During 2016, Ascendant extended its analysis of the Venture Market by establishing a Risk Appetite Index. We wanted to measure how the appetite for risk varies from quarter to quarter and between different types of investor, sectors and regions. The Risk Appetite Index not allows us to monitor market trends but also produce peer group reviews for investors, government agencies and other special interest groups. Whilst the calculation of the Risk Appetite Index is proprietary it effectively weighs investors willingness to commit capital to companies with varying development/market risks. The charts below highlight some of the key findings. In each chart the black line highlights Risk Appetite of the UK/Irish market as a whole. It is interesting to note that this has been very steady over the last 24 months when we have had both a general election and the Brexit Referendum.
The chart above highlights how appetite for risk varies amongst some key investor groups. Many companies will have experienced the low levels of traction for tech and/or early stage business in crowdfunding campaigns. The chart clearly slows that this group of investors has a very low appetite for risk. By contrast, businesses that have been able to attract investment from US and/or Trade/Corporate Investors have found them more willing to invest greater sums in earlier stage propositions. Contrary to popular belief that Trade Investors have a stronger appetite for risk, the data suggests that they are often closer to market norms than US investors.
London, Scotland and Ireland represent 90% of the UK/Irish market. Given that London as a region (inside the M25) comprises c.65% of the market is not surprising that the London Risk Appetite Index is relative close to the market as a whole. However, both Scotland and Ireland track well below this, suggesting structural issues in their investor bases.
Internet Services and software make up approximately 80% of investment activity in the UK/Ireland, so their Risk Appetite Indices map close to the market index. More interesting are the Indices for Fintech and Cleantech companies. Investors have had a very high appetite for risk in Fintech investments over the last 2 years but that has appeared to wane over the last 12 months. Some large deals have been completed in Q1 2017, which may tip the Fintech Risk Appetite Index higher, but it is too early to say at this time. Investor interest has declined significantly in Cleantech since 2010 when it was responsible for 21% of all deals – in 2016 this reduced to just 5% of the market. Not surprisingly the Cleantech Risk Appetite Index is consistently low and sits with semi-conductors/opto businesses at the lower end of investor demand.
In future reports we will examine other sectors’ Risk Appetite Index and will be using the Risk Appetite Index as one of the tools we have for monitoring market health.
If you have any queries on this do not hesitate to call Stuart McKnight, Managing Director, on +44 (0)20 7993 8700.