british business bank small business equity investment tracker report

8/16/2019 British Business Bank Small Business Equity Investment Tracker Report

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SMALL BUSINESS EQUITYINVESTMENT TRACKER2016


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4 BRITISH BUSINESS BANK 5SMALL BUSINESS EQUITY INVESTMENT TRACKER 2016

Li e sciences and so tware are the largest two technologysub-sectors. The number o deals in the so tware sectorreached a record high in 2015, as did the amount invested(296 deals, £659m in 2015). The number o deals grewonly by 5% compared with 2014 but the amount investedgrew by 45%. The number o deals in the li e sciences alsoreached a record high in 2015 (growing by 10%) but theamount invested grew by an even greater amount (71%).

COMPANIES LOCATED IN LONDON CONTINUE TO BE THELARGEST RECIPIENT OF EQUITY FINANCE RECEIVING47% BY NUMBER AND 57% BY VALUE IN 2015. OUTSIDEOF LONDON PERFORMANCE HAS BEEN MORE VARIED

London has seen the largest year-on-year growth in bothdeal numbers and the total amount invested. The numbero equity deals grew by 17% in 2015, with the total

amount invested increasing by 100%. Whilst the value odeals outside London rose by 23%, the number o dealsdeclined by 4%.

Only two regions outside London have seen continuousyear-on-year increases in deal numbers since 2011: theSouth East and the West Midlands. No region outside oLondon has seen continuous year-on-year increases inthe total amount o annual investment between 2011and 2015.

London has the highest share o high-growth enterprises(21%), but its share o the total number o equity deals in2015 is much higher at 47%. Our analysis o the locationo equity deals in 2015 shows that other cities such asEdinburgh, Manchester, Cambridge, Newcastle, Bristol,Liverpool, Brighton and Glasgow have clusters o smallbusinesses using equity nance, albeit on a smaller scale

than in London.Research by the Enterprise Research Centre 1 shows thathigh growth businesses are spread across the whole othe UK. This de monstrates the potential to encouragemore equity investment to support high growth rms inother areas o the UK.

THE BRITISH BUSINESS BANK HAS A NUMBER OFEQUITY PROGRAMMES DESIGNED TO INCREASE THESUPPLY OF EQUITY FINANCE FOR SMALLER BUSINESSES

Based on the number o visible investments, BritishBusiness Bank programmes are estimated to havesupported around 6% o all equity deals and these deals

ormed around 9% o the overall invested equity amount.

The newly announced Northern Powerhouse andMidlands Engine Investment Funds will specically targetincreasing nance availability in the North and Midlands.The need or these programmes to boost equity de alow in these regions has be en urther rein orced bythis research. Growth in the number o equity deals inNorthern Regions overall has been relatively weak, withgrowth stalling since 2013, whilst growth in the number

o equity deals in the Midlands has been lower thangrowth in London and the South East.

The Northern Powerhouse and Midlands EngineInvestment Funds will work with Growth Hubs and privatesector sources o support to help develop local businessenvironments conducive to greater equity investmentand business growth.

The British Business Bank is also active in raisingawareness amongst small businesses o the options orobtaining equity nance. Our Business Finance Guide 2 provides in ormation on the nance options availableto businesses at different stages o their development,providing advice and sources o i n ormation to helpthem grow.

In summary, the long-term trend in equity investmentis positive with all stages o business development

benetting rom greater access to equity nance.However, the report shows there is more work to do,particularly around encouraging equity nance outsideo London and the South East.

WE WOULD WELCOME DISCUSSING IDEAS AS TO HOWTHE BRITISH BUSINESS BANK CAN FURTHER IMPROVETHE USE OF EQUITY FINANCE TO ENSURE THAT THEUK’S BEST SMALLER BUSINESSES CONTINUE TO GROWAND THRIVE.

DEAL NUMBERS CONTINUE TO GROW, BUT THE MARKETSHOWS SIGNS OF SLOWING

The ow o equity nance to smaller businesses grew in2015 as nance markets continued to improve. Notably,overall annual deal numbers and investment amountshave been increasing since 2011 and now stand at 1,270equity deals in 2015 with an investment value o £3.5bn.Given the private nature o equity deals, no one datasource is able to capture all deals, but the Beauhurst dataused in this report covers the widest range o investors

rom crowd unders to Private Equity unds.

Deal numbers in 2015 are 5% higher than 2014, and theamount o unding is considerably higher, increasing by 58%compared to the previous year. The rate at whi ch annualdeal numbers have been growing has slowed slightly,

while the rate or investment amounts has increased dueto larger deal sizes in 2015. There has been a 71% increasein the number o equity deals above £10m in size comparedto 2014, with the ten largest investments orming 25%o the total equity market.

The overall positive picture presented by the 2015 annualgures is tempered by a slowdown in the nal quarter o2015 offsetting the strong per ormance seen in Q3 2015.The number o investments in Q 4 2015 was 16% lowercompared with the number in Q1 2015. Despite this,quarterly investment totals in 2015 remain well abovethe nal quarter gure or 2014.

There is evidence to suggest that UK equity markets arebeginning to slow as other Beauhurst data shows thedecline in deal numbers continuing in the rst quarter o2016. It will be important to assess to what extent thistrend continues and the impact this has on the undingneeds o growing businesses.

SEED, VENTURE, AND GROWTH STAGE INVESTMENTSHAVE ALL INCREASED. ANNUAL INVESTMENT AMOUNTSSHOWED THE MOST SIGNIFICANT GROWTH, WITH THEVENTURE STAGE GROWING AT THE FASTEST RATE

For the purposes o this report Beauhurst have split theiranalysis o UK equity investment into three stages: s eed-stage, venture-stage and growth-stage, all o whi ch haveseen increases in 2015. Venture stage investments haveseen the most signicant increase, with double-digitgrowth between 2014 and 2015. Investment value hasgrown signicantly across all three stages.

At the seed-stage (predominantly pre-revenue companies)equity deal numbers and investment amounts bothincreased between 2014 and 2015. Annual deal numbersincreased by 3% (27% by value) compared to 2014,growing year-on-year since 2011, b ut the rate o growthhas been declining each year. There were 544 seedstage investments in 2015 (£251m). The Angel Co-Fundwill continue to support seed-stage investment in 2016.

At the venture-stage (predominantly pre-protcompanies) annual deal numbers grew by 11% between2014 and 2015, and the annual investment value grewby a very signicant 62%. Annual deal numbers at theventure-stage have grown year-on-year since 2011, andthere were 458 venture-stage deals in 2015 (£1.2bn).

At the growth-stage (protable companies lookingto expand) annual deal numbers grew by only 0.4%between 2014 and 2015 but the annual amount investedgrew by 60%. Annual deal numbers at the growth-stagehave grown year-on-year since 2011. There were 268growth-stage investments in 2015 (£2.1bn).

Equity nance is a crucial component in scaling upbusinesses in the UK and tackling our productivity gap.The British Business Bank is committed to ocusingmore attention and resources towards nding effectivenancing solutions or smaller businesses to allow themto scale-up and achieve their growth ambitions.

THE TECHNOLOGY / IP BASED BUSINESS SECTORCONTINUED TO ATTRACT THE GREATEST EQUITYINVESTMENT IN THE UK. MOST SECTORS HAVE ALSOSEEN UNINTERRUPTED YEAR ON YEAR GROWTH INTHE NUMBER OF DEALS RECORDED

Reecting the UK technology sector’s continued growth,the number o equity investments in technology / IP-basedbusinesses has increased every year since 2011 and theamount invested in the sector has reached the highestrecorded level o £1.6bn in 2015. Growth has bee nparticularly strong at the venture stage.

Despite strong growth in investment and deal numbers,technology / IP-based businesses’ share o total equitytransactions has allen each year rom 46% in 2011 to37% in 2015.


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INTRODUCTION


For the purpose o this report, Beauhurst applies an“SME lter” so that only companies that were SMEs atthe time o receiving unding are included. The SME lterhas now been applied based on the accounts led closestto the date o the equity investment, whi ch differs tothe approach taken in the previous report. Additionally,currency conversions o investment sizes are nowmore accurate and are based on the actual exchangerate on the day o the investment. On account o theseimprovements, there will be a discrepancy between theprevious 2015 tracker report and this latest 2016 report

or the quoted historic gures covering 2011 to 2015.The gures quoted in this report should be considered tosupersede those previously quoted.

It is important to acknowledge that a number o otherdata sources also cover equity investments including theBritish Venture Capital Association (BVCA) and InvestEurope. These predominantly measure the investmentactivities o their members, which are mainly comprisedo Private Equity and Venture Capital unds. There ore,the data sources have different coverage o investorsand are not always consistent with one another. The UKBusiness Angel Association estimates that private investorsaccount or between £800m and £1bn o early stageinvestment in the UK. The British Business Bank’s 2015/16Small Business Finance Markets report provides an overviewo the differences between these data sources and offersexplanations or any differences observed. 5

ABOUT BEAUHURST

Beauhurst is the leading provider o research and dataon the UK’s high growth companies, their deals and theirinvestors. Beauhurst’s London-based research teamcurates in-depth proles o these companies – includingdeal history, nancials and valuations. Beauhurst workswith pro essionals across a broad range o industriesincluding corporate nance, accountancy, highereducation and government.

