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Wales boosts investment value by 23% in 2023, defying UK downward trend

Susan Nightingale, Director UK Network, British Business Bank

The total value of announced equity deals in Wales increased by 23% in 2023 compared to the previous year, however the number of deals fell by 8% for the same period.

The data is reported in the British Business Bank’s annual Small Business Equity Tracker, published today, which reveals that investment declined by 48% to £8.8bn in 2023 for the UK as a whole, in line with other equity markets, while the number of deals fell by 25% to 2,152.

Equity deal numbers fell across all devolved nations and regions in 2023, although activity in Wales was the most resilient with a fall of just 8%, followed by the East Midlands with a decline of 9%.

Despite Wales’ drop in deal numbers, the increase in investment value was largely driven by a handful of high value deals during 2023, with the top three deals accounting for over 40% of Wales’ total investment in 2023. These three deals were Cardiff-based cyber business Coincover (£24.8m), which specialises in Blockchain defence; advanced digital advertising specialist Novatiq (£11m), based in Cwmbran, and Cardiff-based payment authentication and verification solutions specialists MyPinPad (£10.4m), part of Licentia Group Ltd, which the UK Government’s Future Fund, administered by the British Business Bank, has held an equity interest in since July 2023.

With the launch of the £130m Investment Fund for Wales (IFW) at the end of last year, equity investment in Wales will be further supported throughout 2024. Designed to unlock additional funding to help smaller businesses access the finance they need to grow and thrive, the IFW includes a range of finance options with loans from £25,000 to £2 million and, crucially an equity element worth £50m that offers equity investments up to £5 million, specifically designed to stimulate Wales’ equity landscape.

A third of Wales’ equity deals supported by government funding  

In 2023 government funds supported 33% of all announced equity deals in Wales, showcasing the government’s significant contributions in making equity finance available to small businesses across devolved nations.

Overall, local and national government funds supported 14% of all announced equity deals across the UK in 2023.

Outside London, Cardiff leads fintech investment share in UK

Cardiff accounted for a 0.8% share of European venture capital (VC) investment in the fintech sector between 2014 and 2023. The data shows that Cardiff is almost four times more competitive in fintech than it is for all sectors combined. Compared to other sectors, Cardiff accounted for 0.1% of European VC investment in R&D intensive sectors and 0.1% in life sciences.

Equity investment for smaller businesses returns to 2019 levels across the UK

Following the market downturn in the middle of 2022, equity investment for smaller businesses has returned to 2019 levels.

This has also been the case in other markets, where a tighter macroeconomic environment and heightened interest rates continues both to affect the relative attractiveness of the asset class and hamper exit opportunities for UK companies. However, equity investment for smaller businesses has remained at over £2bn in each of the last five quarters, demonstrating some stability in the market.

While the equity market has seen two consecutive years of contraction, investment values have increased by 182% over the last 10 years, with deal numbers 42% higher. Since 2014, more than 21,000 equity deals have been completed, collectively providing over £90bn of equity finance to support the growth of innovative smaller businesses.

Susan Nightingale, Director, UK Network, Devolved nations at the British Business Bank, said:

“As has been the case globally, 2023 was a tough year for the UK equity finance market. However, despite the continued challenges of higher interest rates and fewer exit opportunities, it is encouraging that investment now looks to be stabilising at over £2bn per quarter for smaller businesses.

“The UK has also become the third largest venture capital market in the world, overtaking India, and is the largest market in Europe, accounting for more than a third of investment across the continent. This demonstrates that the UK is building on its position as a global leader in venture capital, and this presents a substantial opportunity for both domestic and international investors.

“The picture in Wales is more positive than elsewhere, with equity deal numbers remaining resilient despite taking a dip, and investment value rising. As we move through 2024, the recent launch of the Bank’s £130m Investment Fund for Wales will continue to boost economic growth by providing a range of commercial finance options, including equity investments of up to £5 million.”