– London Set to Become Key European Investment Hub –
Venture Capital vs Private Equity Deal Flow
qodeo, a provider of financial data to the global venture community, has unveiled research that Venture Capital (VC) firms are seeing three times more investment opportunities than Private Equity (PE) firms, but despite this, PE firms are twice as likely to invest as VCs.
Early stage VCs see, on average, 900 business plans per year, and deal flow is at an historic high, given the weight of capital raised since 2012. However, ‘Time to Exit’ has extended and the UK is more risk averse than the US, at early stage investment. Less than 10 percent of UK VC & PE firms hold pre-revenue companies in their portfolios compared to 24 percent in the US.
Key Findings From qodeo and Cambridge Study
Interviewees in the research by qodeo, in partnership with Cambridge University’s Judge Business School, highlighted:
• European VC and PE firms lacked experience in picking winners, compared to the US, and were not as ruthless at shutting down poorly performing investments.
• Withdrawal of institutional firms (banks and pension funds) from PE, driven by regulation and publicity to focus on their core activity.
• Emergence of London as a crowd-funding centre, along with the focus and competition it brings to early stage venture capital, and the consequences for risk and regulation.
• The return of corporate buyers as investors into private equity, and the innovative two-way relationships that are being built.
• The skew towards Internet based investments and warnings of a bubble developing in this area.
• Effects of enhanced levels of direct and indirect UK government help to support VCs and encourage entrepreneurial activity.
• Succession planning as the original PE firms see their founders retire and remodel their corporate culture and identity.
Market Trends and Post-Crisis Resurgence
Simon Glass, CEO, qodeo, said: “This in-depth study of the London VC and PE market shows the resurgence of venture capital and private equity funding post the financial crisis, driven mainly by Internet based investments. This, in tandem with low interest rates and the influx of foreign capital, is set to position London as the key European hub for VC and PE investment.”
Sector and Geographic Investment Focus
The report is available on the qodeo website, but other top line findings include:
Investment Focus – Sector & Geography:
• Every PE firm invested outside the UK but only 50% of VCs did so.
• PE firms preferred supporting management buyouts or taking majority stakes in family businesses.
• PE firms targeted a wide range of sectors including fast moving consumer goods, infrastructure, resources, consumer and business services, construction and technology.
• 43% of VC firms were solely focused on technology particularly Internet enabled businesses such as big data, cloud storage and social networks.
Deal Flow:
• PE firms said they had seen 80% of the available deals on the market that year – due to later stage firms actively marketing themselves through corporate advisors and fewