Investment in UK deep tech companies has continued to grow rapidly in the past five years, rising 291 per cent to £2.3bn in 2020. The number of deals also increased by 78 per cent to 440 in the same period.

Deep technology is based on engineering innovation or scientific advances and discoveries, and the growth of science-based companies is crucial for building the future economy.

The British Business Bank released its annual small business equity tracker on June 16,which provides an in-depth picture of equity finance for smaller businesses in the UK.

This year’s 2021 tracker has highlighted the importance of the UK’s deep tech sector in driving future economic growth and accounting for 46 per cent of total equity investment in UK smaller businesses. In Wales, 32 per cent of equity investment went to the tech sector in 2020.

Martin McHugh, CEO of Compound Semiconductor Applications Catapult located in Cardiff, said: “Many of the tech companies operating in Wales are developing devices or services related to future deep tech mega-trends like 5G, artificial intelligence, virtual reality, photonics and biotech.

“And it’s the compound semiconductors made in south Wales that form the basis of the future technologies enabling many of these mega-trends to become a reality.

“After a period of sustained growth, in which we have won several high-profile consortia projects that are building a thriving compound semiconductor supply chain across the UK, we are now positioned to support the development of essential future technologies in Catapult programmes addressing opportunities in net zero, future telecommunication and intelligent sensing.”

The British Business Bank has revealed that funds supported by the bank were more likely to invest in technology and IP-based businesses than the overall equity market in 2020, with 49 per cent of the bank’s supported deals in this sector compared to 40 per cent of the wider market.

Levels of investment vary widely by industry, with the UK’s thriving tech sector remaining the most attractive to investors and accounting for 46 per cent of total equity investment in UK smaller businesses. In Wales, 32 per cent of equity investment went to the tech sector in 2020.

Investment into smaller UK tech businesses increased 7 per cent to £4bn with the number of deals rising 12 per cent, as the sector benefitted from an increase in digitisation and remote working caused by Covid-19. Within tech, software continued to receive the largest share of deals, 500 deals worth £2.5bn.

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Investment into smaller businesses within the life sciences sector rose 70 per cent to £631m. The number of deals also increased by 26 per cent compared to 2019.

Regional imbalances in access to finance remains core to all of British Business Bank’s activity. As a result, bank-supported equity deals are becoming more regionally diverse. Concentration of deals undertaken in London has reduced sharply, from 68 per cent in 2016 to 42 per cent in 2020.

Mark Sterritt, UK network director, devolved nations at British Business Bank, said: “Despite the pandemic, the deep tech sector in Wales is flourishing, with a number of clusters and organisations including the Compound Semiconductor Centre in south east Wales; Cyber Wales, which oversees cybersecurity clusters in south and north Wales, and life sciences hub Wales in Cardiff, creating valuable opportunities within their sectors.

“Many of the companies that these clusters support are responsible for the deployment of breakthrough technologies, the development of new medicines and the transition towards a net zero economy.

“They have the capacity to transform life as we know it, but due to their high research and development costs, breakthrough technology companies typically require more capital than other technology companies to fuel the later stages of their growth.

“Which is why it is so vital that they have access to the finance they need to make their vision a reality.

“Later this summer, the Future Fund: breakthrough, a new £375m UK-wide programme will launch to help address the later stage equity finance gap faced by innovative UK deep tech and R&D-intensive companies.”

Recent deals within the tech sector in Wales facilitated by the bank, include Future Fund financing for momentum bioscience, researchers and developers of diagnostic tests that will have a significant impact on the life chances of patients who are suspected of having sepsis.

Riversimple, the Llandrindod Wells-based designer and manufacturer of hydrogen fuel cell cars also received finance from the bank’s future fund.

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