South East businesses most reliant on London for equity investment

News Posted 11/10/21
The South East of England hosts 16% of the UK’s smaller businesses but accounts for just 10% of equity investment and 17% of private debt activity, the British Business Bank’s first annual Regions and Nations Tracker reveals.

By contrast, London accounts for 62% of all equity investment and 35% of private debt activity despite hosting only one in five (19%) of the UK’s smaller businesses.

The UK’s uneven distribution of growth finance is not driven by a lack of high growth potential business in certain areas of the country but by the presence of local investors.

Investors are far more likely to invest in businesses close to their office - in 90% of equity investment stakes in the South East (and 82% across the UK) between 2011 and 2020, the investor and company are within two hours of each other.

Despite this high proportion, median travel times are higher than many other regions due to the reliance of the South East on London-based investors.

In fact, almost seven in ten (67%) equity stakes in South East businesses involve London-based investors. This proportion is higher than anywhere else in the country, making the South East the most London-reliant region.

Just 17% of equity investors in the South East were based within the region, predominantly in Oxford and 16% came from elsewhere in the country.

Smaller businesses benefiting from equity investment in the region are concentrated in Oxford and the adjacent Vale of White Horse local authority, with 27% of investor-company relationships in the East of England involving a company based in either Oxford or the surrounding Vale of White Horse area. Oxford also features in the top 20 local authorities for equity deals secured since 2011.

Steve Conibear, UK network director, South and East of England at the British Business Bank, said: “The disparity between the flows of finance in certain regions and localities across the UK reflect a population of businesses operating with fewer choices.

“These gaps in growth finance are undoubtedly holding back ambitious entrepreneurs and lead to wasted economic potential. This is something the British Business Bank is committed to changing.”

Access to growth finance is particularly difficult for rural business owners who were more likely to resort to injecting personal funds into their businesses in 2020, especially in the construction sector. The report found 38% of rural construction business owners used personal funds compared to 27% of their urban counterparts.

The report argues that investors with a local presence are critical to the success of UK equity ecosystems. The data shows a clear positive correlation between equity deals per high-growth business, and the strength of the local investor base.

In the South East, the British Business Bank supports £826.1m of finance to 8,554 smaller businesses through its core programmes.

The Bank remains committed to addressing regional imbalances in access to external finance. 86% of businesses supported by the British Business Bank’s programmes are based outside of London.

Between 2020 and 2021, the Bank invested £943m into businesses based outside of London (exceeding its original target of £868m).

Across its Regional funds, record deployment was recorded this year principally due to a strong second half of 2020/21, providing a £357m flow of finance into regional finance markets in 2020/21.

Regional fund managers also successfully secured co-investment from other Bank-delivered programmes, such as the Future Fund, to best support local companies.

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