The UK is now outgrowing the US in terms of investments as a percentage – but only because it’s starting from such a small base. Things may be going in the right direction, but not sufficiently to justify a great level of excitement.
The British Business Bank has just published new data on funding for small companies in its annual Small Business Equity Tracker report. This shows that in the last two years, the UK equity investment market has grown by 72%, with smaller businesses attracting a record £6.7bn in equity finance, the highest amount on record; 44% of total UK equity investment went to companies in the tech sector.
Yet investment of £6.7bn is a paltry figure when compared to even the most cautious of reports (Bain) putting US investment in the $100bn – $200bn for the same category of businesses. The simple reality is that US investors have a far greater appetite for risk and benefit from more developed and competitive debt and equity markets. In addition, US investors generally show a greater appreciation of the challenges involved for a business to scale up and, importantly, the need to reward executives and founders for their success.
European investors, in my experience, by and large, seem to begrudge entrepreneurs making money from their own ventures – which can only act as a deterrent to management and dampen small business growth.
With these caveats, the UK picture is improving. At every stage of business growth, total investment values increased – up by 4% for seed stage businesses, 10% for venture and 2% for growth stage businesses. Deals are also getting bigger in size, increasing every year since 2013.
The British Business Bank also notes that London’s dominance as the centre of the UK’s equity market is diminishing. During 2018 the value of equity finance investment outside of London increased by 29% (£616m), to total £2.8bn, with the greatest increases in the east and north-east of England, and West Midlands.
Parabellum Investments has, for many years, invested in companies in the technology sector outside London, and clearly see the potential there. More broadly however, the UK – and indeed the rest of Europe – must do more to boost the appetite for investment in smaller companies if it hopes to ever emulate the successes of the US. In order to do this though, the issue rests more broadly with government (fiscal) policy and social attitudes to making money. A successful (read wealthy) business person will be lauded in the US but is often demonised in Europe.