Market Update

Stewart McKnight of Ascendant has released his most recent quarterly update of investment trends.

Ascendant collects this data to allow it to give up to date information to our clients who are fund raising or looking for interesting acquisition and merger opportunities.  Demonstrably, we know which investors are actively investing, what they are investing in, how much they are investing and who they are investing with.  This knowledge combined with our extensive deal experience makes a material difference to the success of our fund raising clients.  As always, if you know of any individuals or interesting companies that would benefit from a conversation about this and how to deal with current market conditions, we would be delighted to talk with them.

Ascendant is also currently advising a number of companies on significant M&A transactions and bond finance.  So we would like to talk to you about achieving exits and larger financing transactions too.

Investment Trends in Q2 2012

The simple headline is that in Q2 2012, £297m (up from £234m in Q2 2011) was invested in 60 UK/Irish companies (48) by 102 investors (70).  When added to our figures for Q1 that makes £596m invested in 124 companies in the first half of 2012.  It is worth noting that in the whole of 2011, just £786m was invested in 193 companies so we are experiencing a significant uplift in terms of funds committed and in the volume of companies receiving money.

These numbers are much better than expected and present a very encouraging investment picture.  £600m has not been invested in a six-month period for more than 10 years.  (Even in 2008, which was a boom year, VCs only managed to invest £550m in H1.)  The market appears to be moving up by all the key indicators (volume, number of investors, deal sizes, etc.) that Ascendant tracks.  However, the growth is not universal and certain sectors are still struggling.  Internet/mobile/digital media continues to be “the name of the game” with the value of investment in H1 increasing by 30% to almost £0.25bn.  Cleantech also did well but was biased by one exceptionally large transaction – Tamar Energy.  Adjusting for this still presents grow in “all things green” of over 70% to £125m.  All other areas declined – including software and semiconductors – reflecting the challenging times companies in these sectors are facing when trying to raise finance.

A key driver of the growth in the market has been the boost in the number of investors participating in deals.  Although we do track angel investment, Ascendant only reports on institution investment – i.e. we know who the key angels are, but only publish data on institutional investment.  At lowest point of the market – Q1 2009 – only 58 investors committed funds to tech companies in the UK and Ireland.  In Q2, 2012 it was 102.  The increase has been from a number of sources – new funds, trade investors, and the return of long standing participants.  The latter is not a surprise – if a 10 year has been raised it still has to be invested.  But many “well known names” have disappeared from our lists as they have failed to raise new funds.

The emergence of new funds is encouraging but it is very noticeable that many of these are small in scale.  This raises 2 questions:  how long will they last and where will the next round for their investee companies come from?  “Shallow pockets” have been a defining characteristic of UK/Irish Tech Investors for many years and we may suffer these issues for a little longer.

The number of active trade investors is also expanding and they are becoming a very interesting and diversified group.  For example, in the last 12 months, Ascendant has recorded investments by the World Gold Council and the Energy Technologies Institute in UK tech companies.  These, and many other strategic investors, are not so obvious choices for sources of funds but they are very welcome in this market.  So companies raising finance should really think out of the box when looking for money.

As mentioned above, at the halfway stage, the market is well ahead of its performance in 2011.  With just under £600m invested in H1 2012 the outlook for this year looks good and we anticipate that the final figure for 2012 will be greater than £900m but probably not exceed £1bn.  So far so good!

Looking more generally, we have summarized our analysis of the year in the attached PAGEONE report.  This highlights a number of trends – including:

In Q2 2012, £207m was invested in 60 deals by 102 investors.

In the first half of 2012, £596m was invested in 124 companies

In Q2, the busiest investors were Index, Cambridge Angels, Eden, Greylock, North West Fund and Scottish Enterprise

68% of deals involved more than one investor

Private investors participated in 30% of VC deals, US investors in 17%, Euro investors in 10% and Corporate Investors in 13%

The biggest deals were Just-Eat (£40m), Enecsys (£25m), Prosonix (£17m), Huddle (£15m), Isentropic (£14m), Openet (£14m), P2i (£12m), Funding Circle (£10m), MedicAnimal (£10m) and Notonthehighstreet (£10m)

In the Internet/Wireless Services sector, 22 companies received £130m.  Just-Eat (£40m), Huddle (£15m), MedicAnimal (£10m), Notonthehighstreet (£10m), Funding Circle (£10m) and Onefinestay (£8m) received the biggest VC cheques.

11 Cleantech companies raised £71m with the biggest deals being: Enecsys (£25m), Isentropic (£14m), Tamar Energy (£7m), Sefaira (£7m), Heliex Power (£5m) and Navetas (£5m)

The largest Software deals were: Openet Telecom (£14m), Natural Motion (£7m), DataSift (£4.5m), Aframe (£4.2m).  16 Software companies received £44m.

Just 4 semi/opto companies received £12m in this quarter.  The deals were: Seven Technologies (£7m), M Squared (£4m), ATEEDA (£1m) and Mesuro (£0.7m)

The most active regions were London and Scotland which were responsible for 33% and 17% of deals respectively

London’s share of the VC money amounted to 46% of the funds invested in the UK and Ireland

For the first time Ascendant saw NO transactions in the SW

To view the Summary Table please click HERE.