Beauhurst, the data analytics company that tracks the fortunes of “the UK’s most ambitious companies”, has released its latest report about the state of venture capital, angel and crowdfunding investment, covering Q2 2016, and the signs for British early stage businesses aren’t good, they say.
Beauhurst suggests that “the signs are somewhat bleak for equity investment in the UK’s high growth businesses”, due to the fact that “deal numbers and investment amounts are both significantly down in the last six months compared to the previous period.
Viewed from a quarterly perspective, things get worse still – deal numbers have fallen 10%, the report shows, and investment has fallen by 29%. Crowdfunding deals are also down over the half year and “private equity numbers are at their lowest level since 2013.” Blame Brexit?
VC’s made £642 of investments across the first half of 2016, according to Beauhurst’s data; a 43% decrease on the second half of 2015.
As always however, there are mitigating circumstances – the technology sector, although numbers were down overall, experienced its second highest half on record, according to the report.
The numbers of software deals fell, but the amount invested was at a record high, up 82% on H2 2015.
Life sciences, a traditionally consistent sector for funding, fell by 49%, although the previous period, H2 2015 was “an anomalously high sector”, according to Beauhurst.
London has had a stinker. Deal numbers for the half year have fallen by 28%, but Cambridge, Manchester and Oxford, the report notes, have all experienced growth.
Average deal sizes have grown thanks to the drop in the number of deals. Deals worth £10m were the only sector to see an increase in numbers.
During H1 2016, 413 venture stage investments were made, (down 36% on previous half), with £642m invested (£794m in H2 2015).
182 growth stage investments were made in H1 2016 (19% drop on previous half), for £1.31bn of investment overall, an increase of 5%.
Despite its poor overall performance, London is still streets ahead of its nearest rival in terms of deals done; 247 deals plays 17, Cambridge, 16, Edinburgh, 12, Manchester, 11, Oxford, and 9, Leeds.
It would be logical to pin the decline on Brexit, but having said that, City AM reported last week that more than £200m of investments have poured into the UK Tech Sector since Brexit, across 42 deals, including Darktrace ($65m), Lystable ($13.3m), Post Quantum ($11.39m) and Market Invoice ($10.25m). FinTech has performed with aplomb – could this even be down to the fact that FinTech firms will soon (well, in 2 years and counting) be unburdened by onerous EU regulations, and free to trade with the rest of the world?
The corollary to that argument, of course, is that most of these deals were probably concluded in a pre-Brexit environment, when the idea that Britain would leave Europe seemed as preposterous as the idea that David Cameron would be chillaxing back in Oxfordshire as an ex PM, nominating his wife’s stylist for an OBE. How times change.
Whilst crunching the numbers around venture capital investment is an undeniably useful activity, for what it’s worth, our take is that it is often best not to read too much into them.
There are few discernible trends around VC investing over the past 3 years, and if say, you took Skyscanner’s £143m mega deal out of Q1 2016 and inserted it into Q2, we’d almost be talking about smooth progression.
And Brexit? Well, Masuyashi Son bought Arm Technolgies for a whopping £24bn because he thinks smart technology is the future, and barely batted an eyelid at Brexit. According to the Financial Times, he is quoted to have said it “wasn’t even 0.1% on my mind” when he agreed the deal.
The only difference, he had to cosy up to Theresa May, not David Cameron, to agree the deal, pledging to double the number of jobs at ARM and keep the HQ in Cambridge.
That £24bn dwarfs the 2 or 3 billion of Venture Capital that the UK tends to attract each year, give or take few hundred million. Perhaps that’s the best news for entrepreneurs; build it, stay focused, and they will come.