2023 saw companies in the South West region raise £462 million in equity investment, 50% down on the 2022 figures (Annual Investment Report, 2024). It’s no secret economic times are hard, but how is that impacting our local tech sector? And more importantly, how can we remain resilient in the South West?
In honour of techSPARK’s Investment Month, sponsored by Agilebase, we’re investigating how we can stay afloat when times are tough. As a community, there are pockets of resources available that create opportunities and offer support when it comes to acquiring investment. Despite a current challenging climate, if we work together we can still ensure Bristol and Bath’s tech and digital industry is stronger than ever.
Quick look at 2023
To understand the full picture moving forward, it’s worth spending some time looking at the macro outcomes from the past year.
You may have seen, at techSPARK, we launched our Annual Investment Report, made possible thanks to our fantastic partner, TLT. This was an analysis detailing how much equity investment we raised as a sector, who the key players were, and highlighted the organisations currently open for funding.
As I mentioned, figures were down a disappointing 50% compared to 2022. If we assume a slight delay in reporting is likely, similar to previous years, it is expected that the South West will fall in line with the predictions in the Atomico State of European Tech report, which expected 2023 to be 38% down on last year across Europe.
Within South West tech, the single biggest raise was £54m, with the average coming in at £1.33m across 330 raises. When looking at the long-term results, the numbers suggest that we’re returning to pre-covid levels.
Nina Seale, Partner at TLT, says “2023 was a challenging year for UK-based companies, with geo-political and macroeconomic headwinds impacting investor confidence and valuations. National and global statistics for 2023 all point to fewer, smaller, investments being made and taking longer to close. The South West was not immune to these wider trends.”
Our findings align closely with what Beauhurt’s The Deal 2023 recorded. Henry Whorwood, Managing Director Research & Consultancy at Beauhurts explains the national outlook, “Firstly, funding is down. That much you knew already. The number of announced deals is down by a quarter; the amount raised is down by almost a half. It’s a big drop.” Essentially, investment is at its lowest since 2018 across the board.
When it comes to positioning ourselves nationally, The Deal 2023 details that, outside of London, the South West ranked a close 4th place for the overall amount of investment raised. Albeit this is when considering all markets, not just technology.
When it comes to down where the money is being allocated to in tech right now, techSPARK found that there was an encouraging focus on sustainability.
Over 30% of total funding went to Clean Tech, Green Tech, and Net-Zero-based businesses. In other words, organisations that are in some form tackling the climate crisis. Health Tech and Wellbeing took notably high shares, marking £84m of overall equity investment across 45 raises. This drive in the South West will be no doubt thanks to the fantastic support and lab facilities available in the region.
Unfortunately, the outlook wasn’t as promising when it came to real inclusion and diversity. In 2023 just 2.6% of South West equity investment went to companies with fully female founding teams, while 63% of funding went to companies without a single female Director.
For more information on who secured equity investment in 2023, be sure to read the full Annual Investment Report.
The forecast
One thing is for sure – we can expect a shake-up in 2024. With a general election on the horizon, a potential shift in government will shape approaches for the future.
Exactly how things are set to change is pretty unpredictable. Nina says, “As we move into 2024, we don’t expect an immediate reversal of these trends but with the quality of founders and businesses, and the strength of the wider ecosystem in the South West, there are plenty of reasons for optimism.”
Encouragingly, Beauhurst found that there’s still a good appetite for backing early-stage companies. They underscored that the data suggests cleantech, SaaS, and AI will see significant investment in 2024.
Some key information that arose from The Deal 2023 includes insight into what the experts are highlighting for the next year. According to Statista, the global blockchain technology market is expected to grow from $5.9b to $1235b by 2030, and SaaS also has a strong positive outlook after claiming 23% of 2023’s deals and being one of the few sectors that have increased since last year.
Aligning with our own South West findings, Cleantech also swept up nationally. As the government continues to work towards a net-zero 2030, the sector will remain integral and strongly funded. This month also oversaw the announcement of an accelerated rollout of EV charging points across the UK, which will have obvious positive investment results for the industry.
Interestingly, the AI boom from 2022 hasn’t stuck around. The sector saw the lowest amounts invested since 2018. However, this doesn’t necessarily mean people have already lost interest. It is likely just a reflection of the current market, and with the rise of generative AI, we’re confident that investment will see another uptick.
