North West set for record year of equity investment

Sophie Dale-Black

Equity investment in the North West is set to hit a new record this year.

That is the view of the British Business Bank’s eighth annual Small Business Finance Market 2021/22 report published today (March 1).

The investment value of equity deals across the region was 275% up in the first three quarters of 2021, against the same period a year previously.

Today’s report showed that there were 112 investments in Q1-Q3, up 33%, worth £692m, which far exceeds the £270m of investment in the region in the full year of 2020.

The North West also shows a strong demand for finance, with 32% of smaller businesses surveyed in the report saying they would be happy to use finance to grow.

During 2021, there was strong growth in the local venture capital sector. Investors now involved in venture capital investing present in the region nearly doubling from 27 in 2017 to 49 in 2021.

Proximity between investors and small businesses was identified as a key factor within equity investment.

Sophie Dale Black, UK network director for the North at the British Business Bank, said: “The findings of this year’s Small Business Finance Markets report in the North West are really encouraging.

“Not only are we seeing the region’s resilience, but there is a clear appetite for growth as seen by the stellar increase in equity investment which is set to have seen a record year in 2021.”

She added: “There is work to be done, continuing to break down barriers to access to finance remains key to levelling up economic opportunity. Through our programmes, the British Business Bank will continue to support the country’s smaller businesses by improving access and options to secure external finance.”

In the October 2021 Spending Review, the Government announced a further £660m for a successor fund to the Northern Powerhouse Investment Fund (NPIF) delivered by the British Business Bank. Since launching in 2017, NPIF has directly invested more than £300m into 952 businesses across the North of England, alongside an additional £400m of private sector co-investment, taking its total delivery to more than £700m.

A further £150m for the Bank’s Regional Angels Programme was also announced at the Spending Review. The programme has made commitments worth a combined £30m to North West based investors, Deepbridge Capital and Praetura Ventures within the past 12 months.

Today’s report also showed that UK debt markets, overall, are returning to near pre-pandemic levels. Challenger and specialist banks accounted for just over half of the bank lending market (51%) – a record share, up from 32% in 2020.

The amount of debt held by smaller businesses has significantly increased compared with pre-pandemic levels, due to businesses accessing the Government’s COVID-19 emergency finance schemes. At their peak in March 2021, smaller business debt stocks were estimated to be 30% up. Encouragingly, however, debt repayments are becoming a smaller share of businesses cash flow as UK economic recovery helps boost their turnover.

The report also looked at various factors impacting entrepreneurs’ willingness and ability to access finance. It reported that while ethnic minority-led businesses are more open to using finance, they are less likely to obtain it, and twice as likely to see access to finance as an obstacle to running their businesses.

Among female-led businesses, appetite for external finance has significantly increased to 31% in Q2 2020-Q2 2021, but remains lower than for male-led businesses at 39%.

Another finding in the report was that in 2021 almost half (47%) of smaller businesses viewed reducing their carbon emissions or environmental impact to be a priority for their business.