- Value of total equity investment in UK unlisted smaller companies hits record high of £8.8 billion in 2020
- Average growth stage valuation of smaller unlisted UK companies reaches £100 million for the first time in 2020
- Investments in life sciences across all stages increases by 70% compared to 2019
- Deep tech deals now worth £2.3 billion up 291% since 2015
16 June 2021
British Patient Capital comments on the British Business Bank’s Small Business Equity Tracker which reveals the average pre-money valuation of a growth stage private company reached over £100 million. At £100.8 million in 2020 this is an increase of 92% compared to 2019. In growth stage tech companies, the increase on 2019 levels was more pronounced, rising by 102% to reach £124 million.
Ian Connatty, Managing Director, British Patient Capital comments: “According to the British Business Bank’s Small Business Equity Tracker, the average valuation of UK growth stage tech companies raising capital increased by over 100% compared to 2019, demonstrating strong investor confidence in UK tech, and an increased availability of capital to support companies achieve scale while remaining private. This increase has been primarily driven by a small number of large, competitive investment rounds. These are most obviously seen where new unicorn companies have been created.
In our underlying portfolio virtual events platform, Hopin and Cazoo, which is rapidly transforming the UK market for used vehicles both became new unicorns in 2020. More recently Zego became the UK’s first insurtech unicorn in March 2021. In addition to the size and competitiveness of funding rounds, what these companies also have in common is the speed of their growth. Beauhurst estimates that it takes on average seven years for a company to gain unicorn status. In comparison, Hopin gained this after only one year and Cazoo after just two. While these companies are obviously outliers, they are a useful reminder that returns in venture capital aren’t driven by the average but the exceptional.
As an organisation set-up to both increase the supply of venture growth capital to ambitious UK founders, and deliver a compelling commercial rate of return. These indicators of a strengthening equity market for high-growth UK private tech companies are encouraging.
Commenting on the UK life science investment opportunity Ian Connatty added:
The global race to develop and deploy vaccines has deservedly shone a bright light on all life sciences. The increased equity investment in high-growth private UK life sciences companies is also based on strong fundamentals. The UK has the largest advanced therapies community in Europe, leading the innovation and development of the gene, tissue and cell based medicinal products at the forefront of new breakthrough treatments of disease and injury.
In our own portfolio we are now invested in five dedicated life science funds. We see strong interest from many of our other fund managers in a broad range of healthtech companies ranging from AI powered drug discovery companies such as Healx to telemedicine providers like Push Doctor and Accurx.
Commenting on the UK deep tech sector Ian Connatty added:
Deep tech, companies founded on tangible scientific discoveries or meaningful engineering innovation, is now attracting significant investor interest, accounting for 22% of all UK VC deals in 2020. The Small Business Equity Tracker, however, reveals that, together with other R&D intensive companies in sectors such as healthtech and life sciences, these companies receive significantly less funding overall on a GDP-weighted basis compared to their US counterparts. The shortfall is particularly acute in later-stage funding rounds with US rounds 4.5x larger on average by round six.
R&D intensive companies can accelerate the deployment of innovative, breakthrough technologies that can transform major industries, develop new medicines, support the transition to a net zero economy, and strengthen the UK’s position as a science superpower. Because of their ability to grow rapidly and have a significant economic impact, encouraging the growth of these innovative companies is critical to the UK’s future prosperity.
British Patient Capital will shortly launch Future Fund: Breakthrough a new £375 million UK-wide scheme encouraging private investors to co-invest in R&D intensive high-growth, innovative firms.
Commenting on the sources of capital for growth stage tech companies Ian Connatty added:
While the Small Business Equity Tracker Market examines the trends for UK smaller private companies raising capital, it doesn’t comment on the paucity of UK investors writing big checks for later stage funding rounds in the UK. In 2020, according to a report by Tech Nation, the majority of capital for venture growth funding rounds came from overseas, primarily North America.
While this is a strong endorsement of the opportunities for investors in UK tech, it does mean that UK savers risk missing out. The UK is the third largest pension market in the world, yet makes the smallest allocation to alternative assets, such as venture capital – 8% versus the average of 26% for large, mature pension countries. A report by the British Business Bank, showed that retirement savings could be increased by 7-12% for a 22-year-old, if their pension scheme made 5% of investments in the UK’s fastest growing and most innovative companies via venture capital funds.
Strengthening the UK market for later stage venture capital isn’t just important for our savers, it helps our companies to also achieve scale and success while remaining anchored in the UK. It also gives our ambitious growth stage founders a go to source of patient capital when global markets may be less buoyant, and the opportunity less obvious. That’s why a key part of our investment strategy is to bring more UK based venture growth funds to market.