COVID-19 caused a global economic shock. It created grave challenges for some businesses and acted as a catalyst for innovation and ingenuity for others.

Private Finance for Innovation, a new report (PDF, 887KB) commissioned by Innovate UK, has examined how equity markets have responded to the pandemic and how this has affected innovation.

Private equity’s role in innovation

Equity markets have a huge role to play in providing external firms to innovative firms, but there were initial fears this funding could dry up due to the uncertainty caused by the pandemic.

Jose Argudo, Economist at Innovate UK, said:

The report has highlighted that those initial fears have proved to be largely unfounded.

2020 was in fact characterised by record-breaking investment levels, up to £13.2 billion from £10.6 billion in 2019.

Contrasting experiences

The report found that:

  • the number of deals in the UK decreased overall from 3,400 to 2,700
  • investors focused on a smaller number of larger investments.

This meant a particular group of businesses was affected, as Argudo explained:

Investors showed an appetite for technologies that promoted short-term adjustments to the new situation we found ourselves in. The food technology sector was a major beneficiary – A visible example being the uprise of ‘Deliveroo style’ food technology, with many of us in this last year ordering pre-packaged ingredients, carefully measured out for optimum portion size, delivered in a cardboard box.

The key casualties were those looking for start-up and early-stage funding, and those companies that wanted to secure equity finance for the first time.

This creates risk, as these firms are often responsible for future job creation. A lack of investment could affect medium-term growth.

Public and private sector finance

Investment choices made in the wake of the pandemic have meant less resource is available elsewhere. Levels of investment in companies supporting the decarbonisation and net zero agendas fell in 2020.

Argudo said:

Government efforts provided an all-round suite of support measures for businesses, including support for innovation delivered by Innovate UK and UKRI.

Innovation is key to promote short-term resilience and long-term recovery, and ‘Build Back Better’. Our role in the rebuilding phase is to influence research and development spending to achieve broader policy aims such as the levelling up agenda.

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