Perhaps the best-known form of companies using equity is listing on a stock exchange through an initial public offering (IPO). The flotation of Calnex, the telecommunication test and instrumentation provider, in October 2020 marked the start of a new wave of activity, following a two-year period where no new Scottish companies were listed.
Since then we have seen a number of other companies follow, with AMTE Power; Parsley Box; and The Artisanal Spirits Company, owner of the Scotch Malt Whisky Society, all making their market debuts. That’s not to mention the crowdfunding campaigns undertaken by the likes of TC BioPharm, Pawprint, and Celtic Renewables – to name a few – in the last 12 months.
The growing appetite for using equity among some of Scotland’s larger businesses also appears to be reflected in smaller companies too. Equity finance can be a great source of funding for companies with significant growth potential and it is highly encouraging that more companies are exploring it as an opportunity, in a marked and positive departure from past trends.
Since 2016, according to our Small Business Equity Tracker Scotland’s share of small business equity investment deals has more than doubled, from representing 5% of the UK total in 2016 to 12% in 2020. Total investment reached £284 million, and the early signs are that in 2021 momentum has continued, with another £90.9 million of equity investment in small Scottish companies.
With that, Scotland now ranks highest in the UK outside of London for equity deals involving small businesses. There were 242 announced equity deals in Scotland during 2020, compared to 965 in London – the top location – and 188 in the South East, which was third. Not only has the level of interest increased, but the 12% figure is double Scotland’s 6% proportion of high-growth businesses.
Part of the resurgence in demand for equity finance is Scotland’s burgeoning tech sector, which accounted for 44% of equity deals among smaller businesses last year – at a total value of £124 million. In fact, the number of deals in Scotland’s tech sector grew by 16%, exceeding the UK’s 12% increase.
Within the broad church that is tech, Scotland’s life sciences sector has been particularly well represented receiving £44.6 million of equity investment in 2020. Scotland accounts for nearly one-third, 31%, of the UK’s equity deals involving smaller life sciences companies in 2020.
Tech’s growing role is indicative of its increasing influence and prominence in the Scottish economy and its future prospects. However, the UK and Scottish Governments have also played an important role in stimulating equity activity, supporting more than two-fifths, 42%, of announced equity deals for small businesses last year.
However, all of this does need to be tempered by the fact that Scottish business accessed a comparatively low share of total investment value, at just 3%. This suggests they may not be raising all the finance they need to continue on their growth journey and, with that, leaving untapped potential in their businesses.
There are a range of options available to businesses of all sizes and one of our main aims is to raise awareness among small businesses of the options available to them. The British Business Bank provides a range of initiatives, including our Regional Angels programme and Enterprise Capital Funds, while Future Fund: Breakthrough, has just launched this summer.
Nevertheless, recent IPO and crowdfunding activity, combined with the increasing number of smaller businesses raising equity finance suggests strong opportunities ahead for Scotland’s small businesses as they look to recover from the effects of the pandemic.
Mark Sterritt, UK Network Director - Scotland at the British Business Bank