UK-Based Venture Capital Activity in the Technology Sector – November 2014

by Joel Coulson

  • 07 Nov 2014
  • PE
  • VC

It can be argued that there is no industry more important for the growth and sustainability of an economy than the technology industry. Many of the more directly contributing industries, such as finance or utilities, are becoming increasingly more dependent on technology to remain competitive, thus a thriving technology sector is vital for a country to maintain its place as a leading economy.

Already in 2014, the aggregate value of venture capital financings in the UK has surpassed every other year from 2007 onwards, with a total value of $1.3bn, 9% higher than 2010, which saw the next highest total. Despite such a large aggregate value, the total number of deals in 2014 YTD is at 214, 18% lower than all of 2013 and 5% lower than 2012. When comparing deal activity in January to October against the same period in other years, 2014’s 214 deals is the second highest deal flow, beaten only by 2013’s 223 deals, and with 2014’s average monthly deal flow at 21 deals per month, it may struggle to surpass 2013’s full year high of 262 deals. Nonetheless, the average deal size has risen, with 2014 to date recording an average deal size of $6.9mn, the largest since 2010 and almost double 2013’s average of $3.5mn, suggesting that venture capital investors are becoming more confident to increase their capital commitments to UK-based technology companies. 

Like each year preceding it, 2014’s Angel/seed stage had the highest share of deal flow (65) – a 34% decrease on the previous year’s number. However, an indication of the UK technology sector’s growth is shown in the more progressive stages (Series A-E), accounting for 63 deals in 2014, a total greater than any other year. The round that received the largest average amount of funding was Series E at $50mn, although this came from a single deal: Basingstoke’s NewVoiceMedia, a cloud-based contact solutions company, which received the investment from a consortium that included Bessemer Venture Partners, Technology Crossover Ventures and Salesforce.

The volume of technology-focused venture capital investment in the UK since 2007 is at 1,453 deals, with a total aggregate value of $6.8bn, which is substantially higher than its nearest competitors, Germany, with 1,011 deals at $3.5bn; and France, with 683 deals valued at $3.2bn. A possible explanation for this could be the vast amount of ‘Tech Hubs’ based in the UKs: from London’s Silicon Roundabout to Manchester’s Media City; Bristol, Leeds and Edinburgh are all well noted to be clusters of technology innovation. Whereas the likes of Munich in Germany and Paris in France are highly regarded as Europe’s top technology hubs, only Germany has a similar spread of technology clusters throughout the country: Karlsruhe, Darmstadt and Berlin. Despite this, the UK has not yet failed to come top in any year since 2007 in both deal flow and aggregate value.

Overall, it is clear that investors have always been confident in the UK’s technology sector, driven by a positive feedback loop that is reinforcing venture capital investment; as the nation’s technology infrastructure improves, so does the size of the investments made and the increased activity of investors in later stages, ultimately helping the UK to fend off competition from other European nations and facilitate further investment into the country. With this sector said to represent approximately 8% of the UK’s GDP, together with the attractiveness of the UK to investors, the technology sector is well positioned to continue going from strength to strength in terms of venture capital investment.

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