As such, the space is underpinned by structural demand drivers, and Crossword Cybersecurity should achieve meaningful growth over the coming months and years.
Similar opportunities exist on the unquoted side of the UK equity market, where valuations have remained higher but still suffered over the past year.
In fact, investing across both public and private markets provides an added layer of diversification, with exposure to different cycles offering investors greater insulation against market volatility.
One unlisted business set for resilient long-term growth is Airfinity.
The company is a science information data analytics platform that connects and analyses disparate data sources to provide actionable insights on various therapeutic areas to the life science industry, governments and other corporations.
While there is an ongoing proliferation of vast datasets, these are being poorly accessed by the life sciences community.
Meanwhile, pharma companies increasingly require aggregated data to help predict commercial demand.
As such, the proposition Airfinity has developed is underpinned by long-term structural tailwinds, and the business can continue to expand across therapeutic areas while building defensibility through its proprietary data platform.
Deal flow due a bounce
Another key reason why now is particularly opportune to back earlier-stage British companies is the expected rebound in buyout activity set to occur in 2023.
While the heightened macroeconomic uncertainty and recent unrest in UK gilt markets resulted in some short-term discontinuity with regards to deal flow, with many companies seeing little reason to sell or raise external funds given depressed valuation levels, the tides may be turning.
If there is little change by the end of this first quarter, businesses will likely be forced to reconsider their need for liquidity and may be more open minded to considering a deal.
In addition, sterling’s weakness relative to the US dollar during 2022 has exacerbated the discount for UK businesses on offer to overseas buyers and investors.
British businesses have perhaps never been as attractively priced to foreign investors as they are today. Unsurprisingly, we have already seen evidence of increased overseas investment in UK companies reflecting this.
The disconnect between public small-cap multiples and private equity transaction multiples should further drive deal flow, as private equity groups see the opportunity to take de-rated listed entities out and drive value creation.
Ken Wotton and Tom Makey are co-managers of the Baronsmead VCTs at Gresham House
