South West equity deals down amid national slowdown, reveals British Business Bank report

• The South West saw 82 equity deals completed in Q1-Q3 2023, a 33% drop compared to the equivalent period in 2022. Nationally the number of deals fell by 29%.
• South West deal value was also down by 51% to £187.5m in the same period, but in line with the national picture.
• The South West made up 5% of deals taking place in the UK, putting it in the top five regions outside London.
• Although declining to levels last seen in 2020, equity investment is still high by historic standards.
• Bank’s £200m South West Investment Fund focused on increasing the supply of equity finance to smaller businesses in the region.

The British Business Bank’s Small Business Finance Markets 2023/24 report, published today, shows a continuing fall in small business equity investment across the South West, in line with the national picture.

In the first three quarters of 2023, 82 equity deals were completed in the region. This is a 33% drop compared to the equivalent period the year before, and in line with a national fall of 29%.

The value of deals in the region also fell, by 51% to £187.5m in the same period, slightly less than the national fall of 53%.

But despite these falls, equity investment is still high by historic standards and during the period was 8% higher in the UK than the equivalent period in 2020. And the South West was still ranked in the top five regions outside London for the volume of deals, accounting for 5% by number in the UK. London still dominates with 46% of all deals in Q1-Q3 2023.

Last year, the British Business Bank launched its £200 million South West Investment Fund to increase the availability and supply of finance to all parts of the region. The fund offers loans ranging from £25,000 to £2 million and equity investments up to £5 million and is part of the Bank’s commitment to fostering sustainable economic growth by supporting businesses across the South West.

The national picture

Smaller businesses raised £6.5bn of equity finance over the first three quarters of 2023, 53% less than during the same period in 2022. After two exceptional years, this brings such investment to around the level it was in 2020, still the fourth-highest year on record. While there was a sharp decline in activity in the second half of 2022, investment now appears to be stabilising at around £2bn per quarter in 2023.

Later stages of the UK equity finance market have continued to experience the largest reductions in investment. Growth-stage investment in the first three quarters of 2023 was £2.4bn, 65% lower than the same period in 2022. Venture and seed stage investment fell by 43% and 31% in 2023, respectively.

The growth stage was the main driver of market expansion over 2021 and the first half of 2022, and subsequently has also experienced the largest drop in both percentage and absolute terms since market conditions have worsened from the second half of 2022 onwards.

UK equity finance has matured over the last decade, becoming deeper and with a greater range of investors able to support companies at all stages of their development.

Smaller business use of finance increases in 2023

The use of external finance by smaller businesses saw a consistent rise over the year, growing from 41% in Q1 to 50% in Q3 2023. The rate of this increase indicates a growing need for finance to support cash flows, with a greater reliance on credit card (up 8% points) and overdraft finance (up 6% points). Businesses in the South West saw a 11% point increase in credit card use and 7% increase in overdraft use between Q1 2023 and Q2 2023, well in excess of the national increase of 4% points and 2% points respectively. Working capital was the main reason for seeking finance for 58% of smaller businesses in 2023, up from 53% the year before.

Commenting on the latest Small Business Finance report, Steve Conibear, UK Network Director, South West at the British Business Bank, said: “Despite the falls we have seen in number and value of equity deals across the region from the unusual highs of 2021 and 2022, this has been in line with national trends and overall the market is still exceeding pre-pandemic levels. With the launch of the British Business Bank’s South West Investment Fund last year we have significantly increased the availability of equity finance in the region and we are already seeing the difference this is making in the local market.”

To read the Small Business Finance Markets report visit: https://www.british-business-bank.co.uk/research/small-business-finance-markets-report-2024/