VC investment in the UK and Ireland in Q2 was up on Q1 though, as expected, well down on last year, reports Ascendant, the technology-focussed investment group.
"Just 42 deals (over £0.5m) were completed in Q2 with £129m being invested by 61 investors", says Stuart McKnight, managing director of Ascendant, 'this brings the total for the year to date to 90 transactions and total investment to £244m - well down on the same period last year when 129 companies received £557m."
The ten biggest deals received 61% of funds invested. They were: Wonga (£19m), Seatwave (£10m), Glasses Direct (£10m), Alertme (£8m); Blue Ocean Wireless (£7m), Advanced Plasma Power (£6m), Enecsys (£6m), Metalysis (£5m); Liquavista (£4m), and i2O Water (£4m).
Only 3 semiconductor /optoelectronics companies received venture capital - Liquavista (£4m) and Compound Semi (£2m) and Elonics (£1m). This total was the lowest level of Q2 investment in the sector since 2005
"Nevertheless", adds McKnight, "it does look as though that there has been some improvement in levels of activity over Q1. So hopefully this is some indicator of recovery in the market and the economy."
Ascendant notices a number of significant changes in investor behaviour this year. The market has collapsed at the 'big end' far faster than at the 'small end'.
'Our data shows that there has been a 61% drop in the number of deals over £5m but only a 9% drop in deals under £5m', says the company, which believes that this trend is driven by:
• A general perception of valuations being reduced and therefore not supporting larger fund raisings;
• Investors being more cautious about the UK's overall economic outlook and on the prospects for individual companies;
• Some investors conserving investment funds;
• Regional development agencies and government-backed funds maintaining their rate of investment because of their broader investment strategy/mandate; and
• Angels playing a greater role in tech sector deals.
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'The fact that small end of the market is suffering less than the big end contradicts the view of many that urgent action is required to support companies in the 'equity gap' (i.e. £1m-£3m)', says Ascendant, 'of course, we welcome all new funds/capital that can be brought to the market but the evidence supporting the absolute need for it is thin. It will be interesting to see how the various initiatives being discussed at this time support further growth in the VC in the UK and Ireland or perhaps distort a market which is already restructuring itself in a new economic climate.'
Ascendant highlights a number of points:
• The busiest investors were Enterprise Ireland, Scottish Enterprise, Accel and Delta Partners
• Levels of syndication dropped slightly with 62% of deals involving more than one investor
• Private investors participation in VC deals remained relatively high - 29% - similar to Q1
• Following the pattern of Q1, there were three primary areas of investment focus - Internet/Wireless Services (£56m), Cleantech (£32m) and Software (£19m)
• In the Internet/Wireless Services sector: Wonga (£18m), Seatwave (£10m) and Glasses Direct (£10m) received the biggest VC cheques
• The key Cleantech deals included: Advanced Plasma (£6m), Enecsys (£6m), Metalysis (£5m)
• The largest Software deals were: Kalido (£3m) and SeeWhy (£3m) - all other deals were less than £3m.
• London based tech businesses remained the largest single recipient of VC money taking 39% of the funds invested in the UK and Ireland.
• Investment in Irish companies remained strong with a share of 16% of capital whilst Scotland experienced a significant drop in both value and the number of completions.
"Clearly these changes and the general poor state of the economy will have a profound effect on the ease with which companies will be able to attract additional finance or undertake any M&A in 2009," says McKnight.