British Business Bank paints grim picture of regional investment market
The British Business Bank is painting a grim picture of the regional investment market ahead of the announcement of a new phase of the Northern Powerhouse Investment Fund later this month.
A Small Business Finance Markets 2023/24 report highlights a sustained drop in small business equity investment across the North West, following a nationwide slowdown.
The report highlights what it describes as a decline in small business equity investment in Q1-Q3 2023, with the number of equity deals in the region declining by 27% to 88, compared to the previous year.
Value of investment also saw a considerable drop, declining by 67% to £175.3m over the same period, the report says.
However, Dr Sophie Dale-Black, UK Network Director for the North of England at British Business Bank, praised the resilience of the small business community and said: “It has been a slow year for investment activity across the whole of the UK, with small business equity activity declining nationally. However, it is promising to see that the North West has completed the third largest number of equity deals in the UK outside of London. The North West region is resilient and has a strong small business community, and this further demonstrates the pace at which the region is developing as it continues to strengthen the Northern and national economy.
“The new £600m Northern Powerhouse Investment Fund II is also set to launch in March. As one of the fastest growing regions outside of London, the North West plays a huge role in the assembly of not just the wider Northern economy, but also the national economy. The new fund will allow the British Business Bank to continue this vital work in supporting the regional small business ecosystem.”
The North West also seen a decline in equity activity between 2021 and 2022. However, this comes at a time when the investment gap between London and the rest of the UK is closing. In Q1-Q3 2023, the capital accounted for 46% of all equity deals, a four percentage points drop from the same period in 2022.
The North West accounted for 6% of the UK’s total equity investment activity, the third highest proportion outside the capital. Across the Northern economy, investment activity made up 12% of all UK small business equity investments.
The Northern Powerhouse Investment Fund has played a key role in bringing investment opportunities to businesses in the region. The Fund has delivered over £570m of direct and private sector co-investment into 608 businesses in the North West creating close to 3,500 jobs since it launched in 2017. Despite investment activity slowing down across the nation, the Bank remains committed to the small business community in the North West by launching its new Northern Powerhouse Investment Fund II (NPIF II), a £660m fund set to cover the North of England.
Across the UK, 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.
