Investment Trends in Q2 2010
The simple headline is in Q2 46 UK/Irish companies (up 10% over Q2 09) received £188m (up 46%) from 84 investors (up 35%). Adding these to the Q1 numbers gives £341m invested 111 deals of £0.5m or more by 141 investors in the first half of the year.
An inexperienced eye looking at the attached chart might be concerned by the drop off in volume in Q2 vs Q1, however UK/Irish VC Tech Investment has for years been characterized by high numbers of deals completed in the first three months of the year followed by a calmer/slower Q2. Clearly this is primarily a tax driven phenomena but there are other factors too. The recession in 2008/9 skewed this behaviour but it appears we have resumed business as usual at least in this regard.
When we published our Q1 figures, we highlighted the fact that there was no VC investment in semi/opto companies in the first three months of 2010. As we have been monitoring VC activity for more than 14 years, we were aware that this was the first time in that long period where VCs had avoided the sector. Like many people in the industry we were concerned that the sector had been abandoned by investors who were wary of its appetite for capital. Looking at our Q2 data, those concerns seem unwarranted as 6 semi/opto companies have received over £55m since April. But should we be cautious in this area? 23 investors of various sizes, types and locations were involved in these deals. However, only three were not existing investors in these particular companies. Moreover, this new money, we believe, amounted to less than or close £1m in each case. So attracting new investor to the sector is still difficult.
The Semi/Opto sector is not alone in these issues. With many of the established players adopting “Barbell” investing strategies (i.e. invest early or late but not in the middle), getting new money into Series A or B rounds can be challenging. Fortunately, the bread of investors active in the market is wide and companies who are prepared to put in the time and effort can often raise capital from these diverse sources rather than the usual “LP backed” suspects.
On the positive side, new money continues to be added to the market – e.g. Wheb Clean Technology Investment Fund, the NW Fund, etc. The Election is over and the new Chancellor was far more restrained than many in the industry expected on CGT. So we believe that there is still hope for a continued modest recovery for the rest of the year. An investment target of £700m for 2010 is still reasonable and let’s hope we exceed this.
Looking more generally, we have summarized our analysis of Q2 in the attached PAGEONE report. This highlights a number of trends – including:
- In the second quarter of 2010, £188m was invested in 46 companies by 84 investors
- In first of half of 2010, 111 companies have received £341m The busiest investors were Carbon Trust, Balderton Capital, Eden Ventures, Enterprise Ireland, Midven, Oxford Capital Partners and Scottish Enterprise
- Levels of syndication rose slightly to 67% (62%) of deals
- Private investors’ participation in VC deals dropped to 20% (29%)
- The 10 biggest deals received 68% of funds invested, included: Icera (£31m), InterResolve (£30m), Hut Group (£14m), Picochip (£14m), Red Spider (£8m), Nualight (£7m), Huddle (£7m), Aepona (£7m), P2i (£6m) and PhosphonicS (£6m)
- The four primary areas of investment were Semi/Opto (£55m), Software (£30m), Cleantech (£23m) and Internet/Wireless Services (£18m).
- This represents a major change over Q1 when Semi/Opto companies received no investment.
- Software also enjoyed an uplift in monies received during Q2 whereas Cleantech and Internet/Wireless Services both dropped significantly.
- 6 Semi/Opto companies received investment – the largest deals were Icera (£31m), Picochip (£14m) and Movidius (£5m).
- 9 Software companies received VC backing – the largest deals were: Hut Group (£30m) and Aepona (£7m) – all other deals were less than £3m.
- The key Cleantech deals included: PhosphonicS (£6m), Green Biologics (£5m) and Navetas (£4m). Although the volume of completed was steady at 11, the capital invested in the sector dropped by 30% vs Q1.
- 11 Internet/Wireless Service companies received investment but only 2 got more than £2m – Huddle (£7m) and NewVoiceMedia (£4m). Investment in the sector dropped by 60% vs Q1
- VCs invested fairly evenly throughout the UK London based tech businesses took 24% of VC money vs 44% in Q1.
- The Icera deal boosted the South West, but otherwise the Thames Valley, Ireland and the North followed London closely in both value and volume.
- Only 1 Cambridge tech business attracted significant VC funding in Q2, leaving the region at the bottom of Ascendant’s regional league table.