BACKGROUND

The British Business Bank rst collaborated with Beauhurstto produce an Equity Tracker report last year. The reportwas produced in response to the lack o reliable andcomprehensive data on the number and value o equityinvestments into UK private companies. To this end the reportlooked at investments made by the ull range o equityinvestors rom large multi-million growth investments inestablished businesses by Private Equity Funds, to smallerinvestments in early stage companies by angel investorsand equity crowd unding plat orms.

METHODOLOGY

This year’s report builds on the previous Equity TrackerReport published by the British Business Bank in 2015. 3 Renements to the underlying dataset allows thisreport to be the most accurate and complete view o UKequity investment to date. Full d escription o the datamethodology is given in the appendix.

Beauhurst’s dataset is built rom the bottom-up,identi ying each individual business receiving investment.This ocus enables the data to be analysed by companystage, sector and location, or according to the type oinvestors, or the size o investment.

In this report “equity investment” includes any ormo external equity nance, excluding transactions onpublic equity markets, buyouts and amily and riendsrounds. The denition incorporates the activity obusiness angels, equity crowd unding, venture capital

unds, corporate venturing, and private equity unds.The investments reported in the Equity Tracker wereall publicly announced deals and were all received by

businesses dened as small or medium sized, accordingto the denition set out by the European Commission. 4

Deals that are not publicly announced will not beincluded in the Equity Tracker dataset. There are likelyto be differences in the willi ngness o investors to maketheir deals publicly known. For instance, angel andprivate investors could be less likely to announce the irinvestments than Venture Capital/ Private Equity unds.


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CHAPTER 1:

TRENDS IN OVERALLINVESTMENTACTIVITIES


QUARTERLY FIGURES

The overall positive picture presented by the 2015annual gures is undermined by Q4 2015 which showsa large decline:

• The number of investments in the fourth quarter of2015 (292) was 16% lower compared with the numberin the rst quarter of 2015 (347). The quarterlyinvestment amount total was also 18% lower(£754m). Q3 2015 was particularly strong with over£1bn invested, and so the quarter on quarter declinein investment value is more pronounced at 26%.

• Deal numbers in Q2, Q3, and Q4 of 2015 were alllower than the highest quarter in 2014 (Q2 2014with 333 deals).

• Quarterly investment totals in 2015 remain wellabove the quarterly gures of previous years.Q4 2015 was 18% higher than the highest quarterin 2014, despite Q4 2015 having the smallestinvestment total of the year. Emerging evidencesuggests UK equity markets are slowing down asother Beauhurst data shows the decline in dealnumbers continues in the rst quarter of 2016. 6 This is part of a wider global slowdown in VentureCapital (VC) arising due to VC investors becomingmore cautious. 7

ANNUAL FIGURES

Annual deal numbers and investment amounts have beenincreasing since 2011 and now stand at 1,270 equitydeals in 2015 (£3.5 bn). The rate at which annual dealnumbers have been growing has slowed year-on-year,but the growth rate or investment value has increased,in particular to an increased number o very l arge deals:

• The annual number of equity deals completed grewby 5% between 2014 and 2015, but the annualamount invested grew by 58% between 2014and 2015.

• The average amount invested fell between 2011and 2013 but has increased in 2014 and 2015.The average amount invested per equity deal in

2015 was £3.49m, but this varies by investor type.• The number of investments greater than £10m in

size has increased by 71% between 2014 and 2015.

• The ten largest investments in 2015 accounted foraround £900m, forming 25% of the total amountinvested in 2015. In comparison, the ten largestinvestments in 2014 accounted for £450m in 2014,and formed 20% of the overall market.

FIG 1.1b

INVESTMENT AND DEALS BY QUARTER

1.1

TOTAL INVESTMENT

FIG 1.1a

INVESTMENT AND DEALS BY YEAR

2 0 1 1

2 0 1 2

2 0 1 3

2 0 1 4

2 0 1 5

£0M 0

100

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N u m

b e r o

f D e a

l s

No. o deals

No. o deals


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The technology & IP-based sector received boththe highest number o de als and greatest amount

o investment in 2015. Most sectors have see nuninterrupted year-on-year growth in the number odeals. The amount invested in each sector has generallyincreased between 2011 and 2015 but there is somevolatility between consecutive years: 9

• The number of equity investments into technology& IP-based businesses has grown every year since2011 to 473 in 2015. The amount invested in thesector hit a record high of £1.6bn in 2015, growing by49% compared to 2014. Despite this strong growth,technology / IP-based businesses’ share of totalequity fundraising transactions has fallen each yearfrom 46% in 2011 to 37% in 2015.

• The number of equity investments into business &professional services has increased year-on-year

since 2011 to 265 in 2015, though growth slowed in2015 (2%). The amount invested in these companieshas grown substantially each year since 2011 ,reaching £800m in 2015.

• The number of deals in the industrials sector hasgrown steadily since 2011 to 169 in 2015, with anincrease of 17% in 2 015. The amount of investmentin the industrials sector grew by 39% between 2014and 2015 reaching £223m.

• The media sector was one of the few sectors toexperience a decline in deal numbers in 2015, fallingby 15% to 84 - although it has grown since 2011.The amount invested into media reached a recordlevel in 2015 of £158m. A few large investmentswere responsible for this record total amountof investment.

The number o venture investments showed double-digitgrowth in 2015, but seed and growth stage investmentshave increased more slowly. Investment amounts grewmore rapidly with the venture stage growing at the

astest rate: 8

• At the seed-stage annual deal numbers andinvestment amounts both increased in 2015. Dealnumbers increased by only 3% but the amountinvested grew by 27%. Deal numbers at the seed-stage have grown year-on-year since 2011 but at afalling rate. The amount invested has grown year-on-year since 2012 but slowed in 2015 when there were544 investments worth £251m.

• At the venture-stage equity deal numbers andinvestment amounts both increased between 2014and 2015. Deal numbers grew by 11%, outperforminggrowth in the seed and growth-stages. The annualamount invested grew by 62%. There were 458venture stage investments in 2015 worth £1.2bn.

• At the growth-stage deal numbers only increasedslightly (0.4%) in 2015 , but investment amountsgrew strongly (60%). Deal numbers have grownyear-on-year since 2011 but the rate of growth hasbeen falling. The amount invested has grown since2012 with the growth rate increasing each year.There were 268 investments in 2015 worth £2.1bn.

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BUSINESS STAGE

1.3

SECTOR

FIG 1.2

INVESTMENT AND DEALS BY BUSINESS STAGE

FIG 1.3a

INVESTMENT AND DEALS BY SECTOR

2011 2012 2013 2014 2015 No. o deals

Seed Venture Growth

N u m

b e r o

f D e a

l s

2 0 1 1

2 0 1 1

2 0 1 1

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£200M

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0


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The number o deals in most technology sub-sectorsrose slightly in 2015. The amount invested increased

substantially in li e sciences and so tware sectors, andthese sectors remain the largest technology sub-sectors:

• The number of deals in the software sector reacheda record high in 2015 of 297, as did the amountinvested (£659m). The number of deals grew byonly 5% but the amount invested grew by 45%compared with 2014. Software’s share of the overallinvestments into Technology / IP-based businesseshas grown from 38% in 2011 to 63% in 2015.

• The number of deals in the life sciences sector alsoreached a record high in 2015 (growing by 10% to60) but the amount invested grew much faster (71%)reaching £654m – seeing almost as much investmentas the software sub sector.

• Deal numbers in hardware have stagnated since2012, growing by just 2% in 2015 to 29. The amount

invested grew slightly between 2014 and 2015,reaching £47m but lower than 2011 levels.

• The number of deals in medical technology hasgrown since 2012, rising by 12% in 2015 to 41.The amount invested, however, fell by 22% to £95m.

• Deal numbers between 2014 and 2015 in cleantechnology grew by 20% to 27, whereas the amountinvested increased by 158% to £64m after a verypoor 2014.

FIG 1.3b

INVESTMENT AND DEALS BY SECTOR EXCLUDINGTECHNOLOGY & IP BASED BUSINESSES, BUSINESS &PROFESSIONAL SERVICES

1.4

TECHNOLOGY SUB-SECTORS

FIG 1.4a

INVESTMENT AND DEALS BY TECHNOLOGY SUB SECTOR

2011 2012 2013 2014 2015 No. o deals2011 2012 2013 2014 2015 No. o deals


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London continues to be the region receiving the greatestamount o equity investment, and has shown strong year

on year growth. Outside o London increases in equitynance have been more varied: 10

• London has performed strongly with year-on-yeargrowth in both deal numbers and the amountinvested. The number of equity deals grew by 17%in 2015 to 598. The total amount invested in Londonincreased by 100% in 2015 (£2.0bn) compared withthe previous year. London was the location of 47%of equity deals in the UK and 58% of all investment.

• Whilst the value of deals outside London rose by23%, the number of deals declined by 4%.

