The South West saw a surge in equity investment last year while the region is attracting a growing number of venture capitalists, a report has found.
Equity investment in smaller businesses increased by 145% to £360m in the first three quarters of 2021, according to figures published by the British Business Bank.
The state-owned development bank said with one quarter still to go, the rise meant the equivalent total of £185m seen across the whole of 2020 had already been surpassed.
This reflected the national picture, with a total of £14bn invested in smaller businesses across the country during Q1 to Q3 of 2021 - up from £6.1bn for the same period a year earlier and greater than the £8.7bn invested in the whole of 2020.
The number of deals in the South West also increased by more than 50% during the period, with the region attracting 5% of all equity investment deals in the UK.
The bank added that despite the surge in deals investment remained under what it should be for the smaller business population, with the South West home to almost 10% of smaller British businesses.
The report found that while external finance remained highly concentrated in London, attracting 70% during the period, the number of local venture capital investors identified in the South West doubled to 31 between 2019 and 2021.
According to the research less than 30% of businesses in the South West are happy to use external finance to grow, while in London the figure rises more than 35%.
The bank said breaking down regional barriers in access to finance remained “key” to levelling up economic opportunity across the UK, with it set to administer a £200m fund for South West businesses announced in the Government’s Spending Review in October 2021.
Steve Conibear, UK network director for South and East of England at the British Business Bank, said: “As smaller businesses in the South West look to recovery and growth following an incredibly challenging economic period, external finance will continue to play a critical role.
“Regional gaps in growth finance are undoubtedly holding back our ambitious entrepreneurs and economic opportunity. Our programmes will continue to address this and will be expanded further with a new dedicated £200m fund for the South West.”
A further £150m for the bank’s ‘Regional Angels Programme’ - which commits funds alongside other angel investors - was also announced at the Spending Review.
In addition to the growth in equity finance, the report indicated the amount of debt held by smaller businesses had significantly increased compared to pre-pandemic levels, due to businesses accessing the Government’s Covid-19 emergency finance schemes. Smaller business debt stocks were estimated to be 30% up at their peak.
Ethnic minority-led businesses were found by the bank to be more open to using finance and more ambitious for business growth compared to white-led businesses, but access to finance remained an issue.
In 2021, almost half of smaller businesses viewed reducing their carbon emissions or environmental impact to be a priority for their business, while one in five surveyed said they would use external finance to help transition their business to net zero emissions.
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