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  • Venture capital in the UKIts vital role in driving growth

  • 3 Foreword

    4 Keytakeaways

    5 UKventurecapital:anoverview

    8 VenturecapitalandtheUK

    11 Thecurrentlandscapeofentrepreneurialfinance

    15 Casestudy:Kano

    16 Lookingahead:challengesandopportunities

    18 Conclusion

    20 Abouttheauthors

    22 Furtherinformation

    Contents

    2of22

  • BarclaysisstronglyplacedtosupportaVCexpansion,backingonemillionSMEs,developingprogrammeslikeRISEandEagleLabs;andconnectingtothedepthandbreadthofcorporateandinvestmentbankrelationshipswehavefromSiliconValleytoSingapore.

    Increasingly,Iquestionwhetherwearenowatechnologycompany,aninformationbusinessorabankinreality,weareallthreeandwecanpartnerindifferentiatedwayswithVCs.

    IamdeterminedtoensurethatthenewworldbeatersofthefuturearesupportedbyBarclayseverystepofthewaywhetheritsinbiomeds,AI,grapheneorevendriverlesscars.ByworkingmuchmorecloselywithVCfirmsandtheirclients,wecanhelptoacceleratethegrowthofhigh-performingcompaniesanddoourparttoboostnationalandglobalprosperity.

    ForewordVenturecapitalfirmsarethecatalystforthegrowthanddevelopmentofexcitingnewcompaniesandnowformavitalpartoftheeconomicinfrastructure.

    IntheUKwehaveagreatVCinfrastructureandanumberoffantasticbusinesseshavebeenhighlysuccessful,inpart,becauseofit.ButeveryoneisaskingwhydoesnttheUKhaveitsowntechgiants?IfwearetobuildourownweneedmoreactiveVCinvestmentandIbelievebanksmustnowbringtheirvastnetworkofbusinessconnectionsandexpertisetothetable.

    WeareexcitedtoseetheburgeoningentrepreneurialtalentintheUKandarekeentoplayourpartinhelpingdrivethissuccess.Barclayshasalwaysbackedthevisionariesandinnovatorsthroughoutour325+yearhistoryandwelookforwardtothepositiveimpactthissectorwillhaveontheUKseconomyandemploymentforgenerationstocome.

    Wehavebuiltastrong,dedicatedhighgrowthandentrepreneursteamandalsoaVCcoverageunittoenableBarclaystohelpservetheentireVCecosystemandtohelpVCsandstart-upsastheydeveloptogether.

    AshokVaswaniCEO,BarclaysUK

    WeareexcitedtobeabletobringsomeofourexpertisetosupportingtheUKsburgeoningentrepreneurialtalent.

    Barclayshasalwaysbackedthevisionaries

    andinnovatorsthroughoutour

    325+yearhistory.

    3of22

  • Key takeaways

    ScaleTheVentureCapitalmarketintheUKhasbuiltupconsiderablescaleoverthelastdecade.In2016,936dealswerecompleted,delivering4bnininvestments.Whiledownonthe2015peakof5.6bn,thisisstillaconsiderablecontributionandrepresentsroughly34%ofalldealscompletedinEurope.1

    DisruptionThelargercompaniesthathavebeendisruptedbytheVCsceneandtheecosystemithelpssupporthavebeen,inlargepart,slowtoreact.However,thereisnowamoreconcertedeffortbysomeoftheseorganisationstohelpgrowtheentrepreneurialandinnovativebusinessesthatlooktoVCforfunding.Therehasbeenarecentincreaseinthenumberofcorporate-sponsoredacceleratorprogrammesandfundingcycles.

    AtBarclayswehavebeenkeentohelpdeveloptheinfrastructureforsometimewesetupUKbankingsfirstdedicatedHighGrowthandEntrepreneursteam,ourRISEprogrammeprovidescollaborativeworkingspacesforinnovativefintechbusinessesandouracceleratorprogramme,inpartnershipwithTechstars,hashelpedmanystart-upswithmentoringandguidancethroughtheirfirstdifficultyears.

    WhyisVCimportant?Theoriginationofinnovationhasgraduallyshiftedawayfromin-houseresearchfacilitiesinlargecorporatestowardssmallercompaniesandstart-ups.Early-stagefastgrowthcompaniesrelyonVCwhichgivesitaphenomenallyimportantroleinhelpingdelivertheinnovationwhichcreatesgrowthandimprovestheUKeconomy.TherecenthighprofileinvestmentinLondon-basedsoftwarefirm,Improbable,isjustoneexampleofhowthetraditionalmodelsarebeingbrokendown.

    TheUKsstrongventurecapitalscenehascreatedafertileenvironmentfordisruptivetechcompanies.Today,itisaworldleaderinthefinancialtechnology(fintech),enterprisetechnology,e-commerce,property,andtravelsectors.FundingCircle,DeepMind,ASOS,Zoopla,KanoandSkyscannerareexamplesofUKsuccessstoriesineachofthesesectors.

    WhyisventurecapitalsoimportanttotheUKeconomy?Howlargeisthemarketandwhatdoesitdodifferently?

