As this column has stated on many occasions, access to equity investment is a crucial engine for business growth, innovation, and economic development. For many start-ups and scaling businesses, securing external finance is often the difference between success and stagnation.
Unfortunately, a recent study has suggested that in Wales, the flow of investment has been dwindling, raising significant concerns about the long-term health of the business ecosystem. Despite strong entrepreneurial ambition, particularly in innovation-driven sectors, access to funding remains a persistent challenge.
The latest Small Business Finance Markets Report from the British Business Bank confirms what many in the Welsh business community have known for a long time namely that equity investment in Wales is on the decline. It shows that over the first three quarters of 2024, the number of equity deals in Wales fell by 14%, while the total value of investment plummeted by 46%.
This decline is sharper than what has been observed in many other parts of the 海角视频, where investment values have increased in some regions despite fewer deals being completed.
Indeed, half of the 海角视频’s nations and regions actually experienced an increase in investment values. London, the East Midlands, North East England, Scotland, the East of England, and North West England all attracted more funding, even as the overall number of deals declined.
This suggests that while confidence in early-stage investment remains fragile, money is still flowing—it’s just not coming to Wales. London continues to dominate the 海角视频 equity finance landscape, accounting for 46% of all 海角视频 deals and an astonishing 63.4% of total investment value (£4.4bn). By contrast, Wales, along with Northern Ireland and the West Midlands, received just 3.6% of 海角视频 equity investment.
This disparity highlights a fundamental challenge namely, that geography remains a critical determinant of investment access. Welsh businesses with high-growth potential are being overlooked in favour of companies clustered around London’s financial ecosystem.
The importance of supporting innovation is also laid bare in the report, with data showing that in Wales, 54% of innovation-active businesses sought or secured external finance in the past three years, compared to just 18% of those not engaged in innovation.
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This is the widest gap in the 海角视频 and demonstrates the need for a greater focus on supporting technology and knowledge-based firms.
This phenomenon is not new, and longer-term data also paints a concerning picture. For example, according to the British Private Equity & Venture Capital Association, while Wales accounted for 4.4% of all equity-backed companies in the 海角视频 between 2013 and 2023, it received only 0.5% of the actual funds invested.
Even more stark is the fact that the average deal size in Wales was just one-tenth of the 海角视频 average. This highlights a systemic issue namely that businesses in Wales are not just securing fewer deals, but when they do, they receive significantly less funding compared to their counterparts elsewhere in the 海角视频.
Given that the Development Bank of Wales has been responsible for 70% of all equity deals in Wales between 2013 and 2023, one must ask whether the Welsh Government-owned body is limiting the funding available for Welsh businesses to grow and whether their valuations reflect this.
The fact that the public sector dominates the equity market in Wales is concerning, and some have expressed fears that it is crowding out potential private venture capital investments.
And it is worth noting that earlier this week, Cardiff-based tech venture Nisien.AI was backed in the first co-investment between the Development Bank of Wales and the British Business Bank’s £130m Investment Fund for Wales (IFW). While there may be reasons for structuring the investment this way, many will question why two government-owned funds had to come together to support this excellent business and why no private venture capital funds were involved.
Of course, the decline in equity finance isn’t just a challenge for individual businesses. As I have said many times before, it is a structural issue that policymakers, investors, and business leaders need to address. Having worked with Welsh businesses for over a quarter of a century, I know better than most that we have no shortage of ambitious, innovative companies but without access to capital, their potential will remain untapped.
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So, what’s the solution? To reverse the decline in equity investment, Wales must attract more institutional and angel investors who are willing to back businesses at all stages. While additional funds from the British Business Bank are welcome, there is clearly a significant gap in supporting innovative firms in Wales.
In particular, there needs to be stronger connections to London-based investors, who still control the lion’s share of 海角视频 equity finance. Whether this is done through a new standalone private fund in Wales or through greater access to funders in London, without such action, high-potential companies in Wales will continue to struggle to secure the funding they need to scale.
At the same time, policymakers must prioritise innovation-active businesses, given their heavier reliance on external finance. There must be a concerted effort to ensure that the 海角视频 government’s push for patient capital and long-term investment strategies extends beyond London, ensuring Welsh companies receive a fair share of available resources.
We all want the Welsh economy to succeed, but it is clear that if Welsh businesses continue to struggle to secure the growth capital they need, the gap between Wales and the 海角视频’s growing regional economies will widen even further.
There is no shortage of ambition among Welsh entrepreneurs - all that’s needed now is the capital to turn that ambition into reality.