Could SME Investment Be Market-Proof?

Could SME Investment Be Market-Proof?
Could SME Investment Be Market-Proof?

Rhetoric around the uncertainty of Brexit, the UK’s political sphere and underperforming equity funds have left both investors and businesses somewhat unsure of where to turn. The FTSE 100 has seen six days of losses and has fallen more than 5% since U.S. President Donald Trump announced more tariffs on Chinese exports. The market is currently at a lower value than this time last year as Brexit negotiations linger and global politics take their toll.

However, for private equity, the attitude is widely very positive, with record investment in SMEs through private deals and a huge demand for UK-based investment opportunities. In fact, the amount invested in equity deals in the first half of 2019 grew 15% from the second half of last year to £4.5billion. This represented the best first half on record, with a 15% increase in the total amount of investment received by the UK’s startups and scaleups.

  • 2018 saw a record amount of private equity investment in European SMEs with €80.6billion invested in 7,800 companies.
  • The number of deals rose 10% since the previous half, and the majority of the increase was at the seed-stage.
  • There was also a 17% increase in the number of growth stage deals and their average size rose from £16m to £17m.

Luke Davis – CEO and founder of SME investment house IW Capital – discusses the advantages of private equity, both for investors and businesses:

“In the last year of so we have seen a hugely positive private equity trend. Our investor base is as keen as ever before to fund the fantastic range of innovative small businesses that the UK has to offer. And in terms of the desire to grow and raise funds as a business; we have seen record deal-flow and ambition as firms look to get on with business. For a business raising funds, private equity can also provide guidance and expertise, and is more likely to lead to valuations based upon reality rather than the hype that can be attached to funds or markets.
One of the biggest advantages of investing into privately held companies is their independence from global markets. There are still huge opportunities for growth if the business itself is built upon solid foundations of experienced management and innovation. There are also fantastic incentives to invest through schemes such as EIS, with generous tax efficiencies available. Small businesses are more able to pivot and adapt to the changes that Brexit or world events could bring about with opportunities undoubtedly existing.”