    TheUKventurecapitalmarket

    UK total deal value (2016)

    4bn1

    More than 200 UK firms have

    had successful exits in the past 10 years

    SOLD

    More than 200 UK firms have raised

    or more50m

    1Pitchbook2016AnnualEuropeanVentureReport.

    4of22

  • 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

    1.1

    1.4

    1.4 2

    .0 2.4

    3.8 4

    .0

    5.6

    1.5

    2.3

    386 423427

    596741

    987

    1,244

    1,496

    1,382

    936

    Why is venture capital so important to the UK?

    Today, venture capital is one of the most important sources of funding in the UK economy.

    The countrys productivity has stalled. Between 2007 and 2015, output per hour rose by just 0.7%. That matters: productivity gains are a central driver of economic growth as a whole, so only an economy that is consistently innovating and becoming more efficient can expect to grow in the long run.

    At the same time, there has been a shift in where innovations and technological breakthroughs originate. In previous generations, the most consequential innovations tended to come from large, established companies. Today, they are more likely to come from smaller companies and start-ups, and bigger organisations Google, Facebook are now as likely to acquire their innovation as to develop it within their walls. This is happening in part because the technology on which innovation relies is now cheaper and more accessible.

    It has never been less expensive to start a software company, explains Will Bowmer, Managing Director of Barclays International, who is based in Silicon Valley. Because of this, the number of start-up ideas that are now viable is amazing and they continue to proliferate.

    Early-stage, fast-growth companies rely on venture capital, which gives it an outsized role in enabling the innovation that improves productivity.

    Overview of UK VC activity

    UK venture capital: an overviewVenture capital is vital to UK economic growth, yet the industry is changing rapidly and faces increased competition from Europe.

    Repairing UK productivity and supporting long-term growth therefore needs a thriving venture capital sector. Venture capital is increasingly responsible for the formation of the most exciting and the most disruptive companies that we see in the UK, explains Sean Duffy, Head of Technology, Media and Telecoms at Barclays. Its driving more and more of the growth that we see in the economy.

    Deal Values (B)

    # of Deals Closed

    Source: PitchBook 2016 Annual European Venture Report.

    The UKs strong venture capital scene has created a fertile environment for disruptive tech companies.

    The UKs strong venture-capital scene has created a fertile environment for disruptive tech companies. Today, it is a world leader in the financial technology (fintech), enterprise technology, e-commerce, property, and travel sectors.

    5 of 22

  • 6 of 22

    2Pitchbook.com 3crunchbase.com/organization/octopus-ventures#/entity 4crunchbase.com/organization/localglobe#/entitylocalglobe.vc/talent/ 5crunchbase.com/organization/index-ventures#/entity 6crunchbase.com/organization/balderton-capital 7eif.org/ 8bbbinv.co.uk/ 9crunchbase.com/organization/atomico#/entity 10crunchbase.com/organization/mmc-ventures#/entity 11crunchbase.com/organization/amadeus-capital-partners#/entity

    Selected UK venture capital players

    There are a number of VC players in the UK market; this section highlights just a few of those active today.

    Dawn Capital seeks to invest in areas of fintech and B2B software. The firm primarily focuses on companies based in the United Kingdom and Europe.Type: Venture capitalSectors: Tech and B2B softwareCurrent Investments: 24 investmentsExits: 10 HQ: London

    Type: Seed, early-stage venture, later-stage venture, private equity, debt financing Investment size: 1m25mSectors: Mobile, software, fintech, curated web, healthtech, e-commerce, gaming, Current investment: 203 investments Exits: 4 IPOs, 30 acquisitions HQ: London

    The European Investment Fund is a public-private partnership and subsidiary of the European Investment Bank. It is mandated to provide 10bn in financing to high-growth, innovative and inherently risky small and medium-sized enterprises across the EU and associated countries.

    72

    6

    The British Business Bank is a government-owned bank, and British Business Bank Investments is its commercial arm.Type: Invests in finance providers such as deb funds, capital funds and challenger banksInvestment size: 5m200mCurrent investment: 0.7bn HQ: Sheffield and London

    8

    Type: Venture capital, early-stage start-upsSectors: IT, healthcare, financial servicesCurrent investment: 45 investmentsExits: 17HQ: London

    Type: Venture capital focusing on seed and impact investmentsSectors: Impact investing, SaaS, venture capitalCurrent investment: 135 investmentsHQ: London

    Type: Impact investing, financeInvestment size: 200,00025mSectors: Mobile, software as a service, security, enterprise software, IT infrastructure, media, healthcare, consumerCurrent investment: 166 investmentsExits: 4 IPOs, 18 acquisitions HQ: London

    3

    2

    4

    Type: Seed, early-stage venture, later-stage venture, and private equity investmentsSectors: Consumer internet and mobile, enterprise technologiesCurrent investment: 568 investmentsExits: 14 IPOs & 96 acquisitions HQ: Geneva

    5

    910

    Type: Venture capital, seed, early- and growth-stage investmentsSectors: Information technology, cyber security, internet infrastructureCurrent investment: 388 investmentsHQ: California

    Type: Banking, finance, venture capitalInvestment size:

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