Credit, Collections & Insolvency News
Equity finance provision for SMEs fell sharply in the second half of 2022, according to the British Business Bank (BBB).
The BBB said 2022 was a tale of ‘two halves’ with a record level of investment in businesses in the first two quarters followed by a decline driven by concerns about potential overvaluations and a lack of sale opportunities, as well as rising interest rates and inflation.
The analysis shows there was a 47% decline in investment in the second half of the year compared with the first. This has carried into 2023, with a 28% drop in investment in Q1 compared with Q4 2022. Overall, equity finance for UK SMEs in 2022 was down 11% compared with the previous year, hitting £16.7bn, while the number of deals declined by 7%.
The downturn reflects venture capital (VC) fund managers reducing their dealmaking activity and focusing more on business fundamentals, to compensate for the rapid capital deployment in previous months.
Growth stage investment declined by 25% to £8.2 billion in 2022 and was 54% 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% drop in investment value compared with the last quarter of 2022.
Louis Taylor, CEO, British Business Bank, said “2022 proved to be a year of two halves for small business equity investment, with record levels of finance raised over the first two quarters of the year, followed by a 47% decline in total investment during the second half. This decline reflected concern about the overvaluation of deals, and the effects of higher inflation and rising interest rates.”
“However, there are still some bright spots that can be drawn from this year’s report, in particular levels of investment in university spinouts and breakthrough technology sectors. While it is still too early to tell the full scale of the downturn in investment, the UK’s broad and advanced equity finance markets are well placed to support recovery.”