Equity Investment in the UK 2018 by Beahurst

Mar 18, 2019 | Publisher: Techcelerate Ventures | Category: Technology & Engineering |  | Collection: Investments | Views: 4 | Likes: 1

Equity investment in the UK 2018 The Deal 1 from the ceo A word from our CEO on a year full of uncertainty. 3 2018 in review The need-to-know: 2018's biggest trends and headline statistics. The biggest deals of the year. We look at the years megadeals those deals worth 50m+. 18 mind the gap We crunch the numbers on the female funding gap. 26 sectors in focus Artificial intelligence is the word on everyone's lips which areas are companies innovating in? Expanding horizons in EdTech how is the sector broadening its horizons beyond the classroom? Mapping it out a closer look at mapping innovation and location based intelligence. 40 investors in focus We take a look at the year's top investors by deal numbers who has been the most active? Accelerators have become a key part of the support ecosystem for young companies. What's next? Crowdfunding has had a record year for deals and amount invested. We take a closer look at the space. 48 beauhurst See how you could use our data for your own data-driven content. Contents notes: To be included in our analysis, any investment must be: Publicly announced between 1 January - 31 December 2018 Some form of equity investment Secured by a non-listed UK company The Deal analyses equity investment in the UK, which helps many of the most ambitious British companies fuel their growth. By looking at fundraising activity across the UK, we're able to see emerging trends from the perspective of both investors and the businesses themselves. This report allows us to see which particular sectors, locations and business types are booming or suffering. It also gives us a glimpse of where the next generation of top British businesses may arise, and where investors see real opportunity. Seasoned veterans of The Deal will notice something new: we have added an "established" stage of company evolution. This allows us to categorise slightly older, more mature firms with a greater track record of turnover or profit separately from earlier "growth" stage businesses. This doesn't materially affect our figures but allows more granular analysis of larger companies. Over these pages we aim to provide a comprehensive view of this important barometer of business and investment health. The top-level view is worrying at first: by our main two metrics, number of individual deals and total amounts, 2018 saw a large fall from 2017. However, this could be interpreted as a "correction" from the dizzy heights of the previous year. Indeed, 7 billion in equity investment is nothing to be sniffed at, particularly when considering that two years ago, the total figure was just 4.1b. What will the future hold? The Brexit claxon sounds loudly at this point it is the ultimate macroeconomic theme of the last decade for the UK. Predicting how Brexit will play out and the wider effects of it are well above our pay grade here at Beauhurst. But from a business funding perspective at least, there will likely be significant negative pressure on available capital, not least with the inevitable loss of cash from the EIB, ERDF and EIF who currently back a range of VC funds and grant providers. The Government is attempting to address this gap, with the British Business Bank and UKRI creating schemes such as the UK Innovation Investment and Industrial Strategy Challenge Funds, but some observers are sceptical. Only time will tell, but the clouds are clearly on the horizon. When it comes to the UK's startups and scaleups, the star performers will always attract investment and interest. But the concern is chiefly in two areas: firstly, that earlier-stage businesses will get left behind as investors' risk appetites diminish, and secondly that British leading lights will begin to contemplate moving locations to access both the EU's single market and potentially better funding opportunities. Berlin, Amsterdam and Paris are ready and waiting. It is up to the UK's policy and decision makers to make sure our environment is as supportive as possible if this outcome is to be avoided. As always, a huge thanks to our team for putting this report together. We hope you enjoy reading it as much as we did putting it together. Have any questions or comments? Get in touch using the details below. toby austin ceo and co-founder info@beauhurst.com @Beauhurst company/beauhurst beauhurst A word from our CEO Henry Whorwood 2018 in review Despite political uncertainty throughout 2018, 7b was invested into UK companies, just below record levels set in 2017. A worrying fall in deals at the seed stage will need to be corrected if the UK is to hold on to its place as a leading startup economy. 4 In Reviewa strong year, but not strong enough After a record year in 2017, the total invested has fallen from 8.27b last year to 7b in 2018. worrying signs at the seed-stage Deals into companies at the seed-stage have fallen by 15% - to the same level as in 2014. crowdfunding has a record year Equity crowdfunding continues its growth trajectory, with a record number of deals and amount invested. female founders need more Only 16% of 2018's equity investment deals went into female-founded companies. blockchain is heating up The number of blockchain deals has grown by 75% from 2017, surpassing adtech for the first time. north west and wales buck the trend Deals fell across the board but Wales and the North West saw the most investments on record. 5 In ReviewIt was always going to be difficult for 2018 to match the unprecedented levels of 2017 but it did come close. 7 billion was invested in 2018 more than any year before 2017 and more than 2011 to 2013 combined. Nearly 1,600 investments were made in 2018, noticeably fewer than in 2017 but around the same as the number made in 2015 and 2016. As we enter a period of unprecedented political uncertainty, it is tempting to interpret these numbers as the beginning of a more pronounced decline. When looking into the data underlying these figures, the prognosis is much more nuanced. We have introduced a new classification of a company's stage of development: the established stage. These are companies that may well be experiencing significant growth, but are doing so from a position of greater commercial security than a company at the seed, venture or growth stages. The huge spike in the amount invested into established-stage companies in 2017 captures a large number of megadeals that could be considered unusual the 19% fall in the amount invested between 2017 and 2018 must be understood in this context. Growth- stage investment has proven much more resilient: the number of investments has remained pretty constant since 2014. The amount invested spiked in 2017 but in 2018 only fell by 5%. The amount invested at the seed-stage and venture-stage reached record levels in 2018, so we might have reason to be fairly optimistic overall. When we look at deal numbers, however, we see a slight fall for the venture-stage, and really quite significant drop (15%) at the seed-stage to nearly the same level as seen in 2014. The seed-stage can often be thought of as the canary in the coalmine: if seed-stage activity drops off, the pipeline of investable companies at venture and growth stages also diminishes in time. A near miss? 2018 in review 6 In Reviewa silver lining? But there are two reasons to think that the drop in deals at the seed-stage is short-term only. Firstly, the seed-stage is the riskiest stage and therefore most likely to be impacted by macroeconomic uncertainty. There is no doubt that these are uncertain times: for early-stage investors as much as anyone else it can be no coincidence that the last quarter of 2018 saw the fewest deals of the year. Secondly, if we look at the types of investors completing these deals, we see the number of deals with angel networks participating fall the most. Compared with 2017, angel network investments had fallen by 35%. Angel networks are perhaps the investors with the greatest flexibility to adjust their investment preferences on an ad hoc basis as political events develop. These are the investors most likely to be deferring investment until there is greater clarity on what will happen next. In the face of slightly declining investment figures for the country as a whole, certain areas are bucking the trend. The North West of England and Wales had record years for the number of investments made into their companies. Wales saw over 70 deals and the North West over 106. It must be pointed out, however, that the top investors in both regions were publicly- backed funds; in Wales, the Development Bank of Wales, and in the North West two Northern Powerhouse Investment Funds. But if the funds have gone to the right companies, this is great news for both regions. At a more local level and outside of London we see success for Cambridge and Edinburgh, both of which continue to see good levels of investment thanks to their strong Life Sciences clusters. Other sectors in 2018 were also driving investment across the country but in London particularly. 2018 was a record year for the number of investments into Fintech and Blockchain companies (across the two of which there is significant overlap). Indeed, although Blockchain has been touted as a "hot sector" for some years, 2018 was the first year we saw significant investment activity in the UK. AI and Adtech on the other hand both peaked in 2016, with Adtech deals dropping significantly in 2018 by 48%. Edtech and Proptech remained fairly level. the future outlook So what does this all mean for 2019 and beyond? We saw last year some warning signals, but also signals for confidence in this important segment of the UK's economy. We will need to see an uptick in the number of investments into seed- stage companies in 2019 and soon. Individuals angels and angel networks will be the ones to drive that resurgence if it happens. It seems likely that any solution to overcome the paralysis that Brexit is inducing, rather than the specifics of any deal (or other outcome), will be the most important driver. This is because early- stage investments are an asset class for the long-term. If investors can start to see what the path ahead for the next decade might look like, they can gain the confidence to make investments that won't be realised for the next decade. At the time of writing, however, the path has many forks who can blame investors for waiting to see which one we take, quite apart from any consideration of whether it's the right one. 7 In Review 8 In Review8 In Review2017 saw a giant year for both deals and amount invested, with amount invested more than doubling from 2016 to a record 8.6b. Although 2018's numbers have fallen from these record amounts, they still present a significant jump from previous years. We suspect the market is adjusting to a new normal. 1572 equity investment deals 7.0b invested into UK companies 5.4m average investment size Investment activity in 2018 -10% -19% -15% both deals and amount invested remain high how did 2018 compare with 2017? 2011 2012 2013 2014 2015 2016 2017 2018 1.5b 1.9b 1.8b 3.3b 4.1b 4.1b 8.6b 7.0b 749 1025 1420 1579 1542 1744 1572 Q1 Q2 Q3 Q4 1.3b 2.0b 1.9b 1.8b 495 390 454 373 355 9 In Review9 In ReviewInvestment stages a fall at all stages The number of deals fell at every stage of evolution, but amount invested increased at both seed and venture stage. Deal sizes remained high, with the effect particularly prounounced at the seed stage. Only 50% of deals were below 500k, compared with 80% in 2014. the trend for larger deal sizes continues 2011 2012 2013 2014 2015 2016 2017 2018 0.5b 1.0b 1.5b 2.0b 2.5b 3.0b 3.5b 2011 2012 2013 2014 2015 2016 2017 2018 50m+ 10-50m 5-10m 2-5m 1-2m 500k-1m

This report allows us to see which particular sectors, locations and business types are booming or suffering.

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