Small Scottish businesses saw record levels of equity investment in 2021, according to a new report.

The British Business Bank’s Small Business Equity Tracker found that £549m was invested in small Scottish companies across 223 announced equity deals. Total investment was also up 74% compared to 2020.

Across the UK, deals were valued at £18.1bn last year, nearly double the total seen in 2020. However, the overall number of Scottish deals fell 19% from the previous year.

Edinburgh gained the top spot as the UK hub for investment outside of London, with an annual average of around £195m of equity investment.

Glasgow featured among the top 10 hubs, with a yearly average of £83m investment placing the city in sixth. Aberdeen ranked joint fourteenth with £54m of equity investment – predominantly in the energy sector.

One tenth of all the UK’s equity deals and a similar proportion (11%) of British Business Bank-backed investments over the past three years took place in Scotland – higher than the nation’s 6% share of the business population.

Commenting on the research, Barry McCulloch, senior manager for Scotland at the British Business Bank, said: “Smaller businesses play a crucial role in Scotland’s economy, and it is highly encouraging to see that 2021 was a record year for equity investment, particularly at a time when the impact of the pandemic was still being felt.

“While there were fewer deals than in 2021, the investment value increased significantly, indicating a smaller number of larger deals. We have also seen positive momentum in the first quarter of this year.

“Having three major cities named as top spots for investment activity reiterates the fact that Scotland, particularly Edinburgh, is an attractive destination for startups and entrepreneurs in sectors such as tech and life sciences.”

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The report also put a focus on the importance of government funding to local equity markets. Although 13% of all announced equity deals involved a government investor, data found it was “disproportionately important” for the devolved nations where 51% of all announced equity deals in Scotland in 2021 involved government funding.

So far, this boost in equity investment has continued into the first quarter of 2022, the bank said, with the volume of Scottish equity deals involving small businesses between January and March reaching £260m, despite economic headwinds causing uncertainty for many firms.

In addition, financial support for Scotland’s smaller businesses is set to be available next year, with the launch of the new Next Generation of Regional Funds. These include a new £150m Scottish fund administered by the British Business Bank to further tackle geographical funding gaps.

Catherine Lewis La Torre, CEO, British Business Bank, added: “The UK’s small business equity finance market has continued to grow, achieving a new record last year. The momentum continued in Q1 of this year – a clear sign of investor confidence in UK smaller businesses following the pandemic.

“The bank supported 18% of all announced UK equity deals in 2021, showing that the work we do, and our focus on investing with purpose, has never been more important. The UK’s position as a hub for the technology sector is apparent and the growth in clean tech deals shows an increasing investor demand for sustainable businesses to grow.

“We will continue to provide businesses of the future with the capital they need to start up and thrive in the UK.”

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