Value of UK early-stage investments holds steady

Alice Murray
29 May 2013

Tweet
Facebook
LinkedIn
Google plus
Send to

UK early-stage deal numbers are dropping off, but the total value invested has held steady over the last four years.

The UK's relationship with early-stage deals has been understandably tense since the dotcom crash in 2000. However, by 2008, the total value of early-stage investments had crept back up to levels not seen since 2001, reaching €1.03bn. The financial downturn then put the brakes on the recovery of the UK's start-up arena, as it did across all markets. But, from 2009 to 2012, despite falling deal numbers, according to unquote" data the total amount of cash invested in the space has hovered around the €300m level each year throughout that period.

It is encouraging to see some stability in the early-stage market, especially as start-ups have been heralded as a major part of the solution to the UK's sluggish economy.

Alex Macpherson, head of the ventures team at Octopus Investments, explains: "Last year we saw some larger transactions, which is a positive for the market. Today we are seeing a vibrant early-stage market, but ironically there is a lack of early-stage investors. So for those with funds, there are significant opportunities for investment."

UK start-ups are positive about the coming year, according to a recent survey completed by Silicon Valley Bank (SVB): 66% of respondents reported improved business conditions in 2012 compared with 2011, while 73% reported they met or exceeded revenue targets last year.

Following the ups and downs suffered by the UK early-stage investment market, government initiatives such as Tech City and progressive events including the Silicon Milkroundabout – a recruitment fair exclusively for start-ups – have ignited a frenzy of media attention and, more importantly, have turned start-ups into feasible career paths.

But despite the growing significance and need for young and innovative companies, the fundraising environment is dismal. According to SVB's findings, 39% of those surveyed are looking to raise capital from venture or angel investors. However, 90% of respondents said that fundraising is challenging or extremely challenging. Says SVB vice president Bindi Karie: "Many executives have concerns around how they should fuel the next level of growth, since access to funding and talent are cited as challenges for many start-ups. Nevertheless, these are exciting times for the UK tech scene."

Lack of government support has been cited as a key issue hampering growth of the early-stage industry. Start-ups are calling for increased access to government grants and funds, improved communications infrastructure, a more flexible regulatory environment, easier access to employment visas and tax reform – such as the R&D tax credit allowance.

With or without further government support, the UK now offers a wealth of innovative start-ups hungry for investment. Furthermore, the sector is attracting more human capital, making development of early-stage companies more viable than it would have been following the dotcom crash or in the years immediately after the financial downturn. Early-stage investors are clearly positive on what this market can offer, though the trend witnessed over the last five years must be addressed.