Small Business Equity Tracker 2023

Key findings:

UK small business equity finance declined by 11% to £16.7bn in 2022, driven by a downturn in market conditions in the second half of the year which has continued into 2023

• After a strong year in 2021, the number of equity finance deals fell by 7% in 2022. While a record level of investment was raised over the first two quarters in 2022, there was a 47% decline in total deal value during the second half of the year.
• The market downturn is continuing into 2023 with only £2.2bn invested in Q1, the lowest first quarter total since 2018.
• London accounted for half of UK equity deals in 2022 and 65% of total investment value. Most nations and regions saw a decrease in the number of deals in 2022.

There are still some bright spots in specific areas of the market, including record investment in university spinouts and cleantech companies

• University spinouts raised £2bn of equity finance in 2022, the highest amount on record and 12% of total UK investment during the year. Deals received by these companies were also 33% larger on average than across the wider market.
• The cleantech sector bucked the trend of the wider market, with equity investment in this area increasing by over 50% to £0.9bn.

The UK has scaled a number of technology sectors through its VC ecosystem, with Life Sciences a leading deeptech example

• Over £10.5bn in VC investment was raised by UK life sciences companies during 2020-22, more than Germany, France and Canada combined. While the UK is the third largest VC market in this sector, a gap remains with the US as the global leader, and the UK requires more late stage and specialist capital in order to address this.

Looking at future opportunities, the UK can capitalise on its leading position in nanotechnology but requires larger deals in space technology

• Global VC investment growth in the nanotechnology sector is high, at over 130% comparing 2020-22 with 2017-19, yet the UK is outpacing this growth with an increase in funding of over 220% across the same period. The UK is comfortably the third largest market in the world, accounting for 13% of VC investment in 2020-22.
• The global Space Technology industry is increasingly being disrupted by VC-backed start-ups, with a 223% increase in VC finance when comparing 2020-22 and 2017-19. While the UK accounted for a significant 7% share of global deals in 2020-22 (behind only the US and China), it requires larger round sizes to keep pace with international competitors.

British Business Bank equity programmes supported around 13% of all equity deals between 2020 and 2022

• The Bank’s equity programmes supported around 13% of all equity deals, and 15% of total investment between 2020 and 2022.
• During 2020-22, 48% of Bank-supported deals were in the tech sector, compared to 42% of deals across the wider market. This focus on tech investment is one of the reasons why the Bank has a larger proportion if its deals in London (50%) than the wider equity market (48%).
• University spinouts accounted for 12% of Bank-supported equity deals during 2020-22, compared to 9% across the wider market.