How has the pandemic impacted equity investment into UK businesses?

Covid-19 News | Funding | Growth | Reports | Start-up

No area of the UK’s economy has been left untouched by COVID-19 and the government’s response to it. Equity investment into the UK’s high growth start-ups and scale-ups is no exception. But – given everything that is happening – there is cause for optimism.

Nearly two-thirds of the way into the year, we now have enough data to reassess our predictions for 2020, taking the impact of coronavirus into account as far as possible. To start with, 2019 was itself a record year: £15.7bn was invested into high-growth private companies.

2020 has already seen £8.4bn invested in 3,144 deals (based on data as of August 14 2020). This figure does not include convertible rounds, which we know have been an increasing part of the equity financing market since the pandemic started.

The figure therefore doesn’t include the more than £500m that has been invested as part of the Government’s Future Fund initiative.

Our predictions for 2020 were that we would see more than 2019’s £15.7bn invested but fewer deals than 2019’s 6,380 (in effect we also predicted that the average deal size would increase). This prediction was naturally not based on any anticipation of a global crisis, but rather on the systemic changes that were already happening in the ecosystem.

Fewer new companies were raising, and investors were starting to prefer to follow their existing portfolios over investing in newer, younger companies. Some VCs even started to raise new funds to invest exclusively in their existing portfolio companies. We first wrote about this phenomenon in July last year.

Much of this is natural in an entrepreneurial ecosystem. Entrepreneurial ‘supply’ waxes and wanes cyclically. As more and more start-ups are founded, they attract other entrepreneurial talent, eventually diminishing the number of start-ups that are founded. However, as the start-ups mature into scale-ups, they will cease to offer the culture and opportunities that otherwise entrepreneurially-minded founders are looking for. And, eventually, one should start to see an uptick in the startup founding rate.


Lockdown appears to have compounded the problem for the very earliest stage companies. Again this is natural: in a crisis, one can only expect investors to devote their energies to looking after the investments that they’ve already made.

Nonetheless, the situation is dire: since lockdown in March, there has been only £214m invested into 158 companies that have never raised equity investment before. This is compared to £943m into 225 companies in the previous year. Some of this is clearly due to coronavirus and its effects. But, is it all?

Even before coronavirus and its consequences were felt at all, we saw a change in the capital requirements of the very youngest businesses. Businesses can now bootstrap for much longer than before: in particular, the technical costs of starting a business, especially a tech one, are lower thanks to the likes of Amazon Web Services. COVID-19 has only accelerated this.

It is certainly true that some deals are smaller because the investors want to wait and see what happens, but it is also true that some deals are smaller because the companies plan to spend their money differently. I don’t think we will see more than £15.7bn invested this year. But I don’t think that need necessarily be a problem.

If businesses redirect their office spend to hiring, the entrepreneurial ecosystem may well still flourish (notwithstanding the problems that will create for the real estate sector). Suffice to say, I am confident that the UK’s start-ups and scale-ups will raise over £10bn this year. And – against the backdrop of everything that’s happened – that will be no mean feat.

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