Ten new VC funds, with a total of £850m to spend, have been founded this year for investing in the UK and Ireland technology industry, according to Ascendant, the technology focussed investment group.
"This new money has started to be deployed but at a very cautious pace", says Stuart McKnight, managing director of Ascendant,
Ascendant's latest quarterly report show that venture capital investment in the UK and Ireland has bounced back after a very difficult period in the first half of the year In Q3, £213m was invested in UK/Irish tech businesses compared to £244m in the whole of H1 and £220m in Q3 in 2008.
"Whilst volumes of completed deals have not recovered quite so quickly, it is clear that there has been a marked uptick in activity", says McKnight, "we have strong anecdotal evidence that investors are being swamped with new deals and so the outlook for Q4 is promising. Usually the last quarter of the year sees a modest increase over Q3 in terms of funds invested. If that turns out to be the case in 2009, we could see a year-end total of close to £700m which would be very similar to the total funds invested in 2006 which was not a bad year of VC investment. So perhaps we will start to feel a little more optimistic about venture capital in the future."
In the third quarter of 2009, £213m was invested in 53 deals of over £0.5m by 81 investors
In the year to date 140 companies have received £457m
The busiest investors were Octopus Ventures, Scottish Enterprise, 3i and Scottish Equity Partners
The 10 biggest deals included: Imperative Energy (£27m), Intelligent Energy (£18m), Skyvision (£15m), Ocado (£12m), TMO Renewables (£11m), Aquamarine Power (£10m), Virtensys (£10m), Livebookings (£10m), Light Blue Optics (£9m), UbiquiSys (£7m).
Investors changed the balance of their areas of investment focus to Cleantech (£84m), Semiconductors/Opto (£36m), Internet/Wireless Services (£31m) and Comms Services (£21m)
For the first time in Ascendant's data, Cleantech was the sector most favoured by investors taking 40% of all funds invested.
The key Cleantech deals included: Imperative Energy (£27m), Intelligent Energy (£18m), TMO Renewables (£11m) and Aquamarine Power (£10m).
Investors returned to the semi/opto sector in Q3 with 8 companies receiving venture capital. The largest investments were Virtensys (£10m), Light Blue Optics (£9m), Powervation (£6m) and Cambridge Semiconductors (£5m).
Interest in the Internet/Wireless Services sector dropped in Q3 (£31m) from Q2 (£56m). However there were two significant deals: Ocado (£12m) and Livebookings (£10m).
In Q3, Software investments declined in value (£10.5m vs £19m (Q2)) and volume (6 vs 9 (Q2)). There was only one notable deal - Ecommera (£5m).
For the second quarter in a row, the funds invested in London based tech businesses dropped - in Q3 this was just £36m down from £51m (Q2) - more money went to Irish based companies.
All other regions received more than double the funds invested in Q2 - except Cambridge which was static.
The most promising sign of an imminent return to better days for venture capital investment is that since the start of the year 10 new VC funds have been raised which can invest in UK technology (not Life Sciences).
'So, in reality, during 2008/2009, UK tech companies have learned to draw on, and have had access to, different sources of capital', says the Ascendant report, 'family funds, corporate/strategic investors, VCT/EIS funds, private investors, and government backed regional funds have been more visible than many of the traditional LLP players.'
European and, to a lesser degree, US investors have also maintained an active interest in backing good UK and Irish tech companies.
"Going forward we anticipate a much wider investor base with very different investment aspirations (in both returns and the timing of those returns)", says McKnight, "companies raising finance will need to market themselves to a broader and less homogeneous audience. If that sounds like harder work and likely to take more time - that is probably a fair conclusion."
The Ascendant report concludes: '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 now or achieve an exit in 2010. Ascendant is currently advising a number of companies in the UK and in Europe on fund raising and M&A transactions. We therefore have, not only the clear historic picture from "hard" data but in depth current knowledge of investors' and buyers' appetites for deals.'