NORTHERN Ireland is rightfully celebrated for its exceptional engineering and manufacturing sectors, which export their novel products globally. After all, the sector, along with the business services industries, is proving responsible for leading Northern Ireland’s economic recovery.
The region is somewhat less well known as a hub of excellence when it comes to young, high-growth businesses that are decisively growing their own international footprint.
Fuelling much of this growth is private equity and venture capital. Venture capital providers (VC) invest into innovative companies in exchange for equity (shares) in the business. These investments tend to be much higher risk ventures, due to the uncertainty of future performance, than investing in more traditional businesses with established markets.
Private equity providers (PE) on the other hand will tend to invest in growing businesses that already have established traction and trade at a profit. The goal for investors is to achieve an “exit”, which is the event of the business either being sold or publicly listed on the stock market, at which stage they hope to attain a multiple of their initial investment.
Growing a business at pace from scratch requires a great deal of capital in most cases. Unless the founders of the business have deep pockets, there will be a need for investment to achieve their goal.
Northern Ireland was relatively slow to embrace VC & PE, given the nature of its more traditional business sectors - and perhaps an aversion to the associated risk of failure. However, the region has seen a huge turnaround in this behaviour in recent years, resulting in multiple equity investments into a wide range of high-growth companies.
Invest NI was the initial driver for this trend, utilising local fund managers who had the experience to manage and deploy the capital across the province. With this increased focus and awareness, there has been huge expansion in the emergence of local early-stage companies who see raising equity as the best way to fast track their growth plans.
In 2021 alone, more than £100 million was invested directly into these businesses across 66 separate deals. Of that investment, over 75 per cent came from investors outside Northern Ireland, demonstrating the increased interest that mainland Britain, RoI and overseas investors have in the country.
Last year brought another period of growth for investment into Northern Ireland with some landmark deals which included over £13m for medical 3D printing firm Axial 3D; £10m for virtual reality gaming platform SideQuest; £10m for Ocular Therapeutics provider Re-Vana Therapeutics; £6m to internal tool building platform Budibase and £2.2m towards AI data discovery solution Sonrai Analytics.
Belfast, in particular, has developed a strong reputation for software associated start-ups and this is reflective as the sector that drives the majority of equity investment. Nevertheless, there has also been a real emergence of life sciences and high-tech manufacturing businesses who have attracted inward investment.
As both businesses and consumers face an array of uncertainties over the years to come, we might expect an economic slowdown which is likely to constrain the level of anticipated investment in 2023.
However, early signs are encouraging as local businesses are continuing to deliver against their ambitious growth targets, which will be reliant on raising capital through equity investment.
High-growth SMEs represent a sizeable proportion of the local workforce and so their continued growth and success will give the region the much-needed boost it requires in such challenging times.
:: Jamie Watts is commercial director at Amplifi Solutions which supports a range of high growth businesses to navigate the research and development tax credit incentive.
