The British Business Bank’s second annual Nations and Regions Tracker, published today, finds that London continues to dominate the UK equity finance market for smaller businesses.
Q2 2022 data suggests that, despite global economic conditions, equity investment in the UK held up in both number of deals and investment value in the first half of the year. In London, just under £7.8bn of investment across 742 identified deals took place.
Growth in equity markets in London and across the UK
London’s dominance of equity finance markets was seen in 2021 with 1,286 deals worth £11.9bn taking place, representing 66% of investment value and 49% of deals in the UK. This was driven by stronger growth in London compared to the rest of the UK rather than a decline in the other UK nations and regions. Every nation and region outside London except the West Midlands saw increased small business equity investment in 2021 compared to 2020.
Seed stage investment, which is key to building the pipeline of investable opportunities to drive larger quantities of later stage capital investment in the future, increased by 88% outside of London in 2021, whereas in London it fell by 22%.
In London, 38% of all smaller businesses were using external finance in the second quarter of 2022, down from 40% at the end of 2021. Core debt products remain the most used and widely available across the capital.
Investment in net zero sectors has grown faster than overall UK equity markets
Since 2011, £6.9bn of equity investment has gone into net zero-aligned UK smaller businesses across 1,307 deals. In the first half of 2022, £2.7bn was invested across 165 deals in smaller businesses in net zero sectors, representing 22% of investment and 12% of deals during the period.
Net zero equity markets saw London receiving 31% of the deals and 33% of investment since 2011 whilst making up 24% of the business population.
The Nations and Regions Tracker found that equity investment in net zero sectors such as clean tech, electric vehicles, meat substitutes etc, has grown at a faster rate than overall UK equity markets in recent years. The share of deals which are in net zero sectors has grown every year since 2018 rising from 5% in 2018 to 12% in first half of 2022.
Equity finance in net zero sectors is less concentrated in London than the overall equity finance market, with 33% of net zero investment between 2011 and Q2-2022 taking place in London, compared to 63% across all other sectors.
Steve Conibear, UK Network Director, London, British Business Bank said, “London continues to lead the way on equity finance for smaller businesses looking to secure external finance to support their growth.
“Despite the current economic headwinds, it is encouraging that net zero-related investments appear to be growing in London. The British Business Bank will continue to work to ensure that the options and access to finance are available for the capital’s smaller businesses.