Equity investment market update: Q1 2020

The latest data on equity investment trends in the UK. We’ve analysed every publicly-announced equity fundraising in Q1 2020, to spot emerging trends and patterns in the market.

See our yearly edition, The Deal, for in-depth analysis and features on key market trends.

The first quarter of 2020 was one like no other. We started on a high, coming out of a year that had seen more pounds invested into the UK’s high-growth ecosystem than any other. But the latter part of the quarter was marred by the global spread of coronavirus and the subsequent lockdown measures that remain in place across the UK and beyond. 

At the beginning of April, we released some preliminary figures for Q1 2020 and reported on some of the changes in investor behaviour. Since then we’ve received more data and the figures have improved slightly. Overall, it’s been a mixed bag; whilst deal numbers are down since Q4 2019, the amount invested has increased. 

The deals that have been completed since lockdown will have been months in the making, or a speedy move from investors looking to keep their existing portfolio afloat during the downturn. The true effects of this pandemic on equity funding figures will come to bear over the next quarter.  

Difference from Q1 2019

Difference from q1 2019

• Deal numbers fell by 17% from the previous quarter, and 14% from Q1 2019

• The amount invested rose 21% from Q4 2019, but fell 14% from Q1 2019.

• Deal numbers were down across all stages of evolution bar the growth stage, which saw an 18% increase from Q4 2019.

• 4% of deals completed were greater than £50m, the highest proportion ever recorded.

• Most sectors, including fintech and AI, saw a decline in deal numbers. Blockchain was one of the few to buck the trend.

Investment stages

Deal numbers are down across all stages except the Growth stage, which are up by 18% compared to Q4 2019. Particularly dramatic declines can be  observed at the Seed and Venture stages which saw a 18% and a 27% decline respectively.

Similarly, Growth stage deals are the only stage that secured larger amounts of equity in the first quarter of 2020 compared to Q4 2019. Growth stage  companies brought in 77% more investment between January and March of this year, making it the second most lucrative quarter ever for companies at this stage. Venture stage companies saw the largest decline in investment (-66%) from £690m to £430m.

Investment sizes

This quarter saw 16 megadeals (investments worth £50m+), beating the record of 12 set in Q4 2017. While these deals made up 4% of all announced  investments into private UK companies this quarter, they account for 56% of all the value secured.  On the smaller end of the scale, 40% of all deals were worth £500k or less. These deals secured less than 1% of the total amount invested.

Reflecting the high number of large deals, the average deal size in Q1 2020 was £6.89m. This is the second highest figure ever recorded, beaten by the huge average deal size of £6.95m in the first quarter of 2019.

The biggest deals of the quarter

The largest deal of the quarter was secured by the unicorn challenger bank, Revolut. £383m was raised from Ribbit Capital, Technology Crossover Ventures (TCV), Digital Sky Technologies (DST Global), Sprints Capital and further undisclosed investors. This is Revolut’s largest deal yet, and makes it the highest valued fintech company in the UK. The company reports that this funding will fuel expansion into the US market.

The second largest deal was secured by OneTrust. The privacy, security and trust technology platform raised £162m from Coatue Management and Insight Partners.

Sector focus

Deal numbers were down across all sectors except blockchain, which has continued growing since Q3 2019, securing a total of 11 deals in Q1 2020. This includes a £9m round by Argent, a wallet app for the Ethereum blockchain, and a £6m round by Copper, which develops software for crypto-currency investors to manage their portfolio of digital assets.

Edtech saw the largest drop in deals, securing just 8, which marks a 60% decline from Q4 2019. The COVID-19 lockdown will be the make or break of many edtech companies, as their digital services come into acute demand by families at home. We’ll be watching this sector’s development closely throughout the crisis.