• Only two regions outside London have seencontinuous year-on-year increases in deal numbers

since 2011: the South East and the West Midlands.• The number of deals in the South East grew by 15%

in 2015 to 146. The amount invested in the regiongrew by 67% compared with the previous yearto £644m.

• The number of deals in the West Midlands increasedby 16% to 51, but the amount invested fell by 8%in 2015.

1.5

REGION

FIG 1.4b

INVESTMENT AND DEALS BY TECHNOLOGY SUB SECTOREXCLUDING LIFE SCIENCES, SOFTWARE

2011 2012 2013 2014 2015 No. o deals

FIG 1.5a

INVESTMENT AND DEALS BY REGION

2011 2012 2013 2014 2015 No. o deals


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PROPORTION OF EQUITY DEALS, HIGH GROWTH BUSINESSES AND BUSINESS POPULATION BY REGION

London received 47% o the total number o equity deals in the UK in 2015, but the region accounts or21% o high growth businesses 11 and 18% o the wider business population. 12 This may suggest equity dealsare underrepresented in other regions relative to the share o high growth businesses and business in thewider population.

FIG 1.5b

INVESTMENT AND DEALS BY REGIONEXCLUDING LONDON

2011 2012 2013 2014 2015 No. o deals

Region % of total no. % of total no. % of total no.of UK quity of High-Growth of UK PrivateInvestments Enterprises Sector

London 47.1 20.9 18.1

South East 11.5 14.4 16.3

North West 6.3 11.1 9.9East o England 6.1 8.6 9.8

West Midlands 4.0 8.5 7.4

South West 4.6 8.2 9.9

Yorkshire and the Humber 3.5 7.1 7.1

East Midlands 2.8 6.5 6.6

Scotland 6.1 6.4 6.3

Wales 2.3 3.5 3.9

North East 4.7 3.0 2.5

Northern Ireland 0.9 1.7 2.2

Source: Beauhurst, ONS analysis o high growth enterprises and BIS business population estimates


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Regional gures disguise the large variation in equi ty deal numbers that occurs within regions.

The ollowing table shows the number o equity deals recorded in 2015 was highest in the ollowingclusters and constituent Local Authority Districts: 13

1.6

CLUSTERS

MAP OF EQUITY DEALS IN 2015BY LOCAL AUTHORITY DISTRICT

MAP OF 2015 EQUITY INVESTMENT ACTIVITYIN LONDON BY LOCAL AUTHORITY

The ollowing maps show the number o equi ty dealsin 2015 by Local Authority District across the wholeUK and across London boroughs. The table on the nextpage shows clusters o where deal activity was greatestin 2015. Taken together these show that despite theconcentration o equity deals in London and the SouthEast there are a number o cities wh ere there are large

numbers o equity deals occurring.

Cluster Constituent Local Authorities Number of Deals in 2015

Inner London Camden 88

City o London 60

Hackney 63

Hammersmith and Fulham 19

Haringey 2

Islington 67

Kensington and Chelsea 14

Lambeth 21

Lewisham 6

Newham 1 Southwark 38

Tower Hamlets 37

Wandsworth 15

Westminster 96

Edinburgh Edinburgh 38

Manchester Manchester 17

Oldham 1

Sal ord 2

Stockport 2

Tameside 2

Trafford 4

Cambridge Cambridge 19Bristol Bristol 17

South Gloucestershire 1

Liverpool Liverpool 16

St. Helens 2

Brighton Adur 2

Brighton and Hove 17

Cardiff Cardiff 14

Leeds Leeds 14

Ox ord Ox ord 13


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Private equity investors 14 were the most active type oinvestor in 2015, ollowed by crowd unding plat orms andprivate investment vehicles: 15

• Private equity investors were the most active sourceof investment in 2015 making 402 investments,followed by crowdfunding platforms (303) andprivate investment vehicles (201). 16

• The number of crowdfunding deals grew by 55%in 2015 to 303, the rst year since 2011 that thegrowth has fallen below 100% but reecting thisinvestment type becoming established in the market.

• Crowdfunding is the investment type that hasseen its deal numbers grow the most each yearin percentage terms. Between 2012 and 2015,crowdfunding deal numbers have grown by 877%.

• The greatest fall in deal numbers between 2014and 2015 was experie nced by private investmentvehicles, which fell by 18% to 201 deals. The number

of deals involving Private Equity investors also fell by9% to 402.

• The number of deals completed by angel networkshas recovered somewhat from the fall in 2014. I n2015 angel networks’ made 107 deals.

There has been a l arge increase in the number o £10mplus deals in 2015:

• Deals up to £499k in size account for the largestproportion of equity deals in the UK every year since2011 forming 34% of deals overall in 2015 (42% ofdeals with disclosed deal sizes).

• The category of deals greater than £10m in sizeaccounted for the smallest proportion of deals in2011 to 2014, in 2015 there were more deals greaterthan £10m than there were deals in the categorybelow (£5m-£10m). Moreover, the investment valueof deals greater than £10m in 2015 was worth £2.3bnin 2015 – more than double the gure for 2014.

• The number of investments greater than £10min size increased by 71% in 2015. The ten largestinvestments in 2015 accounted for around £900m,forming 25% of the total amount invested in 2015.In comparison, the ten largest investments in 2014accounted for £450m in 2014, and formed 20% ofthe overall market.

• The number of deals for which the amount investedwas undisclosed fell sharply between 2014 and 2015,likely a result of the increasing deals sizes: the largerthe deal, the more likely it is to warrant a press release.

1.7

INVESTMENT CATEGORY1.8

INVESTORS

FIG 1.7

INVESTMENT AND DEALS BY INVESTMENT CATEGORY

2011 2012 2013 2014 2015 No. o deals

FIG 1.8a

DEALS BY INVESTOR TYPE

No. o deals

Up to £499k £5m to£9.99m£2m to£4.99m

£1m to£1.99m

£500k to£999k £10 m+ Undisclosed

N u m

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l s

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£400M

£600M

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£1,600M

£1,800M

£2,200M

£2,000M

£2,400M 450

350

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50

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0


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ACTIVITY OF BRITISH BUSINESS BANKSSUPPORTED FUNDS

The British Business Bank has a number o equityprogrammes designed to increase the supply o equitynance to UK businesses. Investments involving BritishBusiness Bank supported unds account or 6% o allequity deals by number and 9% by value:

• Businesses that have received funding by fundmanagers supported by the British Business Bank canbe found within the Beauhurst database. 17 Between2011 and 2015, 289 visible equity investmentswere identied as being funded by fund managerssupported by the Bank. This relates to 201 uniquecompanies 18 , with a total investment value of £905mmade up of British Business Bank fund funding andother investor funding.

• There are a number of other investments within theBeauhurst dataset that relate to companies thathave previously been funded by the British BusinessBank through one of its previous schemes or throughfunding in an earlier time period prior to 2011.These are not included in the analysis.

• More detailed analysis of the activities of BritishBusiness Bank supported funds can be found inchapter 5.

FIG 1.8b

DEALS BY INVESTOR TYPE EXCLUDING CROWDFUNDING, PRIVATE EQUITY

No. o deals

FIG 1.8c

PERCENTAGE OF MARKET ACCOUNTEDFOR BY THE BRITISH BUSINESS BANK,NUMBER OF DEALS 2011 2015

British Business Bank Fund Deals 6%

Other deals 94%

FIG 1.8d

PERCENTAGE OF MARKET ACCOUNTEDFOR BY THE BRITISH BUSINESS BANK,INVESTMENT AMOUNT 2011 2015

British Business Bank Fund Deals 9%

Other deals 91%


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CHAPTER 2:

SEED-STAGE


Around hal o all sectors saw growth in the numbe r oseed stage deals between 2014 and 2015, but moresectors saw growth in the total amount invested: 19

• The technology sector was the largest sector at theseed-stage in 2015, forming 38% by number and53% by value. Growth in deal numbers between 2014and 2015 has slowed to 5%, but the amount investedgrew by 44%.

• The industrials sector saw the largest growth in dealnumbers between 2014 and 2015 and the secondhighest rate of growth in total investment. Industrialsare one of the few sectors to have seen both dealnumbers and investment amount grow consistentlyyear-on-year since 2011.

• The business and professional services sector saw bothdeal numbers and the total amount of investment fallbetween 2014 and 2015. Deal numbers fell by 5%,whereas the amount invested into the sector fell by38%. The amount invested in 2015 into the sector,however, is up 105 % compared with 2013 as theinvestment amount in 2014 was high.

• Media saw its deal numbers fall by 29% in 2015 andinvestment fall by 20%.

The number o equity investments into companies at theseed-stage reached a high in 2015 (544 deals) but theyearly rate o growth has slowed to 3%. The total amountinvested into seed-stage companies also reached recordlevels (£251m), with stronger growth o 27% between2014 and 2015.

