High-tech investment in the UK and Ireland is increasing, says Ascendant, the technology-focussed investment company, which attributes the increase to the rise of the ‘super-angel’.
In Q3 2011, £205m (up from £133m in Q2 2010) was invested in 55 UK/Irish companies (49) by 83 investors (73).
“When added to our figures for H1 that makes £657m invested in 145 companies in the year so far,” says Stuart McKnight, managing director of Ascendant, “in the whole of 2010, £620m was invested in 213 companies so we are well ahead in terms of funds committed, but unlikely to match the number of deals completed last year.”
The busiest investors were Scottish Enterprise, Enterprise Ireland, TriCap, DFJEsprit, Eden, Forward, Imperial Innovations, Invesco, IP Group, Ludgate Environmental, Parkwalk, Pentech and Sofinnova.
67% of deals involved more than one investor. Private investors participated in 33% of VC deals, US investors in 7%, Euro investors in 9% and Corporate Investors in 16%.
The biggest deals were: Nexeon (£40m), ECO Plastics (£24m), A Shade Greener (£20m), Aquamarine Power (£11m), Tidal Energy (£11m), Brandtone (£8m), Mydeco (£7m), Centrix Software (£6m), Plaxica (£5m) and Adfonic (£5m).
The three primary areas of investment were Cleantech (£126m), Internet/Mobile Services (£40m) and Software (£19m).
14 Cleantech companies received investment - the top deals were Nexeon (£40m), ECO Plastics (£24m), A Shade Greener (£20m), Aquamarine Power (£11m) and Tidal Energy (£11m).
The Internet/Mobile Service sector was the most active this quarter with 20 companies receiving investment. The biggest deals were: Brandtone (£8.3m), Mydeco (£7m), Adfomic (£4.7m), WeRInteractive (£3m) and New Voice Media (£2.5m).
Nine software companies received funds during Q3. The largest deals were: Centrix Software (£6.1m), Datasift (£3.7m) and Exco in Touch (£3m) – all other deals were less than £3m.
Regionally, London was significantly down on its usual share of the spoils. It took respectively 19% and 31% of the value invested and volume of deals done reflecting some very large deals done elsewhere.
For the first time in 15 years the Thames Valley was the best performing region receiving £54m.
Then, after London, the Midlands and the North came next taking £27m and £24m respectively. Cambridge companies only received just over £6m.
Cleantech investors returned to the market in strength in Q3. 14 cleantech businesses received funding – more than in the whole of H1. £127m was invested in these businesses. This compares very favorably with just £72m in H1.
Whilst the Nexeon deal (£40m) clearly distorts the value figures, the increase in activity cannot be disputed. Virtually all the subsectors got some attention – solar, wave, tidal, smart grid, biomass, recycling, re-usable plastics, etc.
All stages of development were funded too – most of the deals were late stage but four companies got their first round of formal funding (ie >£500k).
'Changes in investor behavior with regard to types of companies can usually be attributed to some causal factor or factors (e.g. changes in regulation, new information, radical innovation in businesses models or technologies, etc.),' says Ascendant, 'we can see no pattern in this and will watch with caution to see if the growth can be sustained.'
Another surprising trend is the continuing rise of private investor involvement in VC backed tech deals. “We have commented on this many times over the last two years,” says McKnight, “in Q3, private investors participation in VC deals increased to 33% - the highest level Ascendant has recorded in 15 years. We would also draw your attention to the fact that in the last quarter the average size of deals that had a contribution from private investors was just under £1.8m."
"So these are not just small angel deals. VCs are now increasingly comfortable with, and in some cases actively encouraging, private investor participation in their investee companies. There are “super angels” in the UK and Ireland – perhaps not yet in the numbers that are apparent in the US – and their presence is becoming much more noticeable,” says McKnight.
There was a notable uptick in the number of active investors in Q3 – in fact this reversed the steady decline over the last 3 quarters. It is particularly interesting that this happened during the “dog days” of summer when investors are usually not quite as active as they are during over other parts of the year. When the names on the list are reviewed it can be seen that there are new players in the market – a very welcome development. To these we can add more corporate venturing and the market begins to look in better shape than it has for some time.
'At the end of Q2, we pushed up our “guesstimate” for total investment in the sector for the year to between £800m-£850m,' says Ascendant, 'whilst Q3 has been another "good quarter", we know that historically Q4 is typically down on previous quarters so we are only willing to nudge up our forecast to between £820m and £870m.'