Investment Trends in Q4 2011
The simple headline is that in 2011, £786m (well up from £620m in 2010) was invested in 193 UK/Irish companies (213) by 228 investors (234). The growth in value is particularly interesting as there was significant drop in investment in the fourth quarter when just £129m was invested compared to £143m in the same period in 2010 and £210m in Q3 2011. The drop in volume was broadly spread throughout the year except in Q3 when there was an unexpected but modest increase. So the overall message is that 2012 was a challenging year to raise finance and the trend going into the New Year suggests that 2012 will be no better.
As usual I would draw your attention to 2-3 developments which Ascendant’s team has observed in the data and, of course, in person as we advised companies on their fund raising efforts.
- Concentration of funds in bigger deals. In 2011 the top 10 deals (with disclosed value) took 39% of all the funds invested in the UK/Irish Markets. The average deal size in these trophy transactions was £31m. In the rest of the market, the “bottom” 90%, the average deal size was just £2.7m, reflecting a huge disparity between investor behavior and appetite at the top and bottom ends of the market. The companies who have not made it into the “Golden 10”, have consistently received less than £500m for the last 3 years which many believe maybe the “true” market size. With the restructuring going in the investor base there may be some basis for this view.
- Drop in venture interest in Cleantech. 2011 was a year of change for venture capital investing in UK/Irish Cleantech. The value of investment rose dramatically to £231m vs £136m in 2010 but the number of deals dropped by 1/3 to just 31 transactions. Many investors who had were big players in previous years reduced theor activity and in some cases stepped back completely from the sector. The key driver in investment activity in the sector has been trade/strategic investors. If this group had been absent the number of deals done and value invested would have been a fraction of the numbers above. None of the subsectors were particularly ignored – solar, wave, tidal, smart grid, biomass, recycling, re-usable plastics, etc all got some attention. Whilst all stages of development were funded too, the vast majority of the deals were late stage. We expect that Cleantech companies will find the coming year very challenging if they are looking for funds.
- Private Investors backing more tech businesses. In our Q3 note, we highlighted the continuing rise of private investor involvement in VC backed tech deals. In 2011, private investors participation in VC deals increased to 28% from 21% in 2010. The peak in Q3 at 33% was the highest level Ascendant has recorded in 15 years. Ascendant only tracks deals larger than £500k so these are not small scale angel deals. In fact, the average size of deals that had a contribution from private investors was just under £1.8m. An increasing number of VCs are now comfortable with, and in some cases actively encouraging, private investor participation in their investee companies. As we have said before, there are “super angels” in the UK and Ireland – perhaps not yet in the numbers that are apparent in the US – and their presence is becoming much more noticeable. 2011 may be the year that many of us have seen them emerge as notable participants in the market.
At the end of Q3 we were hoping for total investment for 2011 reaching between £820m and £870m. So as the final number was £786m we certainly got that wrong – Q4 was a major disappointment! Our general feeling is that we are likely to see the 2012 being “harder” than 2011 with drops in both the volume and value of deals completed. It is too early to say what the run rate is for Q1 but as always this quarter will set the “tone” for the year. Lets hope things start to pick up a faster pace – especially in UK’s Olympic year!
Looking more generally, we have summarized our analysis of the year in the attached PAGEONE report. This highlights a number of trends – including:
- In 2011, £786m was invested in 193 deals by 228 investors
- In the fourth quarter of 2011, just £129m was invested in 48 companies by 73 investors
- The busiest investors were Enterprise Ireland, Scottish Enterprise, Eden, Octopus, Pentech, Braveheart, DFJ Esprit, Index, Accel, Finance Wales and IP Group
- 61% of deals involved more than one investor
- Private investors participated in 28% of all deals
- US investors contributed to 11 deals, European investors 17 and Trade investors 34
- The 10 biggest deals (with disclosed values) consumed 39% of funds invested, included: Wonga (£73m), Nexeon (£40m), Cellnovo (£30m), Just Eat (£30m), Enecsys (£25m), Oxford Nanopore (£25m), ECO Plastics (£24m), Shazam (£20m), A Shade Greener (£20m) and Media Ingenuity (£18m).
- 3 primary areas of investment – Internet/Wireless Services ( £262m), Cleantech (£231m) and Software (£111m) • 69 InternetWireless Service companies received investment. The biggest deals were: Wonga (£73.0m), Just-Eat (£30.0m), Shazam (£20m) Media Ingenuity (£17.5m), TradeShift (£10.1m) and Worldstores (£10.0m).
- 31 Cleantech deals were completed. The largest were: Nexeon (£40.0m), Enecsys (£25.0m), ECO Plastics (£24.0m), A Shade Greener (£20.0m), Wind Energy Direct (£17.5m), Geothermal International (£12.0m), Aquamarine Power (£11.0m) and Tidal Energy (£11.0m).
- 47 Software companies were funded. The largest Software deals were: Altobridge (£7.5m), Centrix Software (£6.1m), Siine (£5.5m), Metaforic (£5.0m), Site Intelligence (£4.3m), BaseKit (£4.1m) and Patersons HR/Payroll (£4.0m).
- London was significantly ahead of all other regions taking 40% of the value invested and 37% volume of deals done.
- Outside of London, the number of companies being funded in each of the regions was broadly static.
- London, Cambridge, Midlands, and the Thames Valley receiving more investment than in 2010. South West, The North and Scotland got much less.