2.1

SEED-STAGE OVERVIEW

2.2

SECTORS, SEED-STAGE

FIG 2.1

SEED INVESTMENT AND DEALS BY YEAR

2 0 1 1

2 0 1 2

2 0 1 3

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FIG 2.2a

SEED INVESTMENT AND DEALS BY SECTOR

2011 2012 2013 2014 2015 No. o deals


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Five o the eight technology sub-sectors s aw their dealnumbers grow between 2014 and 2015 at the seed-stage,but only our saw their total investment amount grow:

• Software continues to be the largest sub-sector with141 deals (£48m). The number of investments madeinto the sector in 2015 only grew by 1% comparedwith the previous year – after years of strong double-digit growth. The amount invested into the sector,however, grew by 24%.

• Life sciences were another strong sector in 2015with 24 deals, seeing 29% growth in deal numberscompared with 2014. The amount invested into thesector grew by 151% to £56m.

• There were mixed results in medical technology,which saw its number of deals grow by 61% (14)but the total amount invested fell by 5% (£12m).

2.3

TECHNOLOGY SUB-SECTORS, SEED-STAGE

FIG 2.2b

SEED INVESTMENT AND DEALS BY SECTOR EXCLUDING TECHNOLOGY& IP BASED BUSINESSES, BUSINESS & PROFESSIONAL SERVICES

2011 2012 2013 2014 2015 No. o deals

FIG 2.3a

SEED INVESTMENT AND DEALS BYTECHNOLOGY SUB SECTOR

2011 2012 2013 2014 2015 No. o deals


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London remains as the region with the greatest numberand value o seed investments, with the South East

ollowing behind: 20

• Deal numbers in London grew by 17% in 2015compared to the previous year, but the amountinvested grew by 68%. The amount invested in2015 (£120m) is almost four times as much as wasinvested in 2011 or 2012. Both deal numbers andtotal investment have grown every year since 2011.

• The number of equity investments in the South Eastin 2015 grew by 35% and the amount invested grewby 70% to 58 deals and £40m respectively.

• Deal numbers in the East Midlands have beengrowing steadily since 2011 – although they arestill less than 20 seed stages deals per year – butthe amount invested increased by 743% in 2015,reecting a couple of £1m plus deals.

• Whilst 2014 was a very strong year for seed equityinvestment in the North East with £29m of investment,2015 investment gures returned closer to thelonger term average of £4m.

• Although the number of deals in Scotland fell forthe second year in a row in 2015 to 21, the amountinvested achieved a record level (£21m). This wasmore than double the previous year.

2.4

REGIONS, SEED-STAGE

FIG 2.3b

SEED INVESTMENT AND DEALS BY TECHNOLOGY SUB SECTOREXCLUDING LIFE SCIENCES, SOFTWARE

2011 2012 2013 2014 2015 No. o deals

FIG 2.4a

SEED INVESTMENT AND DEALS BY REGION

2011 2012 2013 2014 2015 No. o deals


16/35


The majority o seed stage deals are less than £500,000:

• The greatest number of seed-stage deals occurs in

the smallest investment size category (Up to £499k)which accounts for 60% of all seed stage deals(77% for disclosed deal sizes). A record number ofinvestments (324) worth £55m were completed inthis category in 2015.

• Seed-stage deals worth more than £10m are alsoon the rise but remain comparatively scarce at just4 deals in 2015. The number of investments in thesecond smallest deal size category (£500k to £999k)fell by 12% to 42.

2.5

INVESTMENT CATEGORY, SEED-STAGE

FIG 2.4b

SEED INVESTMENT AND DEALS BY REGIONEXCLUDING LONDON

2011 2012 2013 2014 2015 No. o deals

FIG 2.5

SEED INVESTMENT AND DEALS BY INVESTMENT CATEGORY

2011 2012 2013 2014 2015 No. o deals


17/35

32 BRITISH BUSINESS BANK

CHAPTER 3:

VENTURE-STAGE

33SMALL BUSINESS EQUITY INVESTMENT TRACKER 2016

The number o equity investments at the venture-stagereached a record high in 2015 with 458 deals, growingby 11% compared to 2014. The total amount investedinto venture-stage companies in 2015 also reachedrecord levels having grown by a sizeable 62% to £1.2bncompared with 2014.

In 2015 the numb er o deals involving crowd undingestablished a clear overall lead ahead o private equity

unds and saw strong growth in deal numbers: 21

• Crowdfunding platforms saw a 57% increase indeal numbers at the seed-stage in 2015 comparedwith the previous year to 204 deals per year.Crowdfunding platforms were responsible for

37% of all seed-stage activity in 2015.

• Private equity, which until 2014 had been thedominant investor type at the seed-stage, saw itsdeal numbers fall by 13% in 2015 to 100. 2015 wasthe rst year that the number of private equity dealsidentied in the Beauhurst data set fell comparedwith the previous year. Private equity remains thesecond most active investor type at the seed-stage.

• After 3 continuous years of growth, privateinvestment vehicles saw their deal numbers fall by14% at the seed-stage in 2015. Private investmentvehicles accounted for 16% of all seed-stage dealactivity in 2015.

2.6

INVESTORS, SEED-STAGE

3.1

VENTURE-STAGE OVERVIEW

FIG 2.6

SEED DEALS BY INVESTOR TYPE

No. o deals

FIG 3.1

VENTURE INVESTMENT AND DEALS BY YEAR

2 0 1 1

2 0 1 2

2 0 1 3

2 0 1 4

2 0 1 5

£0M 0

100

200

300

400

450

350

250

150

50

£200M

£400M

£600M

£800M

£1000M

£1200M

N u m

b e r o

f D e a

l s


18/35


Technology and IP-based businesses is the largest sector at the venturestage, seeing large increases in unding amounts compared to 2014: 22

3.2

SECTORS, VENTURE-STAGE

FIG 3.2a

VENTURE INVESTMENT AND DEALS BY SECTOR

2011 2012 2013 2014 2015 No. o deals 2011 2012 2013 2014 2015 No. o deals

• The number of investments into technology andIP-based businesses grew by 11% while the amountinvested grew by six times as much (66%) to £766m.Technology and IP-based businesses received moreinvestment than all other sectors combined, forming63% of the venture stage market overall.

• Business and professional services was the secondlargest sector in 2015, both in terms of the amountinvested (£212m) and the number of investments(96 deals). Deal numbers grew by 13% comparedwith 2014, but the amount invested in the sectorgrew by 80% to reach a new record high.

• The retail sector saw steady growth in deal numbersin 2015. The past three years have each seen growthbetween 20% and 30% in yearly deal numbers inretail. The amount invested in the sector in 2015reached a record high for the sector (£30m).

• The number of venture-stage investments into the

industrials sector grew by 22% compared with 2014but the amount invested fell by 4% in the sameperiod. Industrials were the third largest sector in2015 in terms of deal numbers (57 deals).

• Media was the only sector of the top ve venture-stage sectors to experience a fall in the number ofequity investments in 2015 (31 deals) comparedwith the previous year. The amount invested in thesector in 2015 (£44m) grew by 3%.

FIG 3.2ba

VENTURE INVESTMENT AND DEALS BY SECTOREXCLUDING TECHNOLOGY & IP BASED BUSINESSES,

BUSINESS & PROFESSIONAL SERVICES


19/35


So tware remains the largest technology sub-sector atthe venture-stage in terms o overall deal numbers, butli e science is the largest sector by investment amount:

• Similar to the seed-stage, software remains thelargest sub-sector at the venture-stage in terms ofoverall deal numbers (108). The amount invested intothe sector grew by 43% to £185m in 2015.

• Life science had fewer deals than software in 2015,but is the largest sector in terms of total amountinvested reecting larger deal sizes, due to a smallnumber of very large deals. The total number ofinvestments at the venture-stage in 2015 (29) grewby only 5%. The total amount invested grew by 78%to reach nearly £0.5bn.

3.3

TECHNOLOGY SUB-SECTORS, VENTURE-STAGE

FIG 3.3a

VENTURE INVESTMENT AND DEALS BYTECHNOLOGY SUB SECTOR


FIG 3.3b

VENTURE INVESTMENT AND DEALS BY TECHNOLOGYSUB SECTOR EXCLUDING LIFE SCIENCES, SOFTWARE


20/35


London is the region with the greatest number and valueo equity investment at the venture-stage, ollowed bythe South East: 23

• Just as at the seed-stage, London is the region withthe greatest number and value of investments.Venture-stage deal numbers grew by 12% in 2015compared with the previous year to 199; the amount

invested grew by 80% to £557m. The amountinvested in London in 2015 is ve and a half times asmuch as was invested in 2011.

• The number of equity investments in the South Eastgrew by 26% in 2015 to 63 and the amount investedgrew by 88% to £339m. The amount invested in theSouth East in 2015 was greater than that invested inLondon in 2014.

• The North East saw its number of investmentsincrease by 38% in 2015 but remains just below the

high set in 2013. The amount invested in 2015 hasgrown by 1,092% compared to 2014.

3.4

REGIONS, VENTURE-STAGE

• The North West saw deal numbers grow by 28% in2015 compared with the previous year, matching2013’s record. The amount invested grew by 46% butremains below the record set in 2012.

• The number of deals in Scotland rebounded by 6%to 37 but remain below the record high level seen in2013. The amount invested at the venture-stage,however, achieved a record high level of £67m aftergrowing by 15%.

