Equity Investment Market Update Q3 2020 1 • The amount raised in Q3 2020 totalled £2.70b — a 48% increase from the previous period and a 1% drop from Q3 2019. • Deal numbers declined to their lowest point since Q4 2016. A total of 402 deals were announced during the quarter, a 12% decrease from the previous quarter and a 7% decrease from Q3 2019. • The number of seed stage deals dropped 20% from Q2 2020, and first-time fundraising fell to a new low. Just 87 companies announced their first fundraise in Q3 2020, down from a high of 214 in Q2 2014. • Fintech had its second best quarter on record, with 60 deals completed. Meanwhile artificial intelligence saw investment activity slow for the third quarter. • For the first time on record, all-female founding teams raised more than double the funding of mixed gender teams. This was driven by sister-led Karma Kitchen's £252m round—the largest deal of the quarter. Key findings The latest data on equity investment trends in the UK. We’ve analysed every publicly-announced equity fundraising in Q3 2020, to spot emerging trends and patterns in the market. 402 Number of deals £2.70b Amount invested -12% Change from Q2 2020 -7% Change from Q3 2019 +48% Change from Q2 2020 -1% Change from Q3 2019 2 What is Beauhurst? Our platform helps you find the companies of tomorrow, today. Unrivalled data on the UK’s high-growth and innovative companies helps you to: Win higher-quality business with half the effort Get to know a company in minutes, not hours Make data-led decisions with a full view of the market Book a free demo     “ I love having information at my fingertips and the knowledge that I can get what I need. If you need comprehensive and timely information about high-growth companies, you need Beauhurst. Sue o'hare, operationS manager, Science and technologieS facilitieS council 3 Big deals keep on churning—deal numbers keep on burning Just 402 investments were completed in Q3 2020, a 12% drop from the previous quarter and a 7% drop from Q3 2019. Quarterly fluctuations in investment figures are normal, but this three-quarter-long drop in deal numbers is the most prolonged on record. We expect deal numbers for 2020 to land somewhere between those of 2016 (1,607) and 2017 (1,856) by the end of the year. On a more positive note, the amount raised in Q3 2020 remained relatively high, totalling £2.70b. This marks a 48% increase from Q2 2020 and just a 1% drop from Q3 2019. Of the deals that have been completed, a significant proportion went to later-stage businesses that require—and are more able to take on—larger sums of money. deal numberS and amount raiSed by quarter deal numberS and amount raiSed by year £0.5b £1.0b £1.5b £2.0b £2.5b £3.0b £3.5b 100 200 300 400 500 Q1 2011 Amount raised Number of deals Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1 2018 Q1 2019 Q1 2020 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 £2b £4b £6b £8b £10b £12b 0 500 1000 1500 2000 Amount raised Number of deals 4 First-time fundraisings tumble to a record low Just 22% of deals announced in Q3 2020 were a first-round raise for the recipient company. This compares with 31% in Q3 2019. But it's only natural for this proportion to drop as the market matures and a larger number of later- stage businesses continue to raise finance. It seems this decline is in keeping with the previous trend seen well before the outbreak of coronavirus. Just 87 first-time raises were completed between July and September. This is the lowest number on record, and marks a 59% decline from a high of 214 in Q2 2014. Still, first-time raises remain the modal round—for now. deal numberS and amount raiSed, firSt round fundraiSingS percent Share of total dealS, by round number £0.2m £0.4m £0.6b £0.8m £1.0b 50 100 150 200 Amount raised Number of deals £1.2b Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1 2018 Q1 2019 Q1 2020 2015Q12015Q22015Q32015Q42016Q12016Q22016Q32016Q42017Q12017Q22017Q32017Q42018Q12018Q22018Q32018Q42019Q12019Q22019Q32019Q42020Q12020Q22020Q320% 40% 60% 80% 100% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 5 All-female teams have a record quarter All-male and mixed-gender founding teams both suffered a drop in deals completed this quarter, with a decrease of 12% and 31% since Q2 2020, respecitvely. All-female teams, however, have sustained the same rate of investment as Q2 2020, with 27 deals. Still, all-female founding teams secured just 7% of all equity investments in Q3, despite making up 10% of all active high-growth companies. For the first time on record, all-female founding teams raised more than double the funding of mixed-gender teams. This was largely driven by a £252m investment led by Vengrove Real Estate Management into Karma Kitchen, run by sisters Eccie and Gini Newton. Karma Kitchen operates several industrial kitchen spaces which can be hired when businesses do not have the space themselves. This was the biggest round of the quarter, and will fund expansion across the UK and Europe. number of dealS by gender of founding team amount