British businesses turn to private capital as total investment reaches record high
- Total investment in UK businesses up more than 80 per cent YoY to £17.3bn
- 9 in 10 UK companies receiving private investment in 2021 were SMEs
- BVCA calls on HM Treasury to ensure that private capital can continue to support UK companies
British businesses are increasingly turning to private capital to grow, with the total amount invested in UK companies by private equity and venture capital rising to an all-time high, according to a new report published today.
Research by the British Private Equity and Venture Capital Association (BVCA) - which looked at the economic contributions of more than 200 of its members - found that the total amount invested across all stages of the business life cycle, from venture to buyout, grew by more than 80 per cent in 2021 to £17.3bn. The amount of growth capital invested in UK companies had risen by 75 per cent to £3.89bn.
Of the 1,320 businesses which received funding, nine in ten were small or medium-sized, showing the importance of private capital to the UK’s entrepreneurs and start-ups. Year-on-year, venture fundraising increased by 30 per cent, showing the increasing investor interest in backing firms which invest in the earlier stages of a business lifecycle.
With new hubs of innovation developing across the country, the report found that almost two-thirds of businesses receiving investment were outside London – and nearly two-thirds in every pound invested in 2021 was also outside the capital.
The new figures offer further evidence of the value of private equity and venture capital to the UK economy and follow an EY report published earlier this year which found that the industry contributed over £200bn to the UK economy, or 5 per cent of UK GDP.
As the Chancellor prepares to give the annual Mansion House speech, which addresses the direction of the UK’s financial services sector, the BVCA is calling on HM Treasury to ensure private capital can continue to invest in, and grow, British businesses. In a letter to the Chancellor, the BVCA outlined three core issues for the Treasury to prioritise.
The BVCA believes that support for new sources of UK capital, additional efforts to promote innovation and ensuring access to international talent these will encourage increased commitment to businesses right across the UK, which in turn are creating jobs, generating economic and social value for the communities they operate within, and innovating to address pressing societal issues such as climate change.
BVCA Director General, Michael Moore, said:
The story of private capital investment in 2021 is one of continued growth and success, demonstrating the industry’s readiness to support British businesses, enabling them to innovate, grow, and create jobs right across the UK. It is a valuable and mainstream part of the economy and an industry which, as in previous economic downturns, has maintained active investment in the companies it supports and spent more time with them to address operational and financial considerations.
“As we face the increasing instability and uncertainty in 2022, we look forward to the government continuing to support the industry to invest through providing access to new sources of UK capital , a strong innovation agenda and access to the talent it needs.”
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Notes to editors
1. Accessing and unlocking new funds for investment
To ensure UK companies have access to start, scale and grow, from venture capital investments to start ups to private equity investments into larger businesses, they must have access to sufficient levels of capital. This can be achieved by allowing Defined Contribution (DC) pension schemes to invest in private equity and venture capital by removing well-designed performance fees and carried interest from the charge cap and addressing the risk rating rules in Solvency II which restrict UK insurers from investing into private capital. Reforms here will provide more capital for businesses, as well as increase returns to UK pension savers.
In addition, preserving an internationally competitive UK tax system is essential to maintaining the UK’s success in attracting international capital and talent. The BVCA also calls on the Government to renew the 2015 Finance Bill sunset clause on EIS/VCT tax relief and review the schemes for improvement to provide certainty for future investment into early-stage companies, the uncertainty around the future of these tax schemes is already impacting investment decisions.
2. Encouraging and fostering growth and innovation
The UK has some of the world’s greatest universities and research centres. Progress has been made in recent years, but the Government should go further to build closer relationships between universities, angel investors and venture capital firms, to ensure that university spinouts can raise capital quickly and have the best funding ecosystem available to grow companies. As these businesses scale, the British Business Bank should have more equity funding available to support them, encouraging them to stay and grow in the regions they started out in.
Investment funds that focus on R&D-intensive sectors should also be able to receive further support or funding through government schemes to improve the access to capital required to grow businesses in areas such as deeptech and life sciences, and those innovating to combat issues like climate change.
A further step would be to amend legislation so that Enterprise Management Incentive options can be utilised by more SMEs including those backed by private equity and venture capital.
3. Developing, maintaining and protecting talent
To ensure the long-term success of British business, as well as the private capital industry, a stable pipeline of talent needs to be protected. Visa schemes must be simplified to increase the speed of overseas recruitment so private capital firms, and the companies they invest in, can easily access the talent they need to grow and succeed.
The Government must also continue to fund and promote government-supported initiatives such as the Investing in Women Code, Rose Review and the women-led high-growth enterprise taskforce, to ensure more women and people from diverse backgrounds and ethnicities are represented.
Data sources and methodology: The BVCA collects data from members on an annual basis covering fundraising, investments and divestments in each calendar year. In 2021 we received responses from 202 members out of a total eligible pool of 269 members, a response rate of 75%. For comparison, in 2020 we received response from 194 members out of a total of 264 who were eligible.
Further information on the data and methodology used in the report can be found on page 19. The BVCA has published a detailed chartbook to accompany Growing Great British Businesses, available here. An excel pack featuring the data used in the chartbook is available for download here.
About the British Private Equity & Venture Capital Association
The BVCA, as the representative body for private equity and venture capital, connects institutional investors, fund managers, companies, advisers and service providers together, with our membership currently comprising more than 700 businesses from across the private capital ecosystem. This includes more than 325 PE and VC firms, 100 institutional investors and 220 professional services firms.
Private capital drives growth – providing the funding, expertise and long-term view that enables companies to innovate and flourish. Our mission is to advocate the transformative nature of the private equity and venture capital community.
