British Business Bank: Scotland’s investor base is most self-contained outside of London
Scotland has the most self-contained investor base outside of London, and one of the UK’s most vibrant financial ecosystems, according to new research published today as part of the British Business Bank’s first annual Regions and Nations Tracker.
However, while Scotland’s 9% share of UK equity deals since 2011 outperformed its 6% proportion of the SME population, its value of private debt investment was just 2%. This imbalance reflects the regional disparities in access to equity finance and private debt across the UK, which are wasting economic potential, the report found.
The Regions and Nations Tracker found that 81% of equity investment stakes in Scottish companies involved an investor within the country, behind only London’s 90% on the same measure and ahead of North East England with 66%. Around one-eighth (12%) of equity investors in Scottish companies were based in London, while 7% were based in other parts of the UK.
Companies in Edinburgh are the focal point of the Scottish equity market, with nearly half (47%) of pairings between businesses and investors based in Edinburgh. Glasgow is the second-highest with16% of pairings. North Lanarkshire and Aberdeen represented 9% and 5%, respectively.
The UK’s uneven distribution of growth finance is not driven by a lack of high growth potential business in certain areas of the country, but by the presence of local investors.
Investors are far more likely to invest in businesses close to their office with 82% of equity investment stakes within two hours of each other and 61% are within one hour of each other. In Scotland, three-quarters (75%) of business-investor pairings were within two hours of each other.
The preference for short distance deals has not been impacted by the increase in remote working due to Covid-19, the data shows only a slight uptick in the mean and median travel time in 2020.
Catherine Lewis La Torre, CEO of British Business Bank, said: “The lower flows of finance in certain regions and localities reflect a population of businesses operating with fewer choices. These gaps in growth finance are undoubtedly holding back ambitious entrepreneurs and lead to wasted economic potential. This is something the British Business Bank is committed to changing.”
Access to growth finance is particularly difficult for rural business owners who are more likely to resort to injecting personal funds into their businesses, especially in the construction sector. The report found 38% of rural construction business owners used personal funds compared to 27% of their urban counterparts. Almost a quarter (23%) of all businesses in Scotland are registered in rural locations.
The Bank remains committed to addressing regional imbalances in access to external finance. 86% of businesses supported by British Business Bank’s programmes are based outside of London, with £943 million invested between 2020 and 2021.
The Bank’s core programmes are supporting £205.3m of finance in Scotland, reaching 4,620 smaller businesses.
Regional fund managers also successfully secured co-investment from other Bank-delivered programmes, such as the Regional Angels Programme and Future Fund, to best support local companies.
Mark Sterritt, UK network director, Scotland at the British Business Bank, added: “Our Regions and Nations Tracker’s findings underline the fact that Scotland has a vibrant and largely self-contained financial ecosystem, with the vast majority of equity investment coming from within the country.
“That said, while the number of equity deals has outperformed Scotland’s share of the UK’s SME population, the level of private debt investment is significantly lower. This highlights the fact that regional imbalances in access to finance still exist and need to be addressed – which is a key part of our role.”