Starling Bank/Lensi Photography.
Investment in UK smaller businesses ‘almost doubles’ in 2021
Smaller businesses in the UK have attracted record levels of investment according to the British Business Bank, with the tech sector performing particularly strongly.
Investment in UK smaller businesses in 2021 was almost double that of 2020, hitting a record £18.1bn according to research by the British Business Bank.
The figure, which was measured across a total of 2,616 deals, is the highest since business analysis firm Beauhurst began tracking the metric in 2011.
The strong momentum continued into Q1 2022 according to the bank’s research, with £7.6bn of equity investment reaching smaller businesses, the highest amount invested in a single quarter, and nearly double that of the £4.3bn invested in Q1 2021.
Technology performed particularly strongly out of all the sectors the bank looked at.
Investment in UK tech companies rose to £8.2bn in 2021, up from £4.1bn the previous year.
Within the different technology subsectors, investment into smaller businesses in the life sciences sector rose from £800m in 2020 to £1.7bn in 2021, while software deals more than doubled from £2.3bn in 2020 to £4.8bn in 2021.
The research also found that there was markedly increased interest in investing in clean tech, and it recorded a 30% increase in the number of deals in the subsector, with £436m invested across 72 deals.
In addition, the bank found the UK retained its position in 2021 as the largest venture capital (VC) market in Europe, larger than France and Germany combined.
Despite the UK being the European leader in the VC market by investment, it still lags behind the US, which the bank found also experienced a year of record growth.
VC investment in the US has nearly doubled between 2020 and 2021 from £128bn to £254bn.
The bank said the funding gap between the UK and US is primarily driven by varying levels of funding going into research and development intensive sectors with the UK having a lower deal and investment share going to this sector.
The rise in the levels of funding directed at UK businesses comes as challenger banks are coming to represent a larger part of the funding ecosystem, according to statistics which the British Business Bank shared in March.
Challenger and specialist banks accounted for a record share of just over half - 51 per cent - of all UK bank lending in 2021, up from 32 per cent in 2020 according to research from the British Business Bank.
In addition, the research found private debt, asset finance, invoice finance and asset-based lending, and alternative finance all experienced rebounding levels of activity after a “difficult” 2020.