FIG 3.4a

VENTURE INVESTMENT AND DEALS BY REGION


FIG 3.4b

VENTURE INVESTMENT AND DEALS BY REGIONEXCLUDING LONDON


21/35


Private Equity remained the largest investor type atthe venture-stage, maintaining a clear lead over allother investor types, despite a all in deal numbers.Crowd unding and angel networks experiencedgrowth in deal numbers in 2015: 24

• Private equity, remained the largest investor type atthe venture stage with 144 deals in 2015, but saw

deal numbers fall by 18% compared with 2014.

• Crowdfunding experienced the fastest growth of anyventure-stage investor type – growing by 54% to83 deals. Crowdfunding remains just behind pr ivateinvestment vehicles (86 deals) and signicantlybehind private equity.

• After a small decline in 2014, angel networks recoveredto achieve record deal numbers in 2015 (60) – although

the gure was only up 5% compared with 2013.

There has been a l arge increase in deal sizes greaterthan £10m:

• Venture-stage investments generally have an evendistribution across deal size i nvestment categoriesup to £5m. There are a signicant number of venture-stage investments above the £5m threshold but farfewer than below it.

• In 2015 the £10m+ category experienced the fastestgrowth with deal numbers growing by 122% – thiscorresponded to growth of 169% in the totalamount of investment contained within thecategory (nearly £700m).

• The £500k-999k category also grew signicantly (by68%), accounting for more venture-stage deals than

any of the other categories (23% for all deals, 27%for deals with disclosed investment amounts).

3.5

INVESTMENT CATEGORY, VENTURE-STAGE3.6

INVESTORS, VENTURE-STAGE

FIG 3.5

VENTURE INVESTMENT AND DEALS BY INVESTMENT CATEGORY

2011 2012 2013 2014 2015 No. o deals

FIG 3.6a

VENTURE DEALS BY INVESTOR TYPE

No. o deals


22/35

42 BRITISH BUSINESS BANK

CHAPTER 4:

GROWTH-STAGE

4.1

GROWTH-STAGE OVERVIEW

43SMALL BUSINESS EQUITY INVESTMENT TRACKER 2016

The number o equity investments into growth-stagecompanies only just managed to reach a record high in 2015o 268 deals, having grown by less than 1%. The totalamount invested into growth-stage companies in 2015reached record high levels (£2.1bn) having grown by asizeable 60% compared with 2014.

FIG 3.6b

VENTURE DEALS BY INVESTOR TYPE EXCLUDINGCROWDFUNDING, PRIVATE EQUITY

No. o deals

FIG 4.1

GROWTH INVESTMENT AND DEALS BY YEAR

2 0 1 1

2 0 1 2

2 0 1 3

2 0 1 4

2 0 1 5

£0M 0

100

200

250

150

50£400M

£200M

£800M

£600M

£1,200M

£1,000M

£1,400M

£1,800M

£1,600M

£2,000M

N u m

b e r o

f D e a

l s


23/35


Technology and business and pro essional services are thetwo largest sectors at the growth stage with investmentamounts growing signicantly compared to 2014: 25

• In 2015 the number of investments into business andprofessional services fell by 1% compared with 2 014but the amount invested grew by 48% to £553m.Investment into business and professional servicescompanies account for 27% of all growth-stageinvestment.

4.2

SECTORS, GROWTH-STAGE

• Technology/IP-based businesses saw deal numbersfall by less than a single percent in 2015 to 76 but thiscame after three consecutive years of double-digitgrowth. The amount invested in the sector grew by34%, the second largest growth rate since 2011.Investment into technology/IP-based businessesaccounted for 32% of all growth-stage investment.

• Media experienced its best year of growth in dealnumbers in 2015 – growing by 58% to 13 deals in2015– but grew even higher in terms of investmentamount, which grew by 504% to £107m. This growthcomes after three consecutive years in which thetotal amount invested fell.

• The number of investments into the retail sector hasremained relatively at in 2013-15 but in 2015 the totalamount invested grew by 95% compared with 2014.

• The number of investments into industrialsremained relatively strong in 2015, despite an 11%fall compared with the previous year. The amountinvested grew by 45% in the same period.

FIG 4.2a

GROWTH INVESTMENT AND DEALS BY SECTOR


FIG 4.2b

GROWTH INVESTMENT AND DEALS BY SECTOREXCLUDING TECHNOLOGY & IP BASED BUSINESSES,

BUSINESS & PROFESSIONAL SERVICES


24/35


Similar to seed and venture stage investments, London isthe region that has the greatest amount o growth-stageequity investment, with 2015 seeing large increases in

unding going to this region: 26

• London saw growth in both deal numbers and thetotal amount invested in 2015 at the growth-stage.Four consecutive years of growth saw deal numbers

rise by 24% in 2015 to 109. The total amountinvested at the growth-stage increased by 114% to£1.34bn, the fastest annual rate of growth to date.

• The East Midlands, the West Midlands and theSouth West saw an increase in the total numberof investments in 2015. This corresponded to anincrease in the amount of total investment only inthe East Midlands.

• In 2015 deal numbers continued to fall in the NorthEast having fallen by 29% in 2014, they continued

to fall in 2015 by a further 35%. The total amountof investment remains around £30m.

So tware and li e sciences continue to be the largesttechnology sub sectors at the growth stage by valueo investment:

• Just as at the seed and venture-stages, software sawthe most deals in 2015 and the greatest amount ofinvestment (47 deals, £426m). Software accountedfor 62% of all technology deals and 65% of all

investment in technology. The amount of investmentgrew by 48% in 2015 compared with the previousyear, but the number of deals grew by only 2%.

• Medical technology was the next largest technologysub-sector in 2015 (10 deals) in terms of deal numbersbut was behind life sciences in terms of amountinvested – this is not surprising given that growth-stagelife science investment are generally quite large.Medical technology accounted for 13% of all technologydeals in 2015, despite having fallen by 6%.

• Life sciences deal numbers fell slightly in 2015 to 6,accounting for only 8% of technology deals.The amount invested in the sector, however,grew by 29% and accounted for 17% of totalinvestment into technology sectors.

4.3

TECHNOLOGY SUB-SECTORS, GROWTH-STAGE4.4

REGIONS, GROWTH-STAGE

FIG 4.3

GROWTH INVESTMENT AND DEALS BYTECHNOLOGY SUB SECTOR


FIG 4.4a

GROWTH INVESTMENT AND DEALS BY REGION


25/35


£10m plus was the largest investment size category atthe growth-stage:

• The number of deals within this category grew by62%. Only the £5m to £10m and the £10m pluscategories have seen their deal numbers groweach year since 2012.

• Deals greater than £10m in size formed 22% of alldeals (29% for disclosed investment amount), butformed 75% of the total investment by value in 2015.

4.5

INVESTMENT CATEGORY, GROWTH-STAGEFIG 4.4b

GROWTH INVESTMENT AND DEALS BY REGIONEXCLUDING LONDON

2011 2012 2013 2014 2015 No. o deals

2011 2012 2013 2014 2015 No. o deals

FIG 4.5

GROWTH INVESTMENT AND DEALS BY INVESTMENT CATEGORY


26/35


Private equity remains the largest investor at the growth-stage, though crowd unding and corporate investorscontinue to increase their deal ow: 27

• Private equity’s deal numbers grew by 4% in 2015compared with 2014 to 158. Private equity investorsformed 59% of all growth-stage deals in 2015.

• Private investment vehicles remained the secondmost active type of investor at the growth-stage in2015, despite seeing their deal numbers fall by 36%compared to 2014.

• Crowdfunding continues to grow at the growth-stage ,though at a much lower rate than at the seed orventure-stages. Crowdfunding platforms facilitated

6% of growth-stage investments in 2015, equivalentto 16 deals.

4.6

INVESTORS, GROWTH-STAGE

FIG 4.6a

GROWTH DEALS BY INVESTOR TYPE

FIG 4.6b

GROWTH DEALS BY INVESTOR TYPEEXCLUDING PRIVATE EQUITY

No. o deals No. o deals


27/35

CHAPTER 5:

ACTIVITY BYBRITISH BUSINESS BANKEQUITY FUNDS

5.1

INTRODUCTION


Further in ormation on British Business Bank programmes,including their design and investment criteria can be

ound on the British Business Bank website. 31

It is important to acknowledge that the gures presentedin this chapter are based on a sample o deals that BritishBusiness Bank-supported unds undertake, as somedeals are not publicly announced and hence are notincluded in the Beauhurst dataset. 32

The table below illus trates this by showing the coverageo the Beauhurst data compared to the Bank’s ownmonitoring data. As a result o being only a sampleo British Business Bank activity, this chapter reportsinvestment patterns using percentage gures or easeo comparison.

