South West bucks national trend with increase in number of equity deals in 2022 - but actual investment is down

The South West was one of just two English regions to see an increase in equity deals in 2022, with three deals a week completed on average with a total value of more than half a billion pounds.

The British Business Bank’s annual Small Business Equity Tracker, published today (Thursday), shows that 155 equity deals were completed in the South West last year, an increase of four per cent.

Yorkshire and The Humber and Wales were the only two other nations or English regions that saw an increase in deal numbers.

Read more: British Business Bank expands Start Up Loans programme with new partners

Overall deal value in the South West was down by almost a third (32 per cent) to £540 million following a record year in 2021, which included several £50 million-plus deals.

Nationally there was an 11 per cent decline in total UK investment value to £16.7 billion, driven by a downturn in market conditions.

The total number of UK deals also saw a modest decline of seven per cent, falling from 2,912 in 2021 to 2,702, the first annual drop in equity deal volumes since the Beauhurst data series began in 2011.

Steve Conibear, UK network director, South West said “In the South West deal volumes held up well compared to nationally, but values fell, reflecting the wider market.

"Encouragingly however, the Bank’s geographically focused programmes are playing an important role in increasing access to SME equity finance. Our regional fund in Cornwall and Scilly supported a third of all equity deals in that area in 2022 and we will shortly launch our £200m South West Investment Fund.

"This is the first of our £1.6 billion Nations and Regions Investment Funds and covers the whole of the South West, offering equity investments of up to £5m.”

The downturn reflects venture capital fund managers reducing their dealmaking activity and focusing more on business fundamentals, to compensate for the rapid capital deployment in previous months.

Nationally, growth stage investment declined by 25 per cent to £8.2 billion in 2022 and was 54 per cent lower comparing the first and second halves of the year.

A key reason for this has been the lack of exit opportunities via trade sales or public listings, causing investors to avoid larger deals as they attempt to preserve their capital.

This overall trend has continued into the first three months of 2023, during which £2.2 billion was raised by UK small businesses – a 28 per cent drop in investment value compared with the last quarter of 2022.

A record year for university spinouts: University of Bristol and Falmouth University perform

The creation of spinout companies is an important avenue through which founders and universities can commercialise cutting edge academic research.

The development and increasing financing of these spinouts highlight the important role they play in creating high growth, innovative companies in the UK.

University spinouts received a record 12 per cent of total equity investment in 2022, at a value of £2 billion.

The average deal size for university spinouts was £8.9 million, which was 33 per cent higher than the wider market.

Of all equity deals in the UK in this year, eight per cent were in university spinouts, totalling 226 deals.

The South West saw 12 spinout deals worth £33.8 million. This included deep tech firm FocalPoint with offices in Bristol and Cambridge, which raised £15m to develop its GPS navigational technology.

University of Bristol spinout QLM Technology raised £12m to develop a new type of camera that can see and accurately quantify greenhouse gas emissions.

Cleantech investment strong in the South West

While tech companies continue to receive the majority of UK equity finance, overall investment value in the sector fell by 11 per cent in 2022.

Certain sub-sectors still experienced investment growth during the year, despite the decline in overall small business equity finance.

The cleantech sub-sector in particular bucked the trend of the wider market, with equity investment in this area increasing by over 50 per cent to £0.9bn.

Read more: One in two South West smaller businesses sought external finance over the last three years, finds latest British Business Bank research

In the South West cleantech companies received £7.1 million over eight deals in 2022.

This included a £1 million investment in Gloucester-based Wild Hydrogen which converts biomass into clear hydrogen and carbon dioxide.

And in Cornwall marine engineering business Triskel Marine in Hayle secured £3.2 million including £1 million from the bank’s Cornwall and Isles of Scilly Investment Fund to grow the market for its power efficiency technology.