Ascendant has just completed its review of venture investment in private technology companies inhe UK and Ireland during Q2 – the CoronaVirus Quarter – and we thought our clients, colleagues and friends might be interested in a few of the facts and figures. It turns out that the venture capital investment in tech did not dry up during the quarter and VCs did “sprinkle” funds in most parts of the market . The headlines from the report are: in Q2, £1,907m was invested in 231 deals of over £0.5m by 369 investors. However, after a particularly busy Q1, the market did slow – 17% by volume and 22% by value. Our PAGEONE report which summarises the findings is available at https://ascendant.co.uk/investment-trends-in-tech-q2-2020.
Some of the key points of the report include:
- In Q2, £1,907m was invested in 231 deals
- Respectively 87, 73 and 71 deals were completed in April, May and June (see chart below);
- Average deal sizes held up and the sized based frequency distribution was largely unchanged leaving no (deal size) segment in the cold;
- In the year to date, £4.3bn has been invested in 510 deals;
- The busiest investors in Q2 were: Crowdcube, Mercia, Seedrs, Parkwalk, Octopus, Scottish Investment Bank, Bank, Dev Bank of Wales and OSI;
- 74% of deals involved more than one investor;
- 51% of deals were less than £2m in value, these received 5% of money invested;
- Private investors participated in 35% of deals;
- Crowdfunding platforms financed 12% of deals;
- US investors participated in 22% of deals, European investors in 16% and Corporate Investors in 19%;
- Fintech and Medtech/Digital Health remain the market’s darlings; and
- Geographically, all regions had high levels of activity, but companies based inside the M25 took 77% of the funds invested in the UK and Ireland.
The chart below shows that this level of monthly activity was regarded as normal very recently….
As stated above and shown in the chart, the market did slow but that is hardly surprisingly given the pandemic that we are all managing our way through. Many of us thought it would have been a lot worse, but based on these figures and depending on how Q3 goes it seems unlikely that there will be the existential crisis that caused a few folks in the venture industry to lobby the Govt for a hand-out. It is also worth noting that many of the Future Fund deals which started in May are not included in the data (as we track equity financings rather than debt issuance) – so if these were included there really would not be much of a decline at all.
Nevertheless, the two other trends that caught our eye were:
- A notable drop in our Risk Appetite Index which is one of our proprietary calculations on market health. There are a number of factors behind this trend but a key driver was a cooling in appetite in the Fintech sector.
- 16% drop in the number of investors who participated in the market in Q2 20 vs Q2 19.
The combination of the decline in the market in Q2 and these two trends might raise some concern, but they are out-weighed by other indications of good health including strong levels of syndication which leads us to believe that we are seeing a pandemic driven “correction” rather than a fundamental drop in activity. This might be a good time for everyone in the market to be reminded of the longer term trends – see below…
Given that we are just half way through the year, the evidence seems clear that the market should surpass its 2018 performance which was viewed as a very good year by most. Far from the disaster feared by some… To the extent that they ever left them, investors are starting to drift back to their offices and beginning to do face to face meetings, so we expect an uptick in new deal activity in the months ahead. Here’s hoping Q3 (with the inevitable slowing due to the Summer) will see the market bottom out…