Will the Investment Fund for Wales help address Wales' equity problem?

Equity investment into smaller businesses has declined to levels last seen in 2020, driven by falls in growth stage investment. In Wales the number of equity deals fell by 14% in 2023. And the investment value dropped by 49%. However the Welsh equity market may take some solace from the fact that Wales is at least tracking above the national average, where deal numbers fell by 29% and investment value by 53%.

These figures are taken from the British Business Bank’s newly published Small Business Finance Markets Report 2024, which provides a timely and comprehensive review of finance markets for smaller businesses.

The downturn in the Welsh and wider UK equity markets follows record levels of activity in 2021, however the middle of 2022 marked a clear turning point in the market. The most recent data has confirmed the continuation of this downward trend through 2023, as investment has now reverted to levels last seen in 2020.

For balance, it should be noted that 2021 and 2022 were outlier years for equity markets, and 2023 is showing more typical investment levels. Total funding in 2023 is on track to reach a similar full year total to 2019 and 2020. While this can be interpreted as a return to longer term trends from the highs of 2021 and 2022, deal activity now has to support a larger pipeline of companies than four to five years ago. Not to mention larger expectations.

Looking specifically at Wales, there were 48 announced equity deals in Q1 – Q3 2023 (3% of UK wide total) with an investment value of £94.2m (1% of UK wide total). These percentages may look small but in terms of deal numbers they largely mirror the size of the Welsh SME business population as a percentage of the UK whole. However, their diminutive numbers also mean that continued decline in Welsh equity deals and values risks the market deteriorating further.

Enter the £130m Investment Fund for Wales (IFW). Launched in late November 2023 the IFW is designed to unlock additional funding to help smaller businesses access the finance they need to grow and thrive. It includes a range of finance options with loans from £25,000 to £2 million and, crucially an equity element worth £50m that offers equity investments up to £5 million, specifically designed to stimulate Wales’ equity landscape.

That’s £50m going straight into a market that in Q1 – Q3 2023 was worth £94.2m - that’s a huge influx of investment and one that will go a long way to addressing Wales’ equity problem.

Led by fund manager, Foresight, the equity element of the IFW has already made its first investment, less than two months post launch, into Caerphilly based online adventure travel firm, EverTrek. The £1.3m investment into the firm that offers a range of high-altitude treks including Mount Everest in Nepal and Machu Picchu in Peru has already created five new skilled jobs and will also be used to expand the selection of tour experiences across the globe. That’s direct and immediate impact.

And there’s several more equity deals already in the pipeline that the Bank will be announcing soon. Ultimately, investment into the Welsh economy on this level is the kind of change we need for Wales to not only reverse the current downward equity trend, but also for us to start turning over the volume and value of deals that will increase the numbers of home grown high growth, high value sectors and companies, that will drive economic growth on a wider nation impacting scale.