How has COVID-19 changed start-up investment?

Anthony Rose

SeedLegals has today revealed new data that shows the impact of the coronavirus pandemic on the UK’s start-up economy, revealing which industry sectors have seen the fastest recovery when it comes to securing investment, with a surge for healthcare and EdTech businesses.

The number of terms sheets is rising and June 2020 skyrockets:

Taken from the beginning of UK lockdown in March to 29 July, the findings show that the number of individual investors fell significantly in April by 34% (the biggest fall for 18 months), but steadily increased from May onwards.

June 2020 actually saw the highest number of individual investments since January 2019.

With more than 15,000 start-ups on the platform, raising more than £300m, SeedLegals is the largest closer of funding rounds in the UK, giving the business unique insight into funding round patterns.

“The coronavirus pandemic has impacted almost every business and industry around the world, and whilst there have been many success stories, there have also been many casualties,” said Anthony Rose, co-founder of SeedLegals.

“Whilst this has been challenging for all businesses, startups have the added pressure of needing to continue to scale their business, whilst adapting to an ever-changing landscape. However, in the face of adversity, it seems entrepreneurs and business leaders are doing what they do best and innovating, and despite the current global economic uncertainty, the sentiment for early-stage investing remains buoyant.”

Health and EdTech surge, whilst the hospitality industry slumps further:

Across the 20 sectors that SeedLegals categorises its companies, data reveals that some sectors experienced a significant increase in investors during COVIDs – notably the health sector and EdTech sector.

Healthcare saw a large jump of over 600% in individual investments in May and June (compared to April), with EdTech increasing by 1,700% in June (when compared to the previous month).

It’s a similar story for ventures in the manufacturing, fintech and artificial intelligence industries, which shot up 262%, 339% and 392% respectively in June compared to figures in May.

The food industry, however, has been the hardest hit. The number of individual investments was significantly down by more than 60% in both April and May. Although they increased in June increased slightly, it remained at its lowest level for over a year (apart from April 2020).

Anthony Rose continued: “There is clearly a lot of volatility across the different sectors at the moment, and while it may be a little early to predict a faster-than-expected recovery for some industries, it’s safe to say that an increase in investors is good news for the UK’s startup economy.”

Valuations haven’t halved and existing shareholders are not having to step in:

Despite rumours of valuations halving, this is not supported by SeedLegals’ data and there’s been no significant change in valuations over the period.

What’s more, SeedLegals’ data proves that investors are not pulling out of deals and leaving existing investors to step in to keep their portfolio companies afloat as investment from existing investors remains around the historic average of 25%.

While most funding round statistics use Companies House data, only SeedLegals is able to provide data on rounds in progress, as well as patterns of investors being added and removed to rounds in the months or weeks leading up to the round closing.