Good news and bad for Britain’s entrepreneurs. The positive story is that their businesses attracted buoyant amounts of investment during the first quarter of the year – though final figures are not yet available, private businesses are already ahead of both 2018 and 2017 for sums raised. Less happily, however, smaller and younger businesses appear to be finding the going much tougher than their larger counterparts.
Analysis from Beauhurst, the market researcher that specialises in tracking private companies, shows that by 19 March, privately-owned companies in the UK had raised £1.94bn worth of investment since the beginning of 2019. That is the best performance since the second quarter of last year, when such companies raised £2.2bn – and well ahead of the first quarters of 2017 and 2018 when they raised £1.25bn and £1.42bn respectively.
The data is reassuring given the extremely volatile background against which businesses have been seeking investment. In many areas of the UK economy, Brexit-related uncertainty has prompted businesses and investors to put spending plans on hold. Indeed, official statistics show business investment as a whole has slumped in recent months. That privately-owned businesses have been able to continue attracting capital is therefore to be welcomed.
However, the detail in Beauhurst’s data is more worrying. It reveals that the first-quarter investment total of £1.94bn was accounted for by just 193 deals. That was the lowest figure since Beauhurst began tracking deal numbers at the beginning of 2017. In the fourth quarter of 2018, for example, private companies concluded some 412 deals; in the first quarter of last year, deal numbers reached 392.
In other words, while investment appears to be robust, we are seeing fewer capital raisings but much larger deals, with the bigger companies taking a disproportionate share of the funding that is available.
Beauhurst divides the universe of companies it tracks into four groups, according to their size and maturity: seed, venture, established and growth businesses. Of these, the largest and most mature companies, the growth businesses, accounted for around £1bn of the funding raised during the first quarter. By contrast, seed companies, the earliest-stage businesses, raised only £151m.
This breakdown is worrying. It suggests that investors’ reaction to the uncertain environment may have been to pull back from funding younger and smaller businesses. While the largest private companies continue to attract good support, early stage companies are doing much less well.
Beauhurst’s data also suggests that investment is not spread evenly across businesses operating in different sectors and industries. Of the 10 largest transactions during the first quarter of the year, no fewer than seven were investments in FinTech companies. It appears that businesses from beyond the FinTech universe are struggling to get a look-in.
Beauhurst itself describes the data as “a great validation of the UK’s young and ambitious businesses in the face of Brexit uncertainty”. There’s some truth in that – the headline figures will come as a relief to those who feared Brexit anxieties might result in a freeze in capital-raising. Still, the detailed data is worrying – if smaller and younger businesses continue to struggle to pick up funding, that would be a depressing trend.