This chapter 28 explores the characteristics o investmentsmade by equity unds supported by the British BusinessBank and compares the characteristics o these investmentsto those made in the wider equity market. 29

Between 2011 and 2015 there are 289 visible equitydeals undertaken by unds nancially supported by theBritish Business Bank in the Beauhurst dataset. Thisrelates to 201 unique companies, with a total investmentvalue o £905m. 30 This includes investments made by the

ollowing British Business Bank programmes:

• Angel CoFund

• Aspire Fund

• Enterprise Capital Funds (ECFs)

• UK Innovation Investment Fund (UKIIF)

• VC Catalyst Fund

SUMMARY OF BRITISH BUSINESS BANK PROGRAMMES

Programme Objective

Angel CoFund The Angel CoFund was established in 2011 to increase the supply obusiness angel nance available to viable small businesses with growthpotential, and to improve the quality o angel investment through settinghigh standards or due diligence and scrutiny o deals.

Aspire The Aspire und was established in 2008 to increase the supply o equitynance to women-led businesse s with growth potential, but which wouldotherwise have struggled to raise private capital.

ECF ECFs were established in 2006 as a rolling programme o unds to increasethe supply o equity nance to high growth potential businesses that wouldotherwise have aced difficulties raising nance d ue to a lack o supplywithin the “equity gap”.

UKIIF UKIIF was established as a und o unds in 2009 to increase the supplyo equity nance to viable growing technology business es in strategicallyimportant sectors such digital technologies, li e sciences, clean technologyand advanced manu acturing.

VC Catalyst Fund The VC Catalyst Fund was announced in 2013 and invests in commercially

viable venture capital unds that might otherwise ail to reach a satis actory“rst close”.

Programme Number of visible British Total number of UK Coverage (%)Business Bank-supported British Businessinvestments (unique Bank-supportedinvestments only) investments (2011-2015)

Angel CoFund & Aspire 50 64 78%

ECF 102 151 68%

UKIIF & VC Catalyst Fund 49 117 42%

Total 201 332 61%

COVERAGE OF BEAUHURST INVESTMENTS AGAINSTBRITISH BUSINESS BANK ADMINISTRATIVE DATA, 2011 2015


28/35


The majority (69%) o British Business Bank-supportedund investments take place at the seed or venture-stage:

• This is lower than the wider equity market, where 77%of deals are at the seed or venture-stage over thesame time period. In terms of number and value ofinvestments, British Business Bank-supported fundsinvest a lower amount in seed-stage investments,

but a higher proportion in venture-stage deals,compared to the overall market.

• Growth-stage deal sizes are larger than seed-stageand venture-stage deals, and accounts for 58% ofBritish Business Bank-supported deals by value,compared to 31% by number. However, 60% ofinvestment in the wider equity market is at thegrowth stage, despite it forming 23% of deals bynumber, suggesting larger growth stage deals.

The Beauhurst dataset covers 61% o the total number oBritish Business Bank und investments. It is important toacknowledge that no equity dataset has ull coverage o thetotal UK equity market as there is not a central requirementto record equity investments or make in ormation aboutthem publicly available. The coverage o the British BusinessBank deal population should also be considered as a possibleproxy measure o Beauhurst coverage o the wider equitymarket, assuming that there is equal propensity to disclosedeals. However, there is some evidence to suggest Beauhurstcoverage o British Business Bank und deals has deterioratedin more recent years rom 75% in 2013, to 53% in 2014 and45% in 2015. This could reect a change in the behaviouro existing British Business Bank und managers or new undmanagers choosing not to make a public announcement.

It should be noted that British Business Bank programmeslargely operate through Venture Capital unds set up asLimited Liability Partnerships and through co-investmentwith business angel syndicates through the Angel Co und.There ore, the wider market comparison is not necessarily“like with like”, as the Beauhurst data includes a wider rangeo investors beyond VC unds and angel networks – suchas private investors, crowd unding and local/regionalgovernment – which may have different investment behaviour.

The ollowing graph shows the number o unique 33 BritishBusiness Bank-supported investments over time identiedby Beauhurst. The number o identied British BusinessBank programme investments increases gradually over time

rom 49 in 2011 to 89 in 2014, be ore declining in 2015.Care should be taken in interpreting this nding as programmedata shows the total number o British Business Banksupported und investments in the UK ell in 2015( rom 89 to 77 investments per year).

In the last two years, the ECF programme has made thelargest number o identied investments, ollowed by thecombined UKIIF/ VC catalyst programme. The number ocombined Angel Co und/ Aspire und investments hasdeclined since 2013.

The proportion o deals that are unique are declining overtime rom 100% in 2011 to 56% in 2015, reecting multiple

unding rounds being recorded within the Beauhurstdatabase. Analysis undertaken in the rest o this chapter isbased on deals, rather than unique companies as per therest o the report.

Based on the number o visible investments, British BusinessBank programmes are estimated to have supported around6% o all equity deals between 2011 and 2015 and these deals

ormed around 9% o the overall invested equity amount.

5.2

BUSINESS STAGE

FIG 5.1

NUMBER OF BRITISH BUSINESS BANK INVESTMENTS BY PROGRAMMEIDENTIFIED IN BEAUHURST DATASET50

45

2011 2012 2013 2014 2015

40

3530

25

20

15

10

5

0

ACF/ Aspire

ECF

UKIIF/ VC Catalyst

All British BusinessBank Funds

FIG 5.2a

PROPORTION OF DEALS BY STAGE, 2011 2015

50

Seed Venture Growth

40

30

20

10

0

60

British Business Bank Funds Wider Market


29/35


• The increased prevalence of crowdfunding deals maydistort the comparison, and it is useful to compareagainst other VC funds. On this measure, BritishBusiness Bank funds appear to be making a slightlysmaller proportion of their investments in seed (21%compared to 25% for other VC funds) and also lowerproportion of growth stage deals (31% compared to36%), but a larger share of deals are in the venturestage (48% compared to 36%).

• An examination over time reveals seed investmentsmade by British Business Bank funds have beendeclining as a proportion of overall deals from 31% in2011 to 15% in 2014, before increasing to 19% in 2015.

• Growth investments have increased in the BritishBusiness Bank portfolio and form 44% of all deals madein 2015. This may reect the impact of UKIIF and VCcatalyst fund investments within the overall portfolio.Care is also needed in this interpretation due to reducedcoverage of the British Business Bank deal populationin 2015. Larger deals could be more likely to beannounced, which will skew the distribution of deals.

FIG 5.2c

PROPORTION OF DEALS BY STAGE OVER TIME

50%

60%

30%

40%

10%

20%

0%B r i t i s h

B u s i n e s s

B ank S e e d

B r i t i s h

B u s i n e s s

B ank V en t ur e

B r i t i s h

B u s i n e s s

B ank Gr ow

t h

Wi d er

V C / P E M

ar k e t

S e e d

Wi d er

M ar k e t

S e e d

Wi d er

M ar k e t

V en t ur e

Wi d er

M ar k e t

Gr ow

t h

Wi d er

V C / P E M

ar k e t

V en t ur e

Wi d er

V C / P E M

ar k e t

Gr ow

t h

ACF/ Aspire

ECF

UKIIF/ VC Catalyst

All British BusinessBank funds

FIG 5.2d

BRITISH BUSINESS BANK PROGRAMME DEALS BY STAGE, 2011 2015

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Seed Venture Growth

FIG 5.2b

PROPORTION OF INVESTMENT BY STAGE, 2011 2015

50

Seed Venture Growth

40

30

20

10

0

60


80

70

90

100

Stage Proportion of wider Proportion of widermarket: deals market: investment

Seed 3% 6%

Venture 9% 10%

Growth 9% 9%

Total 6% 9%

• There are some differences by British Business Bankprogramme, with the combined Angel CoFund/ AspireFund and ECFs having the highest share of seed-stageinvestments (24% and 22% respectively), in linewith the programme objectives of supporting earlystage deals.

• Although British Business Bank-supported funds wereinvolved in 6% of all equity deals, there is somevariation by investment stage. Funds supported bythe Bank account for just 3% of the seed market(but this may reect the increased number of crowdfunding deals at the seed stage), but 9% at theventure stage, and also 9% of the growth stage.

• It is a similar picture when looking at investmentamount, although British Business Bank funds forma slightly higher percentage of the market (9%)overall. It is important to acknowledge, that thisinvestment amount does not reect the amount ofBritish Business Bank fund funding, as it also includesthe funding from other investors who syndicatealongside the British Business Bank supported fund.

2011 2012 2013 2014 2015

FIG 5.2e

BRITISH BUSINESS BANK FUNDINVESTMENTS AS A PROPORTIONOF THE WIDER EQUITY MARKET,BY STAGE, 2011 2015


30/35


British Business Bank-supported unds invest in similarsectors to the wider equi ty market, with the Technology/IP-based sector being the largest sector both in numbero deals and value o investment: 34

• The technology/IP-based sector accounts for 50%of deals and 49% of investment made by BritishBusiness Bank-supported funds, which is higher than

any other sector. Business and professional servicesis the second most common sector, with a share of22%, by number and 24% by value.

• This is similar to the wider equity market, wherethe technology/IP-based sector is also the largestby number and value (39% and 48% respectively),although these higher shares indicate BritishBusiness Bank-supported funds are dedicating alarger proportion of deals in the technology sectorcompared to other investors in the market.

• Within the technology/IP-based sector the softwaresub-sector leads the way, forming 28% by numberand 28% by value of all British Business Bankprogramme investments. This is higher than thewider market where software forms 22% by numberand 18% by value. The life sciences sector formed7% of all British Business Bank fund deals (9%value), but the wider equity market undertakes largerlife science deals as it forms 17% of all investmentsby value (5% deals overall).