raiSed by gender of founding team 50 100 150 200 250 300 350 400 All male founding teams Mixed gender founding teams All female founding teams Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1 2018 Q1 2019 Q1 2020 £0.5b £1.0b £1.5b £2.0b £2.5b £3.0b All male founding teams Mixed gender founding teams All female founding teams Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1 2018 Q1 2019 Q1 2020 6 Earlier-stage businesses lose out on investment The number of seed stage deals ended on 161 by the end of September. This marks a 20% drop from Q2 2020, but just a 6% drop since Q3 2019. Just £128m was invested into seed stage businesses, the lowest amount since Q3 2017. Venture stage deals dropped 11% from Q2 2020, but remained on par with Q3 2019. After a steady increase in deal numbers between 2011 and 2016, they now look to be levelling out. But the amount invested through these deals has reached a new high, with £897m deployed over the course of Q3. Meanwhile, growth and established stage investments saw a slight uptick in both deal numbers and amount raised since Q2 2020. But neither reached anywhere near their respective records in previous quarters. number of dealS by Stage of evolution amount inveSted by Stage of evolution 2011 Q3 2012 Q3 2013 Q3 2014 Q3 2015 Q3 2016 Q3 2017 Q3 2018 Q3 2019 Q3 2020 Q3 50 100 150 200 Seed Venture Growth Established 2011 Q3 2012 Q3 2013 Q3 2014 Q3 2015 Q3 2016 Q3 2017 Q3 2018 Q3 2019 Q3 2020 Q3 £0.5b £1.0b £1.5b £2.0b Seed Venture Growth Established 7 Average deal size increases as few early rounds take place Just 27% of equity deals were worth less than £500k in Q3, the lowest proportion since our records began back in 2011. This is reflective of a drop in seed and venture stage investments, which are naturally at the smaller end of the scale. Nine megadeals took place throughout the quarter—the same number as Q3 2019 and three more than Q2 2020. Between Q2 and Q3 2020, the median deal size increased across all stages of evolution: 16% at the growth stage; 82% at venture; and 13% at seed. This means that small sums of capital which help promising businesses get up and running are becoming harder to come by, with investors moving towards larger deals with less risk. This trend has been apparent for the past several years, and has been catalysed by the current economic uncertainty. percent Share of total dealS, by deal Size median deal Size acroSS StageS of evolution 2011 Q12011 Q22011 Q32011 Q42012 Q12012 Q22012 Q32012 Q42013 Q12013 Q22013 Q32013 Q42014 Q12014 Q22014 Q32014 Q42015 Q12015 Q22015 Q32015 Q42016 Q12016 Q22016 Q32016 Q42017 Q12017 Q22017 Q32017 Q42018 Q12018 Q22018 Q32018 Q42019 Q12019 Q22019 Q32019 Q42020 Q12020 Q22020 Q320% 40% 60% 80% 100% £50m+ £10m-£50m £5m-£10m £2m-£5m £1m-£2m £500k-£1m £0-£499k 2011 Q3 2012 Q3 2013 Q3 2014 Q3 2015 Q3 2016 Q3 2017 Q3 2018 Q3 2019 Q3 2020 Q3 £2m £4m £6m £8m £10m £12m Seed Venture Growth 8 The biggest deals of the quarter £252m Karma Kitchen Karma Kitchen builds, equips, and manages co-working, commercial kitchens in industrial spaces, for hire by businesses who don’t have their own facilities. Deal date 15/07/2020 Location London Total raised £252m, 2 deals £248m ($319m) TransferWise TransferWise has developed a secure, online platform which allows individuals and SMEs to instantly spend, get paid, and transfer money abroad, using real exchange rates. Deal date 28/07/2020 Location London Total raised £552m, 10 deals £200m Gymshark Gymshark is a fitness brand and online retailer which manufactures a range of sportswear and accessories for men and women. Deal date 14/08/2020 Location West Midlands Total raised £200m, 1 deal £154m ($200m) Snyk Snyk offers a range of developer tools which enable software-driven businesses to stay secure by finding and fixing vulnerabilities in open source libraries or containers. Deal date 09/09/2020 Location London Total raised £354m, 8 deals 9 Fintech's back and eHealth's on the rise Fintech had its second-best quarter on record, with 60 deals completed between July and September. These deals are worth a combined £1b. Fintech is now set to have a record-breaking 2020, in terms of both deals completed and amount raised. eHealth and digital security companies also had good quarters, with 15 and 20 deals respectively. The largest eHealth deal was a £23m round for Lumeon, which develops software for medical practitioners to help them track the progress of patients and keep up to date with admin tasks. Meanwhile artificial intelligence saw a slow down in investment activity. Surprisingly, with such a focus on at-home and self-isolated education, investment into edtech companies has remained relatively subdued over the past few quarters. Just seven deals were completed in Q3 2020, compared to ten in Q3 2019. number of fundraiSingS, Selected verticalS 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 0 10 20 30 40 50 60 Digital security eHealth Artificial Intelligence EdTech Life sciences FinTech Author Hannah Skingle Design Ella Halmari © Beauhurst 2020