Accessing investment support
So now we’ve got the full picture from looking at the past and future, what is the industry doing in the present?
“Have your elevator pitch in your head and talk to everyone, because you never know who might be able to open a door for you”
Evergreen advice feels like a good place to start. Here at techSPARK, we hold the firm belief that a rising tide lifts all boats. Cliches aside, we pride ourselves on community over competition, which means there is a wealth of free support available to organisations looking to raise finance.
Over the years, we’ve collated a catalogue of investment top tips and pearls of wisdom from a 360 perspective. On our site, you can read advice from founders who have been through the journey, investors offering unique insight & enablers within the investment landscape who facilitate funding in a myriad of ways.
Read on for my collated highlights of all the ways we demonstrate resilience as a community, and follow any rabbit holes it may lead you to.
First things first – talk to people. There is a fantastic network out there full of people who want to help. It’s at the heart of techSPARK’s activity, and you can find such individuals at all and any of our community events (more information on these here).
In a piece our friends at ADLIB put together, which quotes some of the top pieces of investment-related advice from founders who have been there, and done that, Jenny Bailey, founder of Ferryx echoes this sentiment. She tells us, “I think the best piece of advice that I heard, and I have certainly used, is to talk to anybody who will listen. Have your elevator pitch in your head and talk to everyone, because you never know who might be able to open a door for you. Don’t be shy!”
One of my favourite guest blogs was contributed by Stewart Noakes, Entrepreneur in Residence at SETsquared Bristol. As an expert in this space, Stewart shares his 101 for going into your investment journey. If you’re feeling clouded, this is the article for you. “Every investor seems to ask you something different and when you’ve tried to implement the ideas from half a dozen bits of feedback you suddenly can’t recognise your own idea,” says Stewart.
To help provide some clarity on what route to go down, Stewart outlines how to begin thinking about the three core factors: team, product and customers, crafting your story, seeking out investors and taking the plunge.
Inclusive investment
When it comes to ‘inclusive investment’ the data speaks for itself. A staggering vast majority of investment goes to white men. More work desperately needs to be done to get finance to underrepresented groups.
“Between 2009 and 2019, ethnic minority entrepreneurs only received 1.7% of capital”
Two key individuals battling the issue are Ali Kazmi and Amy Newton. Ali founded his business, Ethical Equity, to provide a tangible solution to the problem. Ethical Equity is an online investment platform that champions and supports startups and scaleups that are looking to deliver social, environmental and cultural change, with a key focus on supporting entrepreneurs who are currently underserved.
He was unable to ignore the stark displays of inequality and biases around him, appalled at how some demographics of founders weren’t, and still aren’t, receiving fair access to capital. Ali tells us, “Between 2009 and 2019, ethnic minority entrepreneurs only received 1.7% of capital. Within this 1.7%, black entrepreneurs received 0.24% and black female entrepreneurs within that 0.24% received only 0.02%.”
When speaking with Ali, we learned that one of his biggest barriers in building the business was bringing the reality to people’s attention: “I think it’s so embedded into the system, that people just think that we’re making this up and are simply not aware of the reality,” explains Ali. “When I tell an impact investor the statistic about ethnic minorities only accounting for 1.7% of investments, they are really taken aback by the information.”
Similar to this, Amy, Founder of Newton’s Theory & Inclusive Angels, outlines, “Women-founded startups raised just one 1.9% of all VC funding in 2022. And that was a drop from 2.4% in 2021. The data is clear. And it’s shocking. And it’s not shifting up. If now’s not the time to make change then when is?”
If you’re seeking Angel Investment, read the writeup of this informative discussion, featuring women who have been on their own varying journeys.
Amy encourages more underrepresented groups to get involved with investment where they can, even if it’s very small to begin with. It’s time to rewrite the narrative, ensuring anyone in a viable financial position considers the option to become an angel investor, especially if they don’t already fit the stereotype.
Silicon Gorge
It wouldn’t be right if we didn’t highlight our very own investment programme in this article. As a core pillar of techSPARK, we have spent a fair few hours dedicated to supporting startups through their investment journeys and providing resources for investors to connect with potential organisations.
