Equity investment in Scotland's small businesses soars in 2021 - new report

Equity investment in Scotland’s smaller businesses more than doubled in the first three quarters of 2021, reaching a total of £403 million, new figures suggest.

Total investment values jumped by 141 per cent compared to the first nine months of 2020 and were already 42 per cent ahead of the £283m registered for the full year.

Across the UK, overall equity investment was on track to double from the £8.8 billion seen in 2020, according to new research from the British Business Bank.

The bank’s eighth annual Small Business Finance Markets report also found that there were 147 equity deals in Scotland in the first three quarters of 2021, equating to 8 per cent of the UK’s equity deal activity - higher than Scotland’s 6 per cent share of the business population.

Mark Sterritt, UK network director, Scotland at the British Business Bank.

The report noted that demand for finance in Scotland remains robust, with 30 per cent of smaller businesses surveyed stating they would be happy to use finance to grow. On the supply side, 2021 saw growth in Scotland’s local venture capital sector, with 65 “unique investors” now involved in VC investing, nearly double the 33 identified in 2017.

Despite the upbeat findings, geographic imbalances in finance remain, the bank added, resulting in an “uneven economic landscape” across the UK.

In the October 2021 Budget, the UK government announced £150m to provide a new fund for Scottish businesses, administered by the British Business Bank.

The bank said it would be working with Scottish Enterprise, the Scottish National Investment Bank and local stakeholders to deliver this increased support.

A further £150m for the bank’s Regional Angels Programme, which committed £15m to Edinburgh-based Par Equity in 2020, was also announced in the autumn Spending Review.

Mark Sterritt, UK network director, Scotland at the British Business Bank, said: “Last year saw the Scottish business community focusing on recovery, with both investor confidence and demand for finance picking up accordingly.

“As illustrated in the latest figures, it was a particularly strong year for equity investment in smaller businesses, with the value of deals in 2021 significantly ahead of 2020 by the end of the third quarter.

“This year will hopefully see more of a return to normality and continued economic recovery, which should lessen the impact of debt repayments on smaller businesses. That said, there may be additional economic issues to contend with in the form of energy price increases and supply chain pressures.

“Nevertheless, it is important that smaller businesses at any stage of their growth can access the funding they need to achieve their goals, regardless of their location. We have a range of programmes already in place to address geographical funding gaps and will see that expanded further in due course with a new dedicated fund for Scotland.”

The report also looked at various factors impacting entrepreneurs’ willingness and ability to access finance. It reported that while ethnic minority-led businesses are more open to using finance, they are less likely to obtain it, and twice as likely to see access to finance as an obstacle to running their businesses.

A message from the Editor:

Thank you for reading this article. We’re more reliant on your support than ever as the shift in consumer habits brought about by coronavirus impacts our advertisers. If you haven’t already, please consider supporting our trusted, fact-checked journalism by taking out a digital subscription: www.scotsman.com/subscriptions