Posted on 10th February, 2017
Posted on 10th February, 2017
by James Codling
Review of Beauhurst’s “The Deal 2016” Equity Investment Report
On Thursday, Beauhurst published its review of last year’s equity investment landscape in The Deal: 2016. At first the headline stats appear quite gloomy: the number of deals being invested in was down, the amounts being invested in deals was down and crowdfunding saw its first decline in number of deals, dropping by 14 per cent. The only thing that seemed to have grown was the size of the deals that received equity investment.
However, if you dig a little deeper into the report, there are many aspects that hinted towards positivity in how VentureFounders fits into the equity investment space. Whist the venture-growth stage deals – which is where VentureFounders plays – made up only 19 per cent of the deals receiving equity investment in 2016, the amount invested in these companies totalled 61 per cent of all the equity investments made that year.
These scale-up companies are in the area we consider to be a sweet spot of investment. They allow investors to own a piece of a company that has a proven track record and is on the brink of significant growth. And it’s no longer just VCs and super angels accessing these investments. The report revealed that equity crowdfunding, an alternative finance model, saw a 10 per cent increase in the number of growth stage deals and that of all growth stage deals, 80 per cent were using crowdfunding for the first time. This is extremely significant for the alternative equity investment market, as it shows an increase in perceived credibility and support from companies looking to scale up their operations. However, equity crowdfunding is still in its infancy compared to Private Equity and does not have the proven track record to make a direct comparison between the two markets. While crowdfunding is indeed gaining traction, it would be inaccurate to say it is outperforming private equity when there are so few exits and returns by which to judge the overall market’s success.
I was also pleased to see that the sectors we work in – primarily technology – were stable last year, accounting for around 40 per cent of the number of deals and amount invested in 2016. The report also touched on Brexit, which hadn’t seemed to have had much of an impact on the market overall. We found this to be the case at VentureFounders too, with the upcoming referendum seeming to have more of an effect on making some investors a bit more canny ahead of the results, but the market seeing little impact once the move for the UK to leave the EU had been announced.
Overall, I’m pleased that the results of this report show that there is a transition happening in equity investments, with more collaboration to be expected between institutional investors and alternative investment platforms. By accessing the scale-up market, I hope to see a significant increase in equity investment deal sizes and more later stage businesses embracing alternative financing into their fundraise mix when we look at The Deal: 2017 in 12 months' time.