VC investment in UK technology companies grew 23% in Q2 compared to Q1 and by 46% compared to Q209, according to Ascendant, the technology-focussed investment house.
In Q2, VCs invested £188m in 46 UK and Irish companies, 23% up on the £153m invested in Q1. 84 investors participated in the Q2 deals– a 35% increase over Q209.
“When we published our Q1 figures, we highlighted the fact that there was no VC investment in semi/opto companies in the first three months of 2010,” says Stuart McKnight, managing director of Ascendant, “as we have been monitoring VC activity for more than 14 years, we were aware that this was the first time in that long period where VCs had avoided the sector. Like many people in the industry we were concerned that the sector had been abandoned by investors who were wary of its appetite for capital. Looking at our Q2 data, those concerns seem unwarranted as 6 six semi/opto companies have received over £55m since April.”
The 10 biggest deals in Q2, getting 68% the investment, were: Icera (£31m), InterResolve (£30m), Hut Group (£14m), Picochip (£14m), Red Spider (£8m), Nualight (£7m), Huddle (£7m), Aepona (£7m), P2i (£6m) and PhosphonicS (£6m).
The busiest investors were Carbon Trust, Balderton Capital, Eden Ventures, Enterprise Ireland, Midven, Oxford Capital Partners and Scottish Enterprise.
Levels of syndication rose slightly to 67% (62%) of deals, and private investors’ participation in VC deals dropped to 20% (29%) .
For the first half of 2010, a total of £341m has been invested by 141 investors in 111 deals worth £0.5m.
The number of deals done in Q2 – 46 – showed a drop from the 65 deals done in Q1. This reflects a multi-year trend for UK/Irish VC tech Investment of high numbers of deals completed in the first three months of the year being followed by a slower Q2.
“Clearly this is primarily a tax driven phenomena but there are other factors too,” says Stuart McKnight, managing director of Ascendant, “the recession in 2008/9 skewed this behaviour but it appears we have resumed business as usual at least in this regard.
McKnight wonders whether the semi/opto area is now being treated with more caution by investors. “23 investors of various sizes, types and locations were involved in these deals. However, only three were not existing investors in these particular companies. Moreover, this new money, we believe, amounted to less than or close £1m in each case. So attracting new investor to the sector is still difficult. “
The Semi/Opto sector is not alone in these issues. With many of the established players adopting “Barbell” investing strategies (i.e. invest early or late but not in the middle), getting new money into Series A or B rounds can be challenging. Fortunately, the bread of investors active in the market is wide and companies who are prepared to put in the time and effort can often raise capital from these diverse sources rather than the usual “LP backed” suspects.
On the positive side, new money continues to be added to the market – e.g. WHEB Ventures’ Clean Technology Investment Fund, the NW Fund, etc.
“An investment target of £700m for 2010 is still reasonable,” says McKnight.
The four primary areas of Q2 investment were Semi/Opto (£55m), Software (£30m), Cleantech (£23m) and Internet/Wireless Services (£18m) which represents a major change over Q1 when Semi/Opto companies received no investment.
Software also enjoyed an uplift in investment during Q2 whereas Cleantech and Internet/Wireless Services both dropped significantly.
6 Semi/Opto companies received investment - the largest deals were Icera (£31m), Picochip (£14m) and Movidius (£5m).
9 Software companies received VC backing – the largest deals were: Hut Group (£30m) and Aepona (£7m) – all other deals were less than £3m.
The key Cleantech deals included: PhosphonicS (£6m), Green Biologics (£5m) and Navetas (£4m). Although the volume of completed deals was steady at 11, the capital invested in the sector dropped by 30% vs Q1.
11 Internet/Wireless Service companies received investment but only 2 got more than £2m – Huddle (£7m) and NewVoiceMedia (£4m). Investment in the sector dropped by 60% vs Q1
London based tech businesses took 24% of VC money vs 44% in Q1. The Icera deal boosted the South West, but otherwise the Thames Valley, Ireland and the North followed London closely in both value and volume.
Only 1 Cambridge tech business attracted significant VC funding in Q2, leaving the region at the bottom of Ascendant’s regional league table.