYBG, said: “The latest SME Health Check Index paints a picture of resilient SMSs despite low confidence and a reluctance to borrow.”
- Written by Timothy Adler in smallbusiness.co.uk