Overall equity amounts invested in high-growth companies fell from £8.27b in 2017, to £7b in 2018 .
Despite this reduction, crowdfunding had yet another record year both in terms of number of deals completed and amounts invested. Whether this crowdfunding trend is a good thing or a problem waiting to unravel – only time will tell!
At the same time, angel investing has decreased some 35%, potentially as result of general political uncertainty caused by the ‘will we stay, or will we go’ game currently playing out at Westminster.
Private Equity (PE)
There continues to be very strong demand from PE to invest in high-growth tech companies. The changes to the venture capital trust (VCT) rules, some three years ago, forced the PE funds reliant on VCT funding to find a new home for their money. The majority of funds concluded the best way to earn similar returns to those which had previously been achieved through backing MBOs, was to provide development capital to high-growth tech companies.
For once, the tax man can take credit for genuinely driving a positive change. Significant and increasing amounts continue to be invested across fast-growth technology companies and especially in the niche areas of PropTech, EdTech and AI.
The approach of each is vastly different with the former looking to control and set the strategy and the latter focused on backing the existing team to broadly deliver their own business plan.
Mind the VCT Gap
For those companies seeking to take advantage of VCT funds we have, however, seen an increasing number of challenges around VCT qualification. Given non-qualification impacts every investment made by that specific fund and not just that individual investment, this is not an area those funders can take a commercial view on. Seeking early advice from a genuine expert is key. All too often we meet companies who have taken advice from a lawyer or accountant ‘on the cheap’ and then later discovered they do not qualify due to one of the many technical pitfalls of the legislation. This undoubtedly is one area that should be improved, especially given that getting such clearances can often take 10 to 12 weeks.
This woman can – but only if she gets funding
Finally, as someone who has advised a huge number of female entrepreneurs, it is really disappointing to see that only 16% of 2018’s equity investment deals went into female-founded companies – a 2% reduction on the 2016 figure. Whilst the PE community remains dominated by men, it is inevitable that a huge number of female led companies and female focussed products and solutions will continue to be underfunded. It is surprising that market forces have not addressed this as, in my view, there is a great opportunity to take advantage of this market anomaly and for everyone to benefit.
It’s good to talk
The above are just some of trends we have noted over the last 12 months. While advising a variety of tech companies, we continually see people making the same mistakes which could be avoided if only they had taken time to get advice. If you fancy a coffee and chat, then drop me a line – it would be great to meet and hear your story.