The techSPARK Investment Activator is designed to support companies that are raising equity investment in the South West. Through this work, we hope to increase the flow of capital into the region by putting the spotlight on the great companies that are here and bringing investors together to network, share and learn.
A key piece of activity we carry out to facilitate this is Silicon Gorge. Applications for this will open on 4 March, but you can find out some more information first here. In case you’re not familiar, Silicon Gorge is a pitching competition that culminates in an Investor Showcase, this year taking place on 4 June. It shines a light on the best early-stage startups in the region all looking for between £100k – £2m.
Alumni of Silicon Gorge include Immersive Labs and Huboo, who raised £68m and £60m in 2021 alone, plus many others who have raised millions since they pitched: Lettus Grow, KETS Quantum Security, Yellowdog, TravelLocal, Virti and Neighbourly to name just a few.
Aside from equity investment
Rocketmakers highlights that only 14% of businesses in the South West look beyond their bank manager for funding to help them grow. Perhaps this was down to previous investment booms, meaning organisations haven’t needed to consider alternative options to raising finances in recent times. Will we see a change in this stat after a few years on a downward trend?
In her analysis, Briony Phillips outlines, “The Scaleup Institute’s most recent survey, published in November 2022, highlights some interesting patterns when it comes to seeking external funding. 82% of scaleups use external funding but 5 in 10 don’t think that they have the right types of funding in place to support their growth ambitions.”
With equity investment falling, it’s more important than ever for businesses to consider other methods. Here’s a quick rundown of the options and the resources that can help you make these decisions.
Government grants
Grant funding can be a great way of getting a project off the ground. If you’re unfamiliar, grant funding is typically a sum of money given by one entity (e.g. company, foundation, or government) to an individual or company to facilitate a goal or boost performance. This comes in two types: Capital grants and Research & Development grants.
Non-dilutive funding (meaning you retain equity within your business) can significantly accelerate project time frames and markedly reduce a product or service’s time to market, beating the competition and establishing first-to-market status.
If you’re about to go down this route, make sure to check out this article from the Grantedly’s writing team, highlighting the four key areas to help you develop your grant fundable project.
Crowdfunding
The Deal 2023 found that crowdfunding accounted for 373 rounds last year, totalling £432m. This type of finance has gained traction in the past ten years, rising from just £18.1m in 2013
The popular platforms for this include Kickstarter, Seedrs and Crowdcube, the latter of which was founded here in Bristol. It works by getting smaller amounts of finance from large groups of individuals. For crowdfunding that operates on a donation basis, the company does not need to pay back investors. However many companies offer incentives for early backers such as an advance copy of the product.
Debt investment
We spoke to Matt Browning, Head of Investment at Creative Growth Finance to learn more about this often overlooked option. In summary, he tells us, “‘Debt’ can be a scary word for a business seeking investment, but – just like equity, debt has its place.
“The yin to equity’s yang, debt is a form of finance that has been maligned through the years thanks to associations with everything from the credit crunch right through to mortgage rate hikes.
“Debt is an investment that must be paid back with commercial returns, which normally means interest.” There are three types of debt: secured, unsecured and venture.
Matt identifies the key advantages to debt investment as knowing exactly how much you’re going to repay, and that this financial discipline often results in enhanced resilience (which makes you more attractive to future investors). Do check out the full article for more information.
Crucially in this piece, Matt emphasises that it’s rarely beneficial to view anything in binary perspectives, an investment is no different. More than ever, tech businesses should be looking at the full spectrum of options available. Whilst there may be huge differences in the approach to raising capital, it’s not just a case of one or the other. For many businesses, a combination will be key. For even more routes, check out Briony’s full blog on Rocketmakers.
In conclusion
The economy may not be in its best state, but we can remain optimistic as a tech sector. As long as our community mindset stays intact, there will continue to be various ports of call for founders seeking investment to grow their businesses.
We’re excited to see how investment trends for 2024 pan out – hopefully this year we’ll see a move towards a more equal distribution in finance, and continued support in tech for good businesses.
As always, keep your eyes out for more investment news and insights across techSPARK, such as this piece on the five Bristol-based Innovate UK award winners!
