Investment Trends in 2013
The simple headline is that in 2013, £923m (vs £999m in 2012) was invested in 260 deals (231) of over £0.5m by 247 investors (246). This was a much higher number than we had anticipated and driven by a boom in the 4th quarter when £280m (£209m) was invested in 77 (60) companies.
We could point to many developments and trends in the tech investment market in 2013 but the one which really caught our attention was the number of deals completed in October when 32 tech companies were backed investors. The last time that more than 30 deals were completed in one month was June 2001 – just a short time after the peak of 67 deals/month in Oct 2000. In the intervening period (12 years), the monthly total has never exceeded 27 deals. So we have passed a threshold – even if only briefly. Let’s hope this level of activity continues and grows. Maybe the general optimism being expressed by the public about the UK economy has caught up with tech investors…
The sector that has experienced the biggest growth is Software. Last year, 78 Software companies received £187m. Compare this to the stats in 2009 when just £79m was invested in 50 Software businesses. There a number of reasons that could be cited for this resurgence: more agile development processes, a general improvement in the market for software (eg providing the “engines” needed by internet businesses to make their commercial plans work), a new generation of software entrepreneurs more “savvy” on business development, etc. We hope all are true but our data also suggests some other possible causes. For example, there is a possible link with the increase in the number of active private investors – software deals tend to be smaller and less capital intensive and so are naturally attractive to smaller investors. Another relevant factor is the fact that the Internet/Mobile Services sector has come “off the boil”. Although there was almost no change in the number of Internet/Mobile Services companies that got backing in 2013 and 2012, the amount of funding they received dropped from £470m to £257m – a 45% decrease. Key investors eased their commitments to the sector often refocusing on market leaders in Europe as a whole rather than top UK internet opportunities. We believe that Software companies managed to pick up some of the slack…
Last year, Cleantech was on track for its worst year since the early 2000s, but had a miraculous turnaround in Q4 when £91m was invested in 14 companies – ie over 50% of the year’s green funds and investments (by number) were completed in the last quarter. This last minute “run” helped but the sector is still trending down in both value (-30%) and volume (-12%). It is characterized by a small number of high value transactions (avg size of Cleantech deal in 2013: £6.3m vs avg size of Software deal in 2013: £2.4m) which makes it very vulnerable to changes in investor sentiment. Anecdotally we know that investors are very wary about the availability of co-investors in the Cleantech space and so we believe that 2014 could be a challenging year for the sector.
Each year we have sufficient data to publish investor league tables but decline to do so as the inclusion/exclusion of deals in our data is a subjective matter and therefore potentially contentious. However, we do like to identify (and congratulate) the investors whose names occur most often in our annual data. In 2013, in no particular order, the busiest investors we identified were the Scottish Investment Bank, MMC, Octopus, Enterprise Ireland, Index Ventures, Business Growth Fund, Notion Capital, Parkwalk, Angel Co Fund and Imperial Innovations. All of these parties participated in a “double digit” number of deals. The UK government is often criticized for its lack of support for the sector but a quick inspection of these names shows that 3 of the 10 are directly connected with Government and 4 others are indirectly supported via EIS/VCT/Enterprise Capital Fund initiatives. There may be an equity gap but the DTi and the Treasury are trying to help and should be recognized for it.
After the results of Q2 and Q3 became clear, Ascendant had quite low expectations for 2013. Given the usual seasonal investment patterns, we anticipated that the full year would be unlikely to see more 220 tech companies raising c £800m. We were wrong – very wrong. Q4 actuals wildly exceeded our forecasts and we hope indicate a return to a more active market. 2014 has started with some interesting deals and good levels of activity. In 2013, there was a small increase in the number of sub £1m investors but no growth in the number funds of any scale. This leads us to conclude that we might experience an increase in the volume of transactions, but are unlikely to see much change in the value of funds invested. So our best guess for 2014 is that around 300 companies will receive £1bn. 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. Let’s hope that the good pace of activity is maintained.
Looking more generally, we have summarized our analysis of the year in the attached PAGEONE report. This highlights a number of trends – including:
- In 2013, £923m was invested in 260 deals of over £0.5m by 247 investors
- In Q4, £280m was invested in 77 companies by 111 investors
- The busiest investors were Scottish Investment Bank, MMC, Octopus, Enterprise Ireland, Index Ventures, Business Growth Fund, Notion Capital, Parkwalk, Angel Co Fund and Imperial Innovations
- 62% of deals involved more than one investor
- Private investors participated in 27% of VC deals, US investors in 10%, Euro investors in 9% and Corporate Investors in 13%
- The 10 biggest deals were: Truphone (£75m), Gaelectric (£55m), Hyperoptic (£50m), Intelligent Energy (£32m), Shazam (£26m), Datasift (£25m), Funding Circle (£23m), NewVoiceMedia (£22m), Metapack (£20m) and Green Biologics (£15m)
- There were 3 primary areas of investment – Internet/Wireless Services (£257m), Software (£187m) and Cleantech (£180m)
- A significant number of companies who could not be simply categorised together raised over £300m
- 90 Internet/Wireless Services companies received investment. Funding Circle (£23m), NewVoiceMedia (£22m), Metapack (£20m), Farfetch (£13m) and Calastone (£11m) received the biggest VC cheques
- 78 Software companies received VC backing with the largest deals being: Shazam (£26m), Datasift (£25m), Swiftkey (£11m) and Hut Group (£9m)
- 28 Cleantech companies raised capital with Gaelectric (£55m), Intelligent Energy (£32m), Green Biologics (£15m) and Green Highland Renewables (£12m) being the biggest deals
- Outside of the key subsectors, the biggest deals were: ARKeX (£10m), Magma Global (£9m), Plaxica (£8m), Aveillant (£7m), Medicina (£6m) and Econic (£5m)
- The most active regions were London and Scotland which were responsible for 42% and 15% of deals respectively.
- London’s share of the VC money was down from 2012 peak to 37% of the funds invested in the UK and Ireland.
- On a city by city basis, 108 London tech companies received VC, 18 in Dublin, 15 in Edinburgh and 13 in Cambridge. All other cities or towns had less than 10 deals.