British startups raised £663m in investment in the first month after the country went into lockdown, driven by high levels of activity in the tech sector, according to new research released today by Plexal and Beauhurst.
Plexal, the innovation centre and workspace owned by clients of Delancey, and Beauhurst, the UK’s leading database for fast-growth companies, has analysed UK investment activity from Monday 23 March 2020 until Monday 27 April, to provide an accessible, factually-driven window into the state of the UK’s startup community and tech sector.
They found that the total value of investments has increased by 34% compared to the same period in 2019, as a result of investors providing additional capital to ensure the survival of companies during the economic disruption. However, deal numbers were down by 39%.
The technology sector has been leading investment activity since the lockdown began, with the highest levels of investment going to startups operating in fintech, artificial intelligence, digital security and blockchain. Of the £663m raised, £50.2m went to startups that had never raised funds before.
However, the ability of a relatively small number of tech startups to raise investment mustn’t overshadow the very real challenges facing the majority of fast-growth small companies.
While there have been 114 deals in the four weeks since the 23 March, this is down by 39% compared to the same period last year. Investment experts say the number of deals is a more accurate barometer of investor confidence and the figures suggest that the majority of startups could struggle to raise funding as a result of economic disruption.
The scale of the challenges facing many startups is clear. Nearly 1,000 small businesses are currently in administration (263) or liquidation (707).
The week after lockdown was announced – starting Monday 30 March – saw the lowest weekly amount of investment since w/c 28 March 2016, which was the only week to see less investment in the past five years (excluding Christmas weeks). The value of investments fell by 89% compared to the same week in 2019. However, the total investment value from 23 March until 27 April 2020 was up by 34% on the previous year, suggesting this was a temporary shock.
Despite recent announcements from the government about a Future Fund for small businesses and loans being distributed by Innovate UK and the British Business Bank, these figures show that while some startups are continuing to attract investment, the vast majority are struggling to raise funding.
Plexal and Beauhurst have analysed nearly 30,000 startups and fast-growth businesses (companies that have attracted equity or venture debt funding) to understand investment activity since lockdown. The research will be updated on a weekly basis during the COVID-19 pandemic, and can be found at plexal.com/startup-tracker. The aim is to provide the facts about how startups and the tech sector as a whole are faring as the economy feels the impact of COVID-19.
Andrew Roughan, Managing Director of Plexal, comments: “While the Future Fund is an excellent first start, it’s clear that more is required to protect the businesses that have driven job creation and economic growth in the UK for the last 10 years. This research is designed to cut through the doom and gloom and speculation to see which parts of the startup ecosystem are thriving, and which need urgent support.
“While tech startups have shown remarkable resilience in their ability to continue attracting investment, the success of the few mustn’t overshadow the struggles of the wider majority of British startups.
“If we don’t act now to stimulate the market and ensure funding is distributed widely and quickly, we risk a lost generation of startups and entrepreneurs. We’ll be closely monitoring deal numbers, liquidations and early stage rounds in the coming weeks and months to provide an accurate lens through which to judge whether the support mechanisms are working as desired.”
Henry Whorwood, Head of Research and Consultancy at Beauhurst, comments: “While the data shows an immediate downturn following lockdown, our hope is that the startup and technology sectors will remain resilient during this economic disruption. The concern is that a reduction in the number of deals reflects a fall in investor confidence that could cripple the growth of the country’s most successful startups and fast-growth businesses.”