Why is 2021 the best year for the UK equity market in recent history? - Business Leader News

Why is 2021 the best year for the UK equity market in recent history?


Following a year of macroeconomic volatility in 2020, the UK’s equity market has never been more buoyant than in 2021. To delve deeper into the subject, Henry Whorwood from Beauhurst, provided this analysis.

Headline investment figures

In the first six months of the year, a record £10.7bn was deployed to UK start-ups and scale-ups – that’s more than double the amount raised during H1 2020 (£4.84bn), and an 84% increase on the previous record in H1 2019 (£6.69bn). A record 1,296 deals were announced, marking an 11% rise since H2 2020, and a 24% rise from H1 2020.

Fundraising activity was slightly weighted towards Q1, with £5.45bn invested across 698 rounds, whilst Q2 saw £5.23bn invested across 598 rounds. Still, individually, both quarters saw a greater volume and value of deals than any prior period.

We’ve also seen more pounds invested during H1 2021 than in the whole of 2020 (£10.5bn), and if investors continue closing deals at this rate, then we may see a doubling of funds deployed between 2020 and 2021.

Increasing deal sizes

As the equity ecosystem matures, it’s natural for deal values to increase over time. More companies are reaching the later stage of growth, where they require – and have the infrastructure – to take on tens of millions of pounds within a single funding round. As of June, there had been 50 megadeals (rounds in excess of £50m) – 26 of which were worth more than £100m – already a 25% increase from the full-year figure for 2020 (40).

But deal values aren’t just increasing at this extreme end of the spectrum. The median deal size increased across almost every stage of evolution during H1 2021, reaching record values across the seed (£400,000), venture (£1.59m) and growth stages of evolution (£10m). And across all stages of evolution, the mean equity round size has grown from £4.74m in 2020 to £8.23m in 2021 so far. Just 44% of deals were less than £1m, compared with 54% in 2020.

Although deals are getting larger, H1 2021 also saw a very welcome uptick in first-time funding rounds, which landed on 384, compared with just 253 in H1 2020. If this level of activity continues throughout the remainder of the year, then 2021 could meet, or even exceed, the record 768 first-time rounds completed in 2014 – massively reversing a seven-year downward trend.

The most active regions

Several regions saw record numbers of equity deals in H1 2021, including the East Midlands, the North East, and the North West. But it was the South West that saw the most dramatic increase in deal activity between H2 2020 and H1 2021, more than doubling, from just 34 to 75. The most significant of these was unicorn company Graphcore’s £162m raise in January, followed by Immersive Labs’ £53.5m raise in June.

Meanwhile, the South East saw deals increase by almost a quarter since H2 2020, from 109 to 134. So far this year, four of the five largest rounds in the South East have gone to life sciences companies, supported by Oxford’s world-class innovation ecosystem. These include a £195m raise by Oxford Nanopore Technologies, a £162m round by Exscientia, and a £121m round by Vaccitech – the company founded by COVID-19 vaccine pioneer Sarah Gilbert, that later went on to IPO on the Nasdaq market in April.

London remained the dominant UK region by quite some way, however, securing 635 equity deals in H1 2021, compared with 523 in the previous period, marking a 21% increase. The capital is on track to comfortably exceed the total number of deals it announced in 2020 (1,004), and it has already surpassed the total value of investments, currently standing at £6.90bn, compared with £6.77bn last year. Much of this can be attributed to those aforementioned megadeals, 70% of which were secured by London-based businesses. To put that in context, in H1 2021, an impressive 5.9% of deals in London were worth more than £50m, compared with 2.5% across the rest of the country.

The most successful sectors

A range of tech sectors saw exceptional growth in H1 2021. COVID-19 has shone a spotlight on the life sciences industry, so it’s no surprise to see that innovative businesses operating in the sector are securing more investment than ever before. Collectively, high-growth life sciences companies secured 88 investments during the half, worth a combined £1.42bn, which marked a 140% increase on the amount invested in H2 2020 (£591m).

And although the COVID-19 infection rate is now declining in the UK, we expect investor interest in life sciences to remain high over the coming months and years.

This is in no small part due to government intervention, with the UK Government recently laying out plans to make the country the most attractive location in Europe to start and grow a life sciences business. This includes a £200m Life Sciences Investment Programme via British Patient Capital.

But the golden child of the UK’s start-up scene, fintech, remains the best-funded sector in 2021, securing 157 deals, worth a combined £3.28bn. This means that, so far, 31p in every £1 invested this year has been deployed to fintech firms, and marks a 32% increase in the total amount secured by the sector throughout the whole of 2020.

Looking to the future

Here at Beauhurst, we always had faith that the UK’s startup and scale-up scene was more than capable of surviving and thriving through the COVID-19 pandemic. What we did not foresee, however, was such a strong rebound in investment activity within a year of the first lockdown measures coming into play. These figures are a true testament to the incredible innovation and talent being nurtured in the UK’s high-growth space.