5.3

SECTORFIG 5.3a

ACTIVITY BY SECTOR, 2011 2015

British Business BankFunds Deals

50%

60%

30%

40%

10%

20%

0%

M e d i a

I n d u s t r i al s

B ui l t envi r onm en t

an d i nf r a s t r u c t ur e

T r an s p or t a t i on

o p er a t or s

T el e c omm

uni c a t i on s

S er vi c e s

R e t ai l

C r af t I n d u s t r i e s

L ei s ur e an d

en t er t ai nm en t

A gr i c ul t ur e ,f or e s t r y

an

d f

s h i n

g

S u p pl y c h ai n

B u s i n e s s an d

pr of e s s i on al s er vi c e s

T r a d e s p e o pl e

P er s on al s er vi c e s

T e c h n ol o g y / I P

b a s e d

b u s i n e s s e s

E n er g y

British Business BankFunds Investment

Wid er Ma rk et De al s Wid er Ma rk et In ve st me nt

FIG 5.3b

ACTIVITY BY SUB SECTOR, 2011 2015

British Business BankFunds Deals

25%

30%

15%

20%

5%

10%

0%

C l e an

t e c h n ol o g y

L i f e s c i en c e s

M a t er i al s

T e c h n ol o g y

M e d i c al

T e c h n ol o g y

H ar d w ar e

British Business BankFunds Investment

Wid er Ma rk et De al s Wid er Ma rk et In ve st me nt

N an o t e c h n ol o g y

S of t w ar e

O t h er t e c h n ol o g y /

I P b a s e d b u s i n e s s e s


31/35


British Business Bank-supported unds ollow the widerequity market, with London receiving the highest shareo investment:

• Over half of all investment made by British BusinessBank programmes between 2011 and 2015 occurs inLondon (53% by number and 59% by value), which ishigher than the wider equity market where the share

is 40% by number and 45% by value. The remainingdistribution of investments by region approximatelyfollows that observed in the wider equity market,although the share of deals and investments in theSouth East is lower than the wider market.

• British Business Bank programmes do not generallyhave any geographic restrictions or mandates in theirinvestment activities, and so follow wider markettrends. The Northern Powerhouse and MidlandsEngine Investment Fund will increase the availabilityof funding in Northern and Midlands regions.

• It should be noted that JEREMIE 35 funds, which makepublic-backed investments in northern England, are notincluded in the British Business Bank’s investmentgures within this report. Funds operated directlyby the devolved administrations in Scotland, Walesand Northern Ireland are also categorised separately.The presence of such funds has a signicant impacton the total amount of funding available, but theirexclusion from the British Business Bank guresunderstates the total amount of public investment inthese regions and countries.

• The inclusion of publicly backed funds in the widerBeauhurst gures overstates the amount of privatesector funding going to these regions. The followingchart shows the proportion of deals that involve local,regional or devolved government investors by regionof the UK. There is a clear divide between the southand east of England on the one hand, where localand regional funds have been involved in relativelyfew deals, and the rest of the UK, where the local,regional and devolved government investors are inmany cases involved in a majority of deals (up to 69%in the case of the North East).

5.4

REGION

FIG 5.4a

PROPORTION OF INVESTMENT BY REGION, 2011 2015

50%

60%

30%

40%

10%

20%

0%

N or t h er nI r el an d

E a s t of E n gl an d

L on d on

N or t h E a s t

N or t h W

e s t

S c o t l an d

S o u t h E a s t

S o u t h W

e s t

W al e s

Y or k s h i r e an d H

um b er s i d e

E a s t Mi d l an d s

W e s t Mi d l an d s


FIG 5.4b

PROPORTION OF DEALS BY REGION, 2011 2015

50%

60%

30%

40%

10%

20%

0%



L on d on

N or t h E a s t

N or t h W

e s t

S c o t l an d

S o u t h E a s t

S o u t h W

e s t

W al e s


um b er s i d e


W e s t Mi d l an d s


FIG 5.4c

SHARE OF DEALS INVOLVING LOCAL, REGIONAL OR DEVOLVEDGOVERNMENT INVESTORS, BY REGION 2011 2015

50%

60%

30%

40%

10%

20%

0%



L on d on

N or t h E a s t

N or t h W

e s t

S c o t l an d

S o u t h E a s t

S o u t h W

e s t

W al e s


um b er s i d e


W e s t Mi d l an d s 70%

80%


32/35


British Business Bank-supported unds are targeted atthe mid-range o deal sizes (£500,000-£5m) where theequity gap is thought to be greatest: 36

• The average reported deal size for British BusinessBank-supported funds is £3.7m (median £2.0m).25% the Bank’s fund investments are in the £1m to£1.99m category, 19% in the £500k-£999k category

and 28% between £2m and £4.99m. It is importantto recognise this reects total round size, rather thanthe specic funding amount provided by the BritishBusiness Bank supported fund. The total roundsize may reect the extent British Business Banksupported funds can leverage additional fundingfrom other equity providers.

• British Business Bank-supported funds appear to becompleting larger deals than the wider market. Thisis most noticeable in the up to £499k band, whichreceives only 4% of British B usiness Bank-supportedfund investments, compared with 41% from thewider market.

• There are two main reasons for the observed differencesin deal sizes. Firstly, as outlined earlier in this chapter,British Business Bank programmes largely operatethrough formal venture capital funds and co-investmentwith angel syndicates. This approach lends itself torelatively larger deals. In contrast, the wider marketgures include a broader range of investors, many ofwhich – such as crowd funders – are mainly involvedin smaller deals. Restricting the wider market toinclude only VC/PE funds shows BBB funds aremuch more aligned with 23% of deals below £1m(compared to 25%), 53% of deals between £1m to£5m (46%) but a lower proportion of deals above£10m (9% compared to 15%).

• Secondly, it is widely accepted that an “equity gap”exists at the early stage, which leaves viable businesseswith growth potential lacking the investment theyneed. Views on the exact range of the equity gapvary, but it is often thought of as affecting certainbusinesses seeking investment from a few hundredthousand pounds up to as much as £5m. British BusinessBank funds are intended to address the equity gap byinvesting where private capital is relatively lacking.Therefore, British Business Bank funds have a greateractivity in deals between £500k and £5m is largelyby design (72%) compared to PE/ VC funds (58%).British Business Bank deal sizes are also smaller thanother VC/PE funds

• It is widely documented that there has been anincrease in valuations recently, which has led tolarger deal sizes in 2015 and this is also shown inthe data.

• There is a wide degree of variation in average dealsize between British Business Bank programmesand also between different investment stages. Forinstance, the average UKIIF/ VC Catalyst investmentsize is £7.2m, reecting a focus on later-stage and/or capital intensive rms, whilst the combined Angel

Cofund and Aspire funds have an average deal size of£1.9m. Average deal size also varies by investmentstage, with the average size of British BusinessBank seed-stage deals is £1.1m, venture-stage rmsreceive around £2.6m, and growth deals average £6.5m.

5.5

INVESTMENT CATEGORY

BBB Funds Wider market Wider Marketall types of VC/ PE onlyequity investor

Seed £1.1m £540k £1.4m

Venture £2.6m £2.6m £4.2m

Growth £6.5m £7.6m £9.9m

BBB Funds

Angel Co und/ Aspire £1.9m

ECF £2.6m

UKIIF/ VC Catalyst £7.2m

FIG 5.5a

PROPORTION OF DEALS BY INVESTMENT SIZE CATEGORY, 2011 2015

B ri ti sh B us in es s B an k F un ds Wid er M ar ke t D ea ls Wid er M ar ke t V C/ P E

50%

30%

40%

10%

20%

0%

U p t o £ 49 9k £5 00 k t o £ 99 9k £ 1m t o £ 1.9 9m £ 2m t o £4 .9 9m £ 5m t o £9 .9 9m £ 10 m

FIG 5.5c

AVERAGE INVESTMENT SIZE BY BRITISH BUSINESS BANK PROGRAMME ANDINVESTMENT STAGE, 2011 2015 TOTAL ROUND SIZE

FIG 5.5b

AVERAGE REPORTED INVESTMENT SIZE

2011 2012 2013 2014 2015

British Business Bank Funds Wid er Market Wide r M arket VC/P E Fund s

2,000,000

4,000,000

6,000,000

8,000,000

-

10,000,000


33/35


DATA

The in ormation in the report is based on a combinationo data collected by Beauhurst, the British Business Bank,Department or Business, Innovation and Skills and theOffice or National Statistics.

Beauhurst provides deep data on the UK’s astest growingcompanies. Dr Stephen Bence and Toby Austin oundedthe company in 2010 having identied that more in ormation

about growing companies, widely known as “scale-ups”,would be valuable to many organisations and UK plc itsel .On a daily basis, Beauhurst’s research team identiesand investigates equity deal announcements or UKcompanies. In the categorisation o deals by, or instance,sector and stage o business, researchers make use o aset o complex criteria developed in-house to maintainconsistency. Beauhurst’s equity deal data goes back to July2010 and is comprehensive across all publicly announcedequity investments into UK-based private companies.

