Investment Trends in Q2 2015
The second quarter of 2015 has been a very active period for investors in UK/Irish technology businesses – £669m was invested in 117 deals of over £0.5m by 154 investors. Comparing this to the market’s performance in Q2 last year, investment is up 110% and the number of companies being backed rose by 41%. This brings the totals for the first half of the year to £1.29bn invested in 236 deals – up 56% and 40% respectively.
The Q2 data shows that Funding Circle raised $150m which is equivalent to c.£102m. At the time, this is the biggest individual deal we had recorded in 18 years of tracking VC investments in UK tech businesses. The next biggest were Tamar Energy (£100m) and Truphone (£75m). However, Fanduel trumped it in early July when they received £175m of venture investment. This Scottish company has now set a very high bar for others to reach for. (We should mention in passing that if we had been more flexible in our screening criteria we might have included the £325m invested in OneWeb which is registered in the Channel Islands but HQ’d in the US. The location of the business is key datapoint for us so we chose not to include this deal.) Many commentators believe that there is a clear trend of VC money being focused on a small number of “supersize” deals leaving gaps in other areas of the market. This is not the case. In 2012, 74% of deals had a value of less than £5m. In 2014, this rose to 79%. Compare the first half of 2015, when the figure was 76%. So no major changes during that period on the sizes of deals that the market is backing. The chart below shows again that there are no structural gaps in the market as there is a natural reduction in successful companies as they mature.
The activity levels of the micro-VC funds are quite clearly shown but there are also no shortage of investment at the Series A and B level. (The data understates the true volume of seed and early stage investments as the minimum deal size for our data is £0.5m). Anecdotally there is much discussion on “gaps” but our belief is that these are generated by two main causes: firstly, the persistent inability of early stage companies to achieve adequate proof points to attract Series A investors and a mismatch of investment focus between seed and Series A backers. This latter point is particularly true in the regions outside of London and is in part responsible for continuing concentration of investment in the Capital – 63% of all deals respectively and 66% of the funds invested in the UK and Ireland in Q2.
The other key trend to highlight was the number of tech deals (which meet our size criteria (>£0.5m)) that have been financed by crowdfunding platforms. Both Crowdcube and Seedrs have, for the first time, arrived in our top group of most active investors in the Quarter. Both of these investment vehicles, along with many of the other platforms have been marketing themselves boldly to the tech communities and as a group they have participated in 13% of all deals done in the quarter. Given that they have real limits on the scale of deals they can do, their relative share of their addressable market is much higher. There are concerns about valuations on crowdfunding deals often being too high and still only little evidence of institutional/mainstrean VC investors being willing to invest in the next round of crowdfunded companies but the platforms are making a useful contribution to the market.
Finally, we are now more than half way through the year and already have two very significant deals completed (combined value of £277m), so what does that suggest for the likely figures for the whole of 2015. Our best guess right now for the year is around 450 companies will receive £2.2bn – a very significant increase on 2014. Let’s hope that the frenetic pace of deal doing in H1 is sustained throughout the year.
Looking more generally, we have summarized our analysis of the quarter in the PAGEONE report. This highlights a number of trends – including:
- In Q2 2015, £669m was invested in 117 deals of over £0.5m by 154 investors
- In year to date, £1,286m has been invested in 236 deals
- The busiest investors were Crowdcube, London Co-Investment Fund, Parkwalk, MMC, Octopus, Connect Ventures, Draper Esprit, Firestartr and Seedrs
- 77% of deals involved more than one investor
- 52% of deals were less than £2m in value
- Private investors participated in 44% (36%) of deals
- Crowdfunding platforms financed 13% (1%) of deals
- US investors participated in 9% of deals, European investors in 13% and Corporate Investors in 17%
- 56 Internet/Mobile Services companies raised £459m
- 29 Software companies received £83m
- 7 Cleantech companies £36m
- The 10 biggest deals (with disclosed values) received 56% of funds invested, were: Funding Circle (£102m), Fenergo (£48m), Wahanda (£47m), Circle (£33m), EZBOB (£30m), Urban Wind (£30m), Lyst (£27m), Onefinestay (£26m), LendInvest (£22m) and D3o (£13m)
- The most active regions were London and Ireland which were responsible for 63% and 13% of deals respectively
- London’s share of the VC money was 66% of the funds invested in the UK and Ireland
- 72 London tech companies received VC, 12 in Dublin and all other cities or towns had 4 deals or less deals.