Investment Trends in Q2 2013
The simple headline is that in the second quarter of 2013, £192m was invested in 69 deals (60) of over £0.5m by 97 investors (102). This is a big drop in money invested compared to Q1 (£287m) and Q2 last year (£297m). However a very good number of companies received funding – 69 is the highest number of quarterly deals we have recorded since 2008. Simple arithmetic tells us that there are more small deals being done at the expense of big investments. More on this below.
The stand out transaction of the quarter was the ISP, Hyperoptic, which received £50m from Quantum Strategic Partners, a private investment vehicle managed by Soros Fund Management. Hyperoptic provides 1G high-speed “fibre-to-the-home” broadband, which allows faster speeds that normal fibre services that go to the nearest telecoms cabinet before older copper cables take the line into the home. This was the first VC investment made in the UK by the Soros-backed fund. Hyperoptic now joins the super elite of UK tech businesses who have raised £50m or more in a single deal – now just 8 in the last ten years.
One of the key trends, Ascendant has reported on over the last 5 years has been the increased participation of private investors/angels in VC deals – i.e. investments of £500k or more. In some quarters over this period, private investors have taken a stake in over 30% of these deals. In Q2 it was just 14%. It is too early to draw any conclusions on this. It may be that tax driven investments tend to peak in Q1 leave individuals a little “short” in Q2. However we are aware of significant levels of activity below our £500k threshold so it may be that private investors are seeing more value in that space. Crowdfunding is helping is this regard and it is picking up. Crowdcube, one of the first crowdfunding platforms in the UK, recently became the first in the UK to raise more than £10m for businesses. Whilst we do not ever expect this to have a significant impact on the VC space, it could be a very interesting feeder for some new technologies that will attract more substantial funding from institutional investors.
One of the things which resulted in the drop of money invested was lack of syndication. This dropped to just 52% of deals (compared 68% in Q1). Syndication is one of the key “health” indicators of the market and anything below 60% always attracts our attention and concern. When investors have, or want, to do deals by themselves it is usually sign of malaise. Interestingly 56% of software deals in Q2 were funded by a single investor. Investors “grouped” slightly easier in the Internet/Wireless Services sector (43%). From the data, we have a good idea how this effects follow on fundings but as investors do not always publish details of internal rounds it is difficult to get a definitive picture. We will be watching levels of syndication very closely in upcoming quarters.
At the end of Q1, our best guess for the year was around 200 companies would receive just under £1bn. The level of activity in Q2 has been cautious/steady but far from buoyant, so we have marked down our forecast in value but are still bullish on volume. At the time of writing, given the data described above and our transaction experience, we are inclined to suggest a target for 2013 of around 220 companies receiving around £900m. Watch this space…
Looking more generally, we have summarized our analysis of the year in the attached PAGEONE report. This highlights a number of trends – including:
- In Q2, £192m was invested in 69 deals of over £0.5m by 97 investors. (In the year so far, £477m has been invested in 128 deals)
- The busiest investors were Scottish Investment Bank, Notion Capital, Octopus, Enterprise Ireland and ACT
- 52% (68%) of deals involved more than one investor
- Private investors participated in 14% of VC deals, US investors in 13%, Euro investors in 10% and Corporate Investors in 9%
- The 10 biggest deals were Hyperoptic (£50m), Worldstores (£10m), ARKeX (£10m), LeanWorks (yPlan) (£7.8m), 4energy (£7m) XConnect Global Networks (£6.5m), Petrotechnics (£6m), FeedHenry (£5.9m), Brightpearl (£5m) and AnTech (£4m)
- The largest Internet/Wireless Services deals were: Worldstores (£10m), LeanWorks (yPlan) (£8m), Petrotechnics (£6m), TransferWise (£4m) and Duedil (£3.3m). 21 Internet/Wireless Services companies received £51m.
- In the Software sector, 25 companies shared £36m. FeedHenry (£6m), Brightpearl (£5m), Flexiant (£4m), Abiquo (£3.3m) and Conversocial (£2m) received the biggest VC cheques.
- Just 4 Cleantech companies raised capital: 4energy (£7m), Isotera (£2m), Ventive (£1m) and Renewable Technical Services
- The largest individual deal was outside the 3 main sectors. Hyperoptic, an ISP, raised £50m from Quantum Strategic Partners (George Soros).
- The most active regions were London, Scotland and Ireland that were responsible for 41%, 16% and 12% of deals respectively.
- London’s took 5x more of the VC money than any other region. It had 57%% of the funds invested in the UK and Ireland.
- On a city-by-city basis, 28 London tech companies received VC, 6 in Dublin and 5 in Cambridge. No other city or town had a significant number of deals.