Investment Trends in Q3 2014
Boom, boom, boom, boom! Another “hyper-active” investment period in the late Summer/early Autumn, has delivered four consecutive quarters of growth in investment in the technology sector in the UK and Ireland. The simple headline is that in Q3 2014, £363m was invested in 88 deals of over £0.5m by 103 investors. These deals bring the totals for the year to date to £1.22bn and 257 investments. Given that only 259 companies received £937m in the whole of 2013, it is clear just how big a year 2014 has been so far for tech investment.
Looking at the trends for the last 4 quarters (see below), it can be seen that Q3 was particularly strong bucking the usual dip that arises from investors being less active in the summer holiday period. There were a few larger deals (e.g. Fanduel (£42m), Funding Circle (£38m), etc.) that boosted the average deal size but nothing Q1 when some very large transactions occurred (e.g. Truphone (£75m), Gaelectric (£55m), Hyperoptic (£50m), etc.).
These levels of growth are reminiscent of the 1999/2000 period, but we are some way off the peak in November 2000 when 67 deals were completed in one month!
A quick review of Q4 so far reveals no blockbuster deals but assuming normal seasonal investment patterns, our best guess for the whole of 2014 is that around 350 companies will receive £1.6bn. Let’s hope that the good pace of activity is maintained.
As we said in our last note this remarkable growth has been driven by two things: investment in internet/mobile service companies and in London based businesses. In the year so far, £712m was received by 135 companies in the internet services sector. This compares to £259m invested in 91 internet service businesses for the whole of 2013. In 2014, London, as a region, has completely dominated the tech sector taking 62% of funds invested and 54% of number of all deals done in the UK.
Where has the money come from? A number of the alpha investors were successful in raising new money in the last 12 months and have been actively deploying this. The re-entrance of these leading investors in our busiest investors note (below and attached) is no accident. We are also aware of at least 2 other 2nd Tier investors who have raised significant amounts of new capital to invest. There are also some interesting newcomers e.g. Mosaic Ventures, Google Ventures. We must also mention the emergence of Crowdfunding as notable subsector of the market we monitor (i.e. deals with investment >£500k). In Q3, Ascendant tagged 7 Crowdfunded deals with a total value of just under £12m. This compares to just 2 with a value of just over £1m in the first 6 months of the year. Having now overcome many of regulatory hurdles, these platforms are now creditable sources of capital for smaller deals. We are aware of at least one VC that has invested alongside Crowd platform and have recently seen Crowdfunding being used by a Public company. Watch this space.
Looking more generally, we have summarized our analysis of the quarter in the attached PAGEONE report. This highlights a number of trends – including:
- In Q3, £363m was invested in 88 deals of over £0.5m by 103 investors
- In the year to date, £1.22bn has been invested in 257 companies by 259 investors
- The busiest investors were Octopus, Scottish Investment Bank, Accel, Balderton, Beringea and Index
- 66% of deals involved more than one investor
- Private investors participated in 32% of deals, US investors in 11%, Euro investors in 7% and Corporate Investors in 13%
- 135 Internet Services companies raised £712m
- 54 Software companies raised £231m
- 23 Cleantech companies raised £121m
- In addition, 44 companies who could not be simply categorised, together raised over £140m.
- The biggest deals in Q3 were: Fanduel (£42m), Funding Circle (£38m), New Voice Media (£29m), Alfresco (£27m), Qubit (£16m), Pulsant (£15m), Xmos (£15m), Ratesetter (£10m), Accurris Networks (£9m), PurpleBricks (£8m) and Ovo Energy (£8m)
- London and Ireland were responsible for 54% and 10% of deals respectively
- London’s share of the VC money was up from a 2013 low to 62% of the funds invested in the UK and Ireland.
- On a city by city basis, 136 London tech companies received VC, 14 in Dublin, 13 in Edinburgh and 8 in Cambridge. All other cities or towns had 5 deals or less deals.