The Development Bank of Wales has reported a big fall in its equity investment activity but with its debt provision was able to exceed its job created and safeguarded target in its last financial year.
The bank, which is wholly-owned by the Welsh Government, made equity investments with a collective value of £12.2m in its last 2023/24 financial year, compared to £22.9m a year earlier. The number of equity deals was down from 50 to 35. The value and number of deals was slightly up on 2021/22 when it executed 32 deals with a value of £11.58m, but that was during the pandemic which impacted deal activity.
While deal numbers and investments levels were down for the 海角视频 as a whole - although based on a different reporting period with the 2023 calendar year - the decline in number and on value were slightly higher for the development bank.
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As part of a review of all Welsh Government business support, including the development bank, new Economy Secretary Jeremy Miles is keen to see greater equity investment levels, including into start-up firms and backing graduate entrepreneurship.
The development bank now has active competition on the ground in the Welsh marketplace for equity with two publicly funded Welsh specific competitor funds from the Cardiff Capital Region (managed by Capricorn with advisory support from PwC) and the British Business Bank (managed by Foresight).
Launched last year, both funds have pots of £50m and have already made a number of investments. While not having funds specifically for the Welsh marketplace, the BGF and LDC are very much active and looking to execute more equity investment deals to support the growth of Welsh firms.
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The level of co-investment on development bank equity deals in 2023-24 was down from £114.5m to £50.1m, although the previous year’s leverage investment level was boosted by the fundraising activities of Creo Medical.
On angel investment activity alongside the development bank, its Angels Investment Wales network, increased its number of angel investors from 102 to 119. The network also grew investment levels on 2022/23 by 38%. While the value of its equity investments were significantly written down for its 2022-23 financial year, its return from exit deals in 2023-24 rose by almost a third from £4.2m a year earlier to £5.3m.
The development bank’s accounts for 2023-24 have yet to be signed off and will be published in the autumn. During the year 430 different businesses benefited from 491 investments - both debt and equity - totalling £125.2m. This generated £50.1m of private sector co-investment, while 4,406 jobs were created or safeguarded against a target of 3,779.
The average deal size increased to £254,977 and the bank recorded its largest ever strategic funding deal in January this year as part of a syndicate with co-investor Barclays for Bluestone Resorts in Prembrokeshire. The ESG syndicated facility has enabled Bluestone to continue with a major sustainable investment programme, including the development of a five hectare solar farm.
The bank also provided 82 micro loans totalling over £8.1m, with an average transaction size of £28,900 to help small businesses start-up and grow, as well as £22m of debt and equity for 55 companies to help finance management buy-outs and keep established businesses in Wales. It also provided £8.8m for 31 innovation and technology companies
Mr Miles said: “With every year since its inception, the Development Bank can count hundreds more businesses based across Wales amongst its success stories. From medtech to fintech, leisure to semi-conductors and everything in between, the breadth of their support today is testament to the way in which they have grown since 2017.
“These results highlight the important role the development bank plays in helping businesses at different stages of their development and growth get the finance they need. In this year’s reporting, I was particularly struck by the 4,406 jobs which were created or safeguarded as a result of the bank’s support, comfortably exceeding their target for the year and demonstrating the tangible benefits that the right support can bring to both our businesses and our communities.”
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The bank’s current chairman Gareth Bullock will stand down in September after nine years in the role. He will be succeeded by Sally Bridgeland.
The bank’s chief executive Giles Thorley said: “The results for 2023/24 represent solid progress against a backdrop of continued economic pressure and challenging conditions affecting the supply and demand for finance across the 海角视频.
“The situation is no different in Wales which is why we will continue to be agile in responding to demand, promoting finance as a great enabler of business growth and work in close collaboration with the private and public sector to increase the flow of funds in Wales. With 3,000 customers and an ever growing remit, we’ll keep striving to maintain delivery excellence, delivering debt and equity funding with a social impact to drive economic development in Wales.”
In giving evidence to an ongoing review of the development bank by the Senedd committee for economy, trade and rural affairs, umbrella body of the fintech sector, Fintech Wales, said the bank needs a more venture capital approach to its equity investment activities and that it lacks “the capability to understand potential value.”
Based on a survey of its members, its evidence to the cross-party committee added: “The Development Bank of Wales (DBW) need to place some high-risk equity investments each year and not decline investments based solely on valuation or because they’re pre-revenue or pre-profit or might take a long time to deliver ROI (return on investment).
“Many of the most successful businesses in the world started without revenue or profit for extended periods.
“The overall approach is risk averse which stifles innovation and the true potential of Welsh startups. DBW positions itself as a VC (venture capital provider), however, its actions fall short and are often not attractive compared to other VCs. Term sheets were quoted as requiring fairer market terms. Currently terms could often make it untenable for businesses to do a further raise, and are a risk to inexperienced founders. Valuations were felt to be frequently undervalued.”
Outgoing chair Mr Bullock said: “Our performance is testament to the resilience and commitment of the entrepreneurs who need our funding to start and grow their businesses.
“Despite the continuing difficulties in the 海角视频 and global economy, we’ve come a long way since we established the Development Bank of Wales in October 2017. These annual results show that we’re now a major force in the Welsh economy and a centre of excellence for SME finance and investment. I am proud of all that we have achieved during the last year and throughout my term as chair. I thank everyone who has played a part in our journey to date.”