UK tech investment trends of Q1 2017

Investment Growth in Q1

The first quarter of 2017 was strong in terms of investment rounds announced by UK tech companies. A total of £576.85m ($719.27m) in funding was recorded on the Tech City News Investment Tracker in the first three months of the year.

This represents a 142.8% increase on the £237.56m announced in Q4 2016 and an 80.2% increase on the £320.14m raised in Q1 2016.

March was the month that saw the most investment activity, with £239.82m recorded across 30 rounds. The largest round recorded in this month was the £83m secured by Durham-based Atom Bank.

In January, £194.81m of investment activity was recorded across 27 rounds, with the largest round going to London’s Funding Circle ($100m). Our tracker recorded 25 rounds in February totalling £142.23m, with a largest single round of £50m going to Nottingham-based cloud service provider Timico.

Simon Menashy, partner at MMC Ventures, said: “The start of this year felt like a lot of capital chasing a smaller number of ‘hot’ deals, with valuations remaining high. That supports the larger average round size we saw compared with Q4, especially in FinTech, and I expect that to continue in Q2.”

He went on to say there’s a lot of corporate money flowing into startups, and smart founders have been pairing the capital and market access of a strategic (corporate) investor with a venture fund, “bringing scaleup expertise and the experience needed to get the round done quickly in a founder-friendly structure”.

“The other busy people in Q1 have been the venture debt funds, as early-stage companies extend their runway to get to the next milestone,” Menashy concluded.

Location

Of the quarter’s 82 rounds recorded on Tech City’s tracker, which only lists rounds of £300,000 or more and doesn’t include investment secured via crowdfunding platforms, 62 were raised by London-based companies.

Four of the rounds were raised by Edinburgh-based companies (AdTech firm TVSquared, cybersecurity startup ZoneFox, electronics company Dukosi and HealthTech startup Reactec).

Two of the firms that announced rounds in Q1 2017 are based in Cheshire (TyresOnTheDrive and SurveyMe), with companies from the following locations also raising funding: Belfast, Birmingham, Cambridge, Cheltenham, Dorset, Durham, Leeds, Liverpool, Manchester, Nottinghamshire, Oxford, Reading, Sheffield and York.

Tim Mills, investment director at Angel CoFund, said: “Sometimes the scale of activity in London manages to eclipse the host of tech talent that is busily creating new businesses across the UK. Vibrant tech hubs can be found in cities ranging from Cambridge to Bristol to Edinburgh, delivering extraordinary successes like SkyScanner and DeepMind to prove it.”

He went on to say that, in terms of scale, it is the North of England that’s proving to be a “thriving scene of innovation and entrepreneurship”. This is thanks partly to recent investments in transport and digital infrastructure, which he labelled “vital underpinnings” for any modern business.

“Earlier this year, the government recognised the digital capabilities of the region by launching the Northern Powerhouse Investment Fund. Initially conceived back in 2015 to boost the supply for capital for SMEs across the North, the £440m fund, backed by the British Business Bank, will bolster digital businesses in cities such as Newcastle, Liverpool, and Manchester,” Mills explained.

He said that, collectively, cities in the North of England are beginning to take on the capital in terms of nurturing prosperous and dynamic tech companies.

“Still, in order to ensure this digital ‘Northern Powerhouse’ transcends from political idealism to economic reality, it’s imperative for private investors to put their money to work where such an extensive opportunity lies. Something there is good evidence to suggest is happening, with well known tech finance houses such as GP Bullhound or Zeus Capital building their presence, many mainstream VCs opening offices and hiring new people in the region and new business angel groups coming together,” Mills added.

He said angel investors are “optimally placed” to take on the challenge of getting capital to work widely, as angel syndication spreads risk, but leverages expertise and personal networks, ultimately resulting in “superior investment prospects”.

“So, by collaborating across Northern England – a region that, as the Industrial Revolution demonstrated, has never been lacking in innovative ideas – investors have the opportunity to deliver precisely what the British economy needs during these more uncertain times,” he concluded.

Sector trends

Of the rounds raised in Q1 2017, 26 were listed as Seed, with 25 Series A rounds recorded, seven Series B, one Series C (TVSquared), one Series D (Currencycloud) and one Series F (Funding Circle).

Five artificial intelligence companies – Lobster, CytoraLoopMe, Cleo and Starship Technologies – raised rounds in the quarter, accounting for £26.16m of the total.

Nine PropTech firms secured funding too, raising a combined £38m, while five HealthTech companies received a total of £4.05m.

Eyal Malinger, investment director at Beringea, said: “After an apparent lull in interest, Q1 saw a strong emergence of PropTech as front and centre on the agenda.”

He went on to say there’s been a shift of attitudes in the property market as of late.

“Even MPIM, the leading property event taking place in Cannes every year and the bastion of the old-school property world, took note of this trend and added a significant PropTech element to the event this year. This indicates that even these ‘old school’ real estate players are realising they need to wake up to reality – PropTech is here to stay,” he explained.

The tech vertical with the most raises in the quarter was FinTech, with 12 financial technology companies securing funding, totalling £168.22m. All of the FinTech firms that raised funds this quarter are based in London, except Atom Bank, which, as previously mentioned, was founded in Durham.

Outlook

But what of the rest of 2017? Harry Briggs, partner at BGF Ventures, said he expects to see continued strong growth in artificial intelligence, FinTech and cybersecurity, as well as emerging opportunities in genetics and synthetic biology.

Commenting on whether potential changes to the global political landscape would have an impact upon UK tech investment, he added; “Assuming Theresa May and Angela Merkel win their respective elections, we don’t foresee any major external factors – but as more Brexit positions emerge, these could put a dampener on the tech sector, particularly if skilled immigration is curtailed or financial passporting is threatened.”

Source: UK tech investment trends of Q1 2017

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