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Venture Capital, Private Equity and the Impact on the UK Economy
08 Aug, 20185 Minutes
Private equity is big business when it comes to investing in up and coming firms. Portfolio companies are increasingly investing money in smaller businesses to help them grow, as well as to achieve a return on investment, boost the industry and make a sizeable difference in terms of employment and recruitment.
Venture capitalist and private equity investment has, in recent years, impacted a wide range of industries, from healthcare to consumer goods, but the three industries undoubtedly seeing the largest flow of private cash have been customer services (£10.8 billion), finance (£5.9 billion) and industrial (£5.2 billion)1.
How Private Equity Impacts Businesses
Some of the UK’s most exciting new companies have benefitted in a big way from venture capital investment. One such example is Deliveroo, which saw its orders increase by 650% in 2016, moving into 80 cities across 12 countries, despite only having been founded in 20132.
Similarly, following its backing by Scottish Equity Partners and Sequoia Capital, Skyscanner quickly became an industry leader. The site amasses more than 60 million users every month and is now Europe’s largest flight search engine, showing just how much of an impact private equity investment can have.
Venture Capital and the Impact on the Economy
The British Private Equity and Venture Capital Association (BVCA) and Oxford Economics compiled a report, The Innovation Nation, which looked at the impact of venture capital investments in the technology revolution, and how private equity helps finance and promotes the innovation economy.
It discovered that in 2015 alone, as much as £4.1 billion3 was invested in more than 24,000 startups by venture capital businesses in the industry, resulting in a sizeable contribution to job creation and a significant boost to the economy.
Those firms that were financed through private equity during this period have had a massive impact on the economy as a whole. Collectively, the report found, these companies generated a turnover of more than £29.9 billion in 2015, while contributing more than £15 billion to the UK’s GDP.
Venture Capital, Private Equity and Recruitment
It’s not just the economy which has been given a lift by venture capital. According to the findings of The Innovation Nation, employment has also witnessed a remarkable uplift in recent times. Companies backed by venture capital investors in the innovation industry employed as many as 200,000 people in 2015. Per employee, private equity backed firms contributed an average of £73,700. What is most impressive is how this compares to the national average, with the benchmark for the private sector as a whole sitting at just £47,500.
When opened up to the wider economy, recruitment figures are even more impressive. Overall, direct and indirect employment through private equity companies was nearly half a million people in 2015, which is roughly in line with the total number of employees working in the entire retail sector.
Employment in venture capital-backed businesses can be shown to have improved even further since. For example, EY’s annual report on the Performance of Portfolio Companies4 found that venture capital investment continues to help boost employment. To the end of 2016, it said, employment under private equity grew by 2.6% compared to the year prior.
Private Equity Roles and Diversity
One of the biggest areas of focus for the venture capital/private equity sector in recent times has been to examine gender diversity and work towards a more inclusive, equal and representative workforce in a sector that is evidently one of the driving forces behind economic growth in the UK.
The BVCA and Level 20 came together to produce a report entitled Women in Private Equity5 , which sought to benchmark where women sit in the sector today, as well as setting out targets for the future.
It was discovered that at present, 29% of the overall private equity workforce in the UK is women, compared to 48% of the overall UK workforce. Breaking this figure down further, it was found that just 14% of private equity investment roles are held by women, and 6% of senior private equity investment professionals are women. Outside of investment teams, women have a far more significant representation, holding 60% of all non-investment private equity jobs, including Investor Relations, Marketing, Accounting, Legal, Human Resources, Compliance and Support Staff.
This is something that the sector is keen to improve, with Level 20 and the BVCA working together to tackle diversity issues and ensure better representation of women in the industry in years to come. The two said that this can be achieved by helping firms find and attract women to work in the industry, the retention and development of women to help build successful careers and encouraging the development of company culture that welcomes and promotes diversity.
In years to come, the report states, the two organisations hope to see as many as 20% of senior roles held by women in private equity. This attitude towards growth in diversity, as well as venture capital’s impact on innovative businesses in technology-focused industries, evidences a forward-thinking sector set to have an incredible impact on the economy for years to come.
