The British Business Bank (BBB) recently published the latest of its annual Small Business Equity Tracker Report. CEO Keith Morgan again reiterated what we already know; “Often, outside equity investors can bring expertise and guidance as well as finance – a combination that, if offered at the right time, can be the key to unlocking rapid growth for companies looking to expand, diversify, or enter new markets. A vibrant and healthy equity finance market to support smaller businesses can therefore make a key contribution to the success of the UK economy.”
The publication reports what it characterises as a ‘bounce-back’ in the number and value of equity deals in 2017 from a relatively weak 2016. Overall investment value in the market almost doubled from £3.1 billion in 2016 to £5.9 billion in 2017, which the BBB sees as reflecting investor confidence in the growth prospects of the investee businesses. It states, “This is a positive sign that the UK is rising to the challenge of supporting companies with the potential to become global leaders.”
The analysis specifically pinpoints the importance of equity finance, “for companies developing and commercialising new technologies, which often require investors to be patient with their capital before returns can be fully realised.” This is clearly not lost on investors with the technology and IP based business sector receiving the most deals and investment in 2017, similar to previous years and the amount invested in the sector reaching the highest recorded level of £2.1bn in 2017.
As a global leading centre for innovation as evidenced by the UK being ranked in the top 5 in the Global Innovation Index, 2017, the UK technology sector is undoubtedly strong. Software continues to form the largest technology sub-sector, with 367 deals in 2017 (£1.2bn).
The most active of these investors are Private Equity/ Venture Capital (PE/VC) investors. They were involved in 596 equity deals in 2017, a 21% increase from 2016 and continue to be the most active type of investor in 2017 in terms of number of deals participated in. PE/VC investors are particularly active in seed stage deals (defined as young companies being set up or been in business for a short time but have not yet made any commercial sales), where they form approximately 30% of the market by number of deals. In the venture stage, (companies that have been in existence for a few years and are in the process of a gaining market traction with sales growing rapidly) PE/VC investors make up 43% of the deals.
While seed stage deals formed just 13% of the market in 2017, the long-term trend has been for it to increase its share over time from 6% in 2011. This is also a positive development, showing equity markets are better able to support early stage companies.
All of this supports Oxford Capital’s ventures strategy of identifying young, generally technology-focused companies with the potential for strong growth. They display the potential of building on their best of British qualities to become global-leaders. And they benefit from our business expertise and ongoing backing as milestones of success are met and surpassed.
For more information about Oxford Capital’s venture capital strategy, click here.