Equity investment in UK small businesses fell by 11 per cent in 2022 to £16.7bn, driven by worsening market conditions.
Following a record year in 2021, the volume of investment deals also fell by 7 per cent to around 2,700, according to the latest figures from economic development agency British Business Bank.
This decline has accelerated into the first three months of 2023, during which £2.2bn was raised by UK small businesses – a 28 per cent drop in investment compared with the last quarter of 2022.
Worse, growth stage investment – investment in fast-growth, mainly tech companies – fell by 25 per cent overall to £8.2bn in 2022 and was 54 per cent lower in the second half of the year compared with the first.
The British Business Bank has blamed the lack of exit opportunities via trade sales or public listings for the precipitous decline, as growth-stage investors hung on to cash.
However, university spinouts – tech startups arising out of academic research – raised the highest amount of equity finance on record, totalling 12 per cent of all UK equity investment during 2022, and totalling £2bn.
The average deal size for university spinouts was £8.9m, which was 33 per cent higher than the wider SME market.
Louis Taylor, CEO of British Business Bank, said: “Last year proved to be a year of two halves for small business equity investment, with record levels of finance raised over the first two quarters of the year, followed by a 47 per cent decline in total investment during the second half. This decline reflected concern about the overvaluation of deals, and the effects of higher inflation and rising interest rates.
“However, there are still some bright spots that can be drawn from this year’s report, in particular levels of investment in university spinouts and breakthrough technology sectors.”
Catherine Lewis La Torre, CEO of British Patient Capital, added: “The data highlights the fragile operating environment for companies as they navigate a tough economy and a more challenging route to accessing growth capital.
“However, there remain a number of bright spots with a record year for university spinouts, growth in life sciences, and green shoots of the next generation of technology – including cleantech, which bucked the wider market trend.”
More on small business funding
6 funding options for growing your business – We look at six funding options for growing your business. What is available and which option is right for you? Vicki Taylor explains
Alternative business funding for small businesses – UK SMEs collectively missed out on £3.6bn of funding from traditional lenders in 2021
