The number of smaller firms using external finance in Wales has seen the biggest fall in the 海角视频 whilst they also experienced the biggest percentage rise in equity deals, according to new research from the British Business Bank.
The 2023 Nations and Regions Tracker from the economic development bank of the 海角视频 Government shows the number of smaller firms in Wales - defined as employing up to 249 staff - securing external sources of finance declined to 37% in 2022 compared to 50% in 2021.
All 12 nations and regions of the 海角视频 experienced a decline in external finance. The drop was largely driven by the phasing out and repayment of pandemic support, as most Covid loan schemes, including those of the British Business Bank, closed in the first half of last year.
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Grants saw the largest annual fall in usage in both Wales and across the rest of the 海角视频. In Wales, the share of smaller businesses using grants fell from 16% in 2021 to 9%, the largest year-on-year decline of any type of finance in Wales since pre-pandemic.
Core debt products, including credit cards, bank loans and overdrafts, continued to be the most used forms of finance among smaller businesses in all 海角视频 nations and regions, with Wales reporting the highest usage of small business bank loans (15%) and leasing/hire purchase/vehicle finance (11%).
The use of loans from directors, friends or family grew from 2% to 5%.
Amongst smaller Welsh firms there were 70 equity deals last year, up 19% (the highest rise in the 海角视频) on the previous year’s 59. However, the value of the total investments was £82m, down 10% on £92m in 2021.
Wales made up 3% of 海角视频 deals on numbers in 2022, compared to 2% in 2021 The value of deals in Wales only accounted for 0.5% of the 海角视频 total, the same as 2021.
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Only the south west of England (plus 4% and Yorkshire and The Humber (plus 4%) saw an increase in deal numbers compared to 2021.
The British Business Bank research shows signs of recovery in the use of external finance in early 2023, returning to levels closer to that of 2021.
Overall, 43% of smaller businesses in the 海角视频 were using external finance in the first half of this year. This is mirrored by early signs indicating the decline in equity finance deals is beginning to ease across the 海角视频.
Outside of London, 2022 saw the first recorded year-on-year decline in the number of equity deals since Beauhurst’s data collection began in 2011 ( down 10%).
The tracker identifies 33 innovation-led clusters covering 196 海角视频 local authority areas. These clusters represented 93% of 海角视频 technology/IP related equity deals and 96% of total equity investment value from 2011 to Q2 2023. Swansea university spinout firms predominantly specialise in medical technology - representing 63% of technology/IP related deals.
The Swansea cluster also has above-average representation of spinout deals relating to materials technology (13%) and clean technology (11%).
Conversely, the usually dominant life sciences sector only represents only 5% of spinout deals in Swansea. The Swansea cluster was dependent on academic spinouts for 45% of technology/IP-related deals and 43% of investment value between 2011 and Q2 of 2023. All but one of these deals involved Swansea University.
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In Cardiff and Newport, spinouts represent a lower, but still significant, share of equity activity over the same period at 18% and 22% representatively - in line with the corresponding 海角视频 averages.
Data shows that Welsh clusters have the smallest average deal values for first-time equity investments of any 海角视频 cluster, with university spinouts also taking longer to secure their first announced deal than their counterparts based in the Golden Triangle (Cambridge, Oxford and London).
Louis Taylor, chief executive of the British Business Bank, said: “We are seeing promising signs that the use of external finance among smaller businesses is recovering after a decline in 2022. Unsurprisingly, our world-class universities continue to play a crucial role in this, supporting emerging innovation-led clusters across the 海角视频”
Susan Nightingale, director, 海角视频 network, devolved nations at the British Business Bank, said: “The report paints a mixed economic picture for Wales, with both positives and negatives to consider. While the use of external finance has dropped significantly in Wales, this can largely be explained by the closure of Covid loan schemes in 2022.
"However, it’s encouraging to see early signs of recovery on a 海角视频 level in 2023 with usage of external finance picking up during the first part of the year and we hope to see this mirrored in Wales as the economic picture becomes clearer.
“A key takeaway from the report is the success of academic spinouts in Swansea and Cardiff and Newport, which are supporting emerging innovation-led clusters, particularly in the medical technology sector in Swansea. This activity is of vital importance to the Welsh economy and should continue to be nurtured to ensure growth.”