A subset o the 1000+ business unds tracked by Beauhursthas been used in the production o this report. WhenBeauhurst tracks a new und it ensures that deals arealways back-lled to Q3 2010 in order to provide accuratecomparative data.

Equity deals included meet the ollowing criteria: (1) therecipient o the unding is a UK-based business; (2) thereis no upper or lower limit or the sum invested; (3) the

unds are either institutional investors or business angels,and where no unds have been disclosed Beauhurst is surethat the investment contains equity; (4) the investmentis visible, meaning that it has been publicly announced viaa press release or some other media ; (5) The recipient oinvestment is a small or medium-sized business as denedby the European Commission.

When analysing cross-sector data, or example dealsacross all seed-stage companies, Beauhurst weights dealnumbers and investment amounts across all the s ectorsthe investee is in. For example, a seed-stage company inthe internet plat orm and theatre sectors will be counted as

hal a deal in each o these two sectors. This report omitssingle sector analysis based on double counted gures.

Where investment amounts have been provided inoreign currencies, these have been converted to GBP at

the exchange rate on the day o the transaction.

The relatively simple breakdown by stage used byBeauhurst differs rom organisations such as EVCAand BVCA, which tend to distinguish between seed andstart-up, and between early and late stage venture.The reasons or using the simpler taxonomy are:

1. In some cases there isn’t enough in ormation to decideon a principled basis whi ch o the two seed or venturesubgroups a company lies in.

2. The simpler taxonomy can be used or all sectors,whereas a more complicated one would be moredifficult to apply consistently across sectors.

3. A less detailed breakdown reduces “noise” in thedata resulting rom smaller numbers o deals beingcategorised into narrower stages – the small base sizescan lead to large swings in reported investment romone quarter to the next.

The ollowing table summarises the differences betweenthe Beauhurst taxonomy and the more detailed classicationso investment stage used by EVCA and BVCA, and offers

some broad descriptors o the types o activity andcompany supported in each case.

Location in ormation is based on the head office locationo the company receiving investment. This is also true oONS data used to measure equity deal activity againstregional business stock.

Second closing o a round: I , or example, a companycompletes a second closing o its Series B round or £5mand previously had closed £2m in a prior quarter, thenonly the £5m is included in our data or this quarter.

Ongoing undraising: I a company indicates the closing o£1m out o a desired raise o £10m, our data only reectsthe amount that has closed.

APPENDIX Beauhurst EVCA classication Detailed breakdown Broad descriptors;classication (BVCA) nance used for Seed Seed R&D; initial concept

Start-up Start-up Product development; initialmarketing; pre-revenue

Early stage Post-product development;supporting commercial sales;pre-prot

Late stage venture Expansion o operating companywhich may or may not be protable;already been backed by VCs

Growth Growth capital Growth/Expansion More developed, protablecompanies looking to

expand/enter new markets

Venture Later stage venture

Seed

Beauhurst classication Description of investor type

Family Office Wealth management rms that manage the investments o wealthy individuals,amilies, or multiple amilies.

Government Equity programmes managed by central, devolved, regional or local governments.

Bank Institutions that also provide commercial loans to businesses alongsideequity investors.

Corporate Companies making equity investments into smaller companies directly or througha separate und, o ten with a strategic purpose.

Incubator Provide a variety o benets to early stage businesses including mentorship,office space, and unding, o ten in exchange or an equity stake.

Angel Network Networks o High Net Worth Individuals that invest their own wealth into growingcompanies. Angels may invest as an ind ividual or as part o a syndicate involvingother angels. Individual angels or the Angel network may originate the deal.

Private Investment Vehicle Individuals or a small group o individuals that invest in growing companies.PIVs are similar to angel investors but the equi ty shares are held by a und orother structure rather than directly held by the individual(s).

Crowd Funding Online plat orms enabling retail investors to invest into private companies.

Private Equity Fund structures that invest institutional unding into private companies.Venture Capital unds typically invest in early stage, high growth businesses;whilst Private Equity unds invest in later stage established businesses.


34/35


FOOTNOTES

1 UK Growth Dashboard 2015 http://www.enterpriseresearch.ac.uk/wp-

content/uploads/2015/06/2015-UK-Growth-Dashboard-Report.pd

2 http://british-business-bank.co.uk/wp-content/uploads/2015/09/TECPLM14158-Business-nance-guide_WEB.pd

3 http://british-business-bank.co.uk/wp-content/uploads/2015/03/050315-Equity-tracker-FINAL.pd

4 The EC denes an SME as a business with less than 250 employees andeither aturnover o lessthan €50mor balancesheet total o lessthan €43m.

5 http://british-business-bank.co.uk/wp-content/uploads/2016/02/british-business-bank-small-business-nance-markets-report-2015-16.pd

6 http://about.beauhurst.com/report-the-deal-2016-q1

7 https://www.cbinsights.com/reports/CB-Insights-KPMG-Venture-Pulse-Q1-2016.pd

8 Beauhurst classies high-growth businesses into three stages: seed,venture and growth. Buyouts and public market investments are notincluded, as the ocus is on early-stage, growing companies. Accordingto Beauhurst’s taxonomy, the seed-stage encompasses pre-revenuecompanies who ocus on R&D, product development, and initial marketing.The venture-stage covers mainly pre-prot companies working on post-product development, support o commercial sales, and expansion ooperations; these companies may already have received backing by venturecapitalists. Finally, the growth-stage comprises protable companiesworking on expansion into new countries or markets.

9 Throughout this report, deal number and investment amounts calculatedacross industry sectors are based on weighted gures. This reects theweighting Beauhurst attaches to the sectors an investee company covers.For example, a company in the Internet Plat orm and Theatre sectors will

be counted as hal a deal in each o these two sectors, rather than beingcounted twice under each sector.

10 Ea ch business’ location is based on location o the registered head office.Businesses may have activities and offices in other locations.

11 High growth businesses in this instance are dened as “any businesswith average annualised growth o 20 per cent or more and with 10 ormore employees in the starting period.” Source data: ONS Analysis oHigh Growth Enterprises 2010 to 2013, available at: http://www.ons.gov.uk/businessindustryandtrade/business/activitysizeandlocation/adhocs/005150analysisofighgrowthenterprises rom2010to2013uk

12 Source data: BIS Business Population Estimates or the UK and Regions2015, available at: https://www.gov.uk/government/statistics/business-population-estimates-2015.

13 The constituent local authorities in a given cluster ollow the Centre orCities denitions.

Source: http://www.centre orcities.org/wp-content/uploads/2014/08/12-03-19-Primary-Urban-Areas.pd

14 Th e term Private Equity is used in the wider sense here and includes

Venture Capital unds and Private Equity unds. Deals categorised as buy-out are not included in this report.

15 Private Investment Vehicles invest money rom a single individual or a smallgroup o individuals. PIVs are similar to angel investors but the shares areheld by a und or other structure rather than directly by the individual(s).

16 Wh ere an investment was syndicated between different investors it is notalways possible to determine how much each investor contributed to theoverall valueo thedeal and there oreinvestment totalsare not shownhere.

17 British Business Bank und investments were matched to investments inthe Beauhurst dataset using the CRO number in the rst instance, ollowedby name o company where CRO number was not available. British BusinessBank unds are then only included i the name o the BBB appointed undmanager is included in the Beauhurst list o investors.

18 Some companies receive more than one equ ity deal in a different timeperiods, either rom the same investor/ group o investors or rom differentinvestors in a different unding round.

19 Dea l number and investment amounts calculated across industry sectors arebased on weighted gures. This reects the weighting Beauhurst attachesto the sectors an investee company covers. For example, a company in theInternet Plat orm and Theatre sectors will be counted as hal a deal in eacho these two sectors, rather than being counted twice under each sector.

20 Each business’ location is based on location o the registered head office.Businesses may have activities and offices in other locations.

21 Where an investment was syndicated between different investors it is not

always possible to determine how much each investor contributed to theoverall valueo thedeal and there oreinvestment totalsare not shownhere.

22 Deal number an d investment amounts calculated across industry sectors arebased on weighted gures. This reects the weighting Beauhurst attachesto the sectors an investee company covers. For example, a company in theInternet Plat orm and Theatre sectors will be counted as hal a deal in eacho these two sectors, rather than being counted twice under each sector.

23 Each business’ location is ba sed on location o the registered head office.Businesses may have activities and offices in other locations.

24 Where an investment was syndicated between different investors it is notalways possible to determine how much each investor contributed to theoverall valueo thedeal and there oreinvestment totalsare not shownhere.

25 Deal nu mber and investment amounts calculated across industry sectors arebased on weighted gures. This reects the weighting Beauhurst attachesto the sectors an investee company covers. For example, a company in theInternet Plat orm and Theatre sectors will be counted as hal a deal in eacho these two sectors, rather than being counted twice under each sector.

26 Each business’ location is based on location o the registered head office.

Businesses may have activities and offices in other locations.27 Where an investment was syndicated between different investors

british business bank small business equity investment tracker report

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