Valuations of technology companies have started to fall in the UK, according to the head of the state-backed British Business Bank, which is preparing to use its funds to help support start-ups in the face of economic headwinds.
Equity investment in UK small businesses rose 88% to £18.1bn in 2021, according to a BBB report on Wednesday, the highest on record since it started tracking data in 2011 Equity investment in small businesses in the first three months of 2022 was also the highest on record in a quarter, at £7.6bn.
However, Catherine Lewis La Torre, BBB’s interim chief executive, said “we can see that valuations are going down” when talking to the company’s founders, even though that shift has yet to show up in the valuations. data.
The founders have raised concerns about falling valuations of fast-growing but often loss-making companies after more than a decade of strong growth. Listed technology stocks have fallen sharply, and this trend is starting to be felt by private companies looking to raise funds.
The most high-profile example has been Klarna, the financial services group, which is reportedly looking to raise funds at a valuation significantly below its previous funding round in 2021.
Lewis La Torre said the bank has access to large amounts of “uncommitted capital” that can “react to market contractions” as needed. She said international investors “can be fickle”, so the BBB could step in to support a larger portion of future fundraising.
In 2021, overseas investors were involved in equity deals worth £13.5bn, around three-quarters of the total. The BBB generally invests through other fund managers, notably through its venture capital arm, British Patient Capital, although it can also take direct stakes.
“Cash burn” was a “key consideration”, Lewis La Torre said, for start-ups that needed money to keep growing. The BBB would aim to ensure that fund managers have enough reserved capital to participate in future fundraisings, she added.
The bank was allocated an additional £1.6bn in the latest budget to invest in regional businesses and in devolved nations. It expects its first funds to launch in the spring of next year, with a mandate to support debt and equity investments.
Lewis La Torre said the BBB backed almost a fifth of all announced equity deals in the UK in 2021.
Investment in UK tech companies rose to £8.2bn in 2021, from £4.1bn the previous year. The UK maintained its position in 2021 as Europe’s largest venture capital market, bigger than France and Germany combined, but it still lags behind the US, which has almost doubled in 2021 to £254 billion.
Christine Hockley, managing director of funds at British Patient Capital, said the report showed the UK had a lower proportion of venture capital deals and investments in deep tech and R&D companies than it did elsewhere. other countries, “and that this is the main cause of the overall venture capital funding gap between the UK and the US”.