Yorkshire and the Humber small business equity investment activity drops after strong 2022

The British Business Bank’s Small Business Finance Markets 2023/24 report highlights a drop in small business equity investment across Yorkshire and the Humber, following a strong year for the region in 2022.

The region experienced a decline in small business equity investment in Q1-Q3 2023, with the number of equity deals declining by 36 per cent to 49. The value of investment also dropped, declining by 42 per cent to £129.5m over the same period.

However, this comes at a time when the investment gap between London and the rest of the UK is closing. In Q1-Q3 2023, the capital accounted for 46 per cent of all equity deals, a drop of four percentage points from the same period in 2022.

While Yorkshire and the Humber accounted for only 3 per cent of all small business equity investments in Q1-Q3 2023, the Northern economy as a whole fared better with 12 per cent of all UK deals completing across the region.

The region has also benefitted from the investment opportunities created by the Northern Powerhouse Investment Fund, which delivered over £445m of direct and private co-sector investment into 552 businesses, helping to create nearly 4,300 jobs across the Yorkshire and Humber region. Despite investment activity slowing down across the nation, the Bank remains committed to the small business community in Yorkshire and Humber by launching its new Northern Powerhouse Investment Fund II (NPIF II), a £660m fund set to cover the North of England.

The national picture

Across the UK, smaller businesses raised £6.5bn of equity finance over the first three quarters of 2023, 53 per cent less than during the same period in 2022. After two exceptional years, this brings such investment to around the level it was in 2020, still the fourth-highest year on record. While there was a sharp decline in activity in the second half of 2022, investment now appears to be stabilising at around £2bn per quarter in 2023.

Later stages of the UK equity finance market have continued to experience the largest reductions in investment. Growth-stage investment in the first three quarters of 2023 was £2.4bn, 65 per cent lower than the same period in 2022. Venture and seed stage investment fell by 43 per cent and 31 per cent in 2023, respectively.

The growth stage was the main driver of market expansion over 2021 and the first half of 2022, and subsequently has also experienced the largest drop in both percentage and absolute terms since market conditions have worsened from the second half of 2022 onwards.

Dr Sophie Dale-Black, Director, North of England, UK Network at the British Business Bank, said: “In what has been a more uncertain year for the UK economy, this has clearly had an impact on smaller business equity activity. As with most regions, this was the case with Yorkshire and the Humber, which saw both number and value of equity deals decline in 2023. Despite this, last year was a particularly strong one for Yorkshire and the Humber, at a time when many other regions faced continued decline, so there are still signs of optimism.

“The new £660m Northern Powerhouse Investment Fund II is also set to launch in March. As a key part of the wider Northern economy, it is essential that we continue to support the region’s small business ecosystem. We’ve already seen the impact regional funds can have in areas like Yorkshire and the Humber, helping businesses to flourish. The British Business Bank is therefore well positioned to continue supporting the regional economy.”

To read the Small Business Finance Markets report visit: https://www.british-business-bank.co.uk/research/small-business-finance-markets-report-2024/