The UK has been in lockdown for 87 days, and while there have been some tentative returns to normality in schooling and non-essential shopping, these developments remain compartmentalised to certain professions or locations. For many startups and growing companies, business-as-usual still seems a long way away, and their financial situations may be becoming increasingly dire. While the queues for investment must be growing longer and more frantic, are investors still keeping their distance?
While some investors have continued to make investments over the lockdown period, their activity has been undeniably suppressed by the uncertainty of the national situation. With less than two weeks until the end of Q2 2020, this article assesses the scale of this suppression, and then goes on to benchmark lockdown investment against the equivalent period in 2019.
There have been 784 deals in Q2 of 2020 so far. Although we are 85% of the way through Q2, there has been just 53% of the investment that UK companies secured in Q1 2020. With less than two weeks to go, we’re unlikely to catch up.
36% of these deals were announced, while 63% were not mentioned in the press. This would suggest that there has been a decline in unannounced deals; in Q2 of 2019, unannounced deals made up 70% of all equity deals. However, this may be explained by the delay between a deal being struck and the official issuing of shares at Companies House. It may also be caused by companies ‘over-announcing’ deals during the lockdown; securing equity investment is a significant demonstration of investors’ confidence in your business, and could be considered valuable PR during a period of largely discouraging news.
£1.86bn has been invested in Q2 of 2020 so far. Again, this is about half of what growing companies secured in Q1 of this year.
The largest deal so far was that of Onfido, securing £79.2M. Onfido develops an online platform for carrying out background checks and employment screening. The InsurTech firm, Bought By Many, also secured £78.4M. They run a website that facilitates the negotiation of more comprehensive insurance cover at better prices, driven by groups of people needing the same criterion of insurance.
In comparison, the top deals of Q1 2020 were much larger. By the 17th of March there had already been four deals larger than £100m in value, including Revolut’s deal of £383M.
2020 versus 2019
2019 was a hugely successful year for equity investment. Q2 and Q1 were the first and second most lucrative quarters on record for investee companies. 2020 faced a huge challenge in reaching these heights, even before the COVID-19 pandemic hit.
This section compares the period of lockdown that has just passed in the UK (23rd March until 17th June) with the equivalent period in 2019 (23rd March 2019 until 17th June 2019). This analysis looks at announced deals only.
Number of deals
Difference from 23rd March 2019 – 17th June 2019
Difference from 23rd March 2019 – 17th June 2019
Between the 23rd of March 2020 – the first day of official lockdown in the UK – and the 17th June 2020, £1.67bn has been secured by UK companies in 324 announced deals. In terms of amount, this is just 46% less than what was secured in the same period in 2019, where £3.11bn was brought in by UK companies. Deal numbers have taken a similar hit (-31%); the compared period in 2019 saw 472 deals.
Stage by stage
When comparing the lockdown period in 2020 with the same period in 2019, different trends emerge for companies at varying stages of development.
Established stage companies have taken the largest hit, securing 88% fewer pounds than in the same period of 2019. While Growth stage firms secured 53% less, the younger Seed and Venture stage companies seem to have fared better. While Seed stage companies are down 7% on 2019, Venture stage companies have actually secured 37% more in equity investment during the lockdown period than in the equivalent period in 2019.
The motivation behind seeking investment differs significantly between companies at earlier and later stages of growth. Established and Growth stage companies often raise investment for individual projects or campaigns, such as international expansion or a new product line; many of these plans will have been put on hold during the lockdown, and so their adjacent funding rounds have also been shelved.
On the other hand, pre-revenue Seed and Venture stage companies that are making a loss are still critically reliant on investment to keep their business afloat. Their leaders will still be urgently seeking support to ensure their companies see the other side of the lockdown at all.
The observed differences in impact could also be explained by the amount of capital that companies are looking to raise. Later stage companies tend to require much larger amounts of investment for their plans; these sums may make investors balk during a time of crisis. In addition, these larger, later stage deals are more likely to involve international investors. With a global ban on travel and the 14-day quarantine upon landing in the UK, investors who can’t physically meet the executive team of a candidate company may be holding back on their investments.