According to a report from the industry body, the British Private Equity and Venture Capital Association (BVCA), private equity and venture capital investment into UK businesses fell by over 30 per cent to £20.1bn in 2023.
The recent collapse in investment in the sector, which represents 6 per cent of UK GDP, follows a similarly large drop between the previous two years.
In 2021, UK-led investment topped a record high of £36.8bn, almost double the 2023 number, thanks in part to the huge monetary stimulus injected into the economy during the pandemic.
However, higher rates and tighter monetary supply over the past two years has caused less investment to flow into the riskier ventures that private equity and venture capital offer.
However, the UK remains by far the biggest home for private capital in Europe. In 2023, the country raised £8.2bn—a larger total than France, Germany, Sweden, and Switzerland combined and over half the amount raised in the US.
The temperature check of the sector, conducted annually by the British Private Equity and Venture Capital Association (BVCA), also found the UK continues to be a hub for technology and research and development (R&D), thanks to its strong university sector and connectivity.
Last year, tech-focussed businesses accounted for 39 per cent of total private capital investment in Britain, prompting the BVCA to call for the next government to develop a long-term R&D strategy.
“Private capital is a key partner for driving growth in every nation and region of the UK,” said Michael Moore, CEO at the BVCA, “but investment by the industry could be even greater with the right policy environment in place.
“2023 saw a fall from the highs of 2021 for our industry,… Parties aspiring to form the next government should be guided by the principles of a stable economy, world class standards… and predictable policy frameworks.”
The body’s report separates the industry into three main stages of investmnent: venture capital, growth capital and buyout.
Of the three, buyout investment was worst effected, with investment into UK companies decreasing 44 per cent to £11.5bn. UK led buyout investments, meaning the amount raised by venture capital and private equity firms based in the UK, was down 42 per cent to £20bn.
Growth capital investment into UK companies – funding provided to an already mature firm to help it grow – decreased by 24 per cent. Venture capital investment, which comprises money invested into a firm at an earlier stage of its development, was down 34 per cent year-on-year to £3.5bn.
In addition to the long-term R&D strategy, the lack of capital across the sector have led BVCA to call on the next government also to produce: an action plan on pension investment to “unlock additional investment”, publish an industrial strategy to provide long-term certainty to investors, and prioritise a stable and competitive tax framework.