Wales saw the biggest percentage rise in the value of equity deals supporting the growth plans of small firms last year of any UK nation or region – although it has fallen back so far this year, suggests new research the from British Business Bank.
The 2004 Nations & Regions Tracker report from the economic development bank of the UK Government, shows that equity invested into Welsh start-ups and small firms – defined as employing up 249 staff – rose in value by 23% from £86.5m in 2022 to £106m last year.
While the number of equity deals in Wales was down 8% on the year, from 73 to 67, the value rise was driven by a small number of large investment rounds, with three deals accounting for more than 40%.
They were Cardiff-based cyber business Coincover (£24.8m), Cwmbran-based advanced digital advertising specialist Novatiq (£11m) and Cardiff-based payment authentication and verification solutions specialists MyPinPad (£10.4m).
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The fall in the number of equity deals last year in Wales was shallower than for the UK, which was down 25% on 2022. The number of equity deals in Wales accounted for 3.1% of the UK total, compared to 2.5% a year earlier. On value of deals, Wales represented 1.2% of the UK total, significantly up on 0.5% in 2022.
The value of deals for the UK as a whole was down 48%. Growth stage businesses in Wales experienced a doubling of equity deals between 2022 and 2023, while the fall in venture stage deals was considerably lower than the UK average ( minus 4% compared to minus 23%).
However, the British Business Bank, said for the first half of 2024 the number of equity deals in Wales was down 19% on the first half of 2023, with values down 50%.
However, it said this represented a strong upturn in both deal numbers (46%) and value (68%) relative to the second half of last year. There are now a number of active equity funds operating specifically in Wales.
While the Welsh Government-owned Development Bank of Wales has been a long-standing equity investor, the Cardiff Capital Region, through its £50m Innovation Investment Capital Fund (managed by Capricorn) and the British Business Bank’s £130m Wales Investment Fund (managed by Foresight) – of which £50m has been ring fenced for equity – have executed a number of investment deals, with far more in the pipeline.
While not having specific equity funds for Wales, the BGF and LDC are also very much active in the Welsh marketplace.
The tracker report also shows that in 2023, 53% of smaller businesses in Wales were using external finance, up from 37% in 2022. The level in Wales was the highest of any UK nation or region in the UK.
Many smaller businesses in Wales said that economic uncertainty in recent years has had an impact on their investment plans.
While almost half of smaller businesses said in 2023 they had invested in the last three years, 30% felt they had under invested – where more than 1 in 5 (22%) citing economic uncertainty as a key barrier to investing more.
The report also highlights that Welsh businesses were among the most concerned in the UK with two-thirds (66%) saying the trading environment offered more threats than opportunities – above the UK average of 61%.
Wales saw a considerable fall in loans and overdrafts in 2023.
However, the volume of loans and overdrafts approved or increased in Wales per 10,000 smaller firms between 2021-2023 was above the UK average (357 versus 221).
Susan Nightingale, director, UK network, devolved Nations, at the British Business Bank, said: “While we continue to face a challenging economic environment, it is encouraging to see a renewed appetite for external finance among the business community, with Wales leading the way by demonstrating a healthy appetite for a range of external finance options that points to positive signs for economic health and growth.
“It is also heartening to see the equity picture in Wales significantly outperforming the rest of the UK in terms of positive equity activity in an otherwise difficult year for the wider equity market.
“It is our intention to continue to provide support for Wales’ resilient equity landscape via the £130m Investment Fund for Wales, from which £50m has been specifically allocated to deliver equity funding for ambitious Welsh growth businesses.
“The British Business Bank will continue to play a pivotal role in providing smaller businesses in Wales with access to the finance they need.”
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