We all know how hard and volatile 2020 was for the UK economy. UK public equity indices crashed 30% from close to all-time highs over the period from January to March. They have since recovered at least half of the lost ground. The bounce back in the US, led by technology and high growth sectors, was much stronger and led to new all-time highs.
However, stock prices do not tell the real story of the UK economy. A large part of our modern economy is financed by private capital markets, including venture capital and PE. Deals worth hundreds of billions every year drive capital for significant sectors and companies in the UK. A closer look at this sector shows areas of great stress.
Here at GovGrant, we bring together hundreds of innovative UK companies, private investors, and technical specialists to maximise capital efficiency and commercial value of innovation. Starting this month, we are launching a new campaign to help such companies and investors Rocket into 2021 with improved cash flow and valuation.
UK private capital markets in 2020
We analysed deals in UK private capital markets in 2019-20. Our dataset covers all private deals types across several thousand investors and companies:
- Venture capital: incl. angels, incubators, accelerators, seed, crowdfunding, early and late stages
- Private equity: incl. buyouts, growth/ expansion, secondary and PIPE, and
- Mergers, acquisitions and corporate purchases.
We looked at deal values ranging from as low as a few thousand to hundreds of millions. This is a rich dataset, and we will unpack the findings over the coming days. The top-level data shows the following two insights:
- Private capital dried up by 30% since March 2020.
- Smaller companies were worst hit with half the number of deals.
Findings and explanations
For details see our chart here.
The chart shows following findings:
- Deals under £5 million: The blue bars on left axis show rapid fall in quarterly deal count from over 600 to between 300-400. The blue line on right axis tracks the reduction in quarterly value raised from £900 million to a £500-600 million range.
- Deals between £5-50 million: The brown bars and line show fluctuations in deal count and value, but not a major decline.
- Deals above £50 million: We see reduction in the grey bars and lines for large deals, but with some optimism in form of an uptick in Q4’20.
- Deals with unknown value: The yellow bars show a large decline from over 1000 per quarter to around 600. A vast majority of these deals are low value and is consistent with drying up capital for smaller companies.
It is worth noting that the bars and lines are scaled to fit the chart. Quarterly allocation of 2019 deals is approximate within each half year. Also, Q4’20 deal data is still being collected, and some improvement is expected.
Cash and capital
Smaller UK companies and their investors have a specific and immediate challenge. Such companies have weaker cash position, and this impacts their market position and employee morale. Their capacity to benefit from opportunities later in 2021 are hampered. Without additional cash and capital, their ability to survive and thrive is limited.
Nonetheless these are companies with strong potential. So they need some timely help. We at GovGrant bring this help.
At GovGrant, we are specialists in unlocking capital for innovative companies. We help them monetise their past investments into research and development of Intellectual Property through relevant UK government schemes. This makes fresh cash and capital available to them – to be used for reinvestment, for extending runways and for opening strategic options.
Our specialisation helps in three specific ways:
- Identifying R&D and IP that has not been identified before, thus creating a greater cash and capital opportunity. Our clients benefit from a 2-8x higher-value opportunity.
- Working at pace, thus releasing cash and capital in February or March rather than in mid-2021 or later. In special circumstances, our clients can benefit from action in 1-3 weeks, rather than the average timeframe of 4-10 weeks.
- Quality and reliability, by reducing risk of government inquiries. Our clients benefit from one of the industry-lowest enquiry rates, 100x lower than average.
How it started
At GovGrant, we have a dedicated offer for privately funded companies and their investors. This adds specific value to the investors and their portfolio. You can read about the approach here. We already work with dozens of active UK investors and hundreds of privately funded companies. Contact us to learn more.