Q1 2010 PAGEONE report

Investment Trends in Q1 2010
The simple headline is 65 companies (up 48% over Q1 09) received £153m (up 34%) from 82 investors (up 34%). Superficially these figures look encouraging but they hide a number of important developments. Firstly, the average deal size dropped significantly to just £2.4m – this was slightly worse than the figure for Q1 09 which was the worst quarter for more than 9 years. Investors did not finance larger deals in usual way and some sectors really suffered – e.g. there was no VC investment in semi/opto companies. Secondly, syndication dropped below 60% of deals for the first time in 10 years. This can be interpreted in a number of ways but none of them are positive signals. It looks as though many smaller deals (i.e. <£2m) were done by single investors – either to support an existing portfolio company or to take advantage of low valuations in a difficult market. Thirdly, the amount of money committed in Q1 10 was static compared to Q4 09. Usually there is a significant bounce in the first quarter of each year which sets the pace for the year as a whole – typically about 30% of the whole year’s capital is committed in Q1. This did not happen in 2009 because of the recession, but if the market reverts to its normal behavior we will have a very slow 2010 for VCs.

View Q1 2010 PAGEONE report >

On the positive side £340m was raised by VCTs and there have been a few new tech funds coming into the market – particularly in France. How much of this will reach early stage tech companies in the UK and Ireland is open to question but we are already seeing some activity. Let’s hope that the election in the UK results in a positive investment environment and investors write a few more and a few bigger cheques during remainder of 2010.

Looking more generally, we have summarized our analysis in the attached PAGEONE report. This highlights a number of trends – including:

• In the first quarter of 2009, 82 investors invested in £153m in 65 companies.
• The busiest investors were YFM (as a Group), Octopus Ventures, Amadeus and Finance Wales.
• Levels of syndication dropped significantly to 54% (66%) of deals.
• Private investors participation in VC deals declined to 22% of completed deals
• The 10 biggest deals included: Oxford Nanopore (£17m), Mimecast (£13m), Sterecycle (£10m), Openet Telecom (£7m), Greenroad (£6m), Autoquake (£6m), Control Circle (£6m), Image Metrics (£5m), Rainstor (£5m) and Intela Global (£4m).
• The three primary areas of investment were Internet/Wireless Services (£50m), Cleantech (£32m) and Software (£29m).
• 24 Internet/Wireless Services companies received investment including Mimecast (£13m), Autoquake (£6m), Intela Global (£4.25m), MyCityDeal (£3.5m) and Mi-pay (£3m).
• The key Cleantech deals included: Sterecycle (£10m), Greenroad (£6.4m), AMEE (£3.5m) and Enecsys (£2.5m). 12 Cleantech businesses took money from VCs in Q1 up from just 8 in Q1 2009.
• 15 Software companies received VC backing – the largest deals were: Openet Telecom (£7m), Image Metrics (£5.3m), Basekit (£2m) and Elona (£2m).
• NO semi/opto companies received venture capital in this quarter
• London based companies received around 45% of the funds invested in the UK and Ireland.
• Whilst London, the Thames Valley and the North experienced an increase in value of investment all other regions suffered a decline. In terms of the volume of deals, the North was unusually busy with 11 completed deals and Ireland was very quiet with just 4 publicly announced deals.

Clearly securing investment is still challenging for the majority of technology businesses. Some sectors are finding it a little easier but considerable time and effort will be required for most companies to attract additional external finance or achieve an exit this year.

Ascendant is currently advising a number of companies in the UK and in Europe on fund raising and M&A transactions. We therefore have, not only the clear historic picture from our data but in depth current knowledge of investors and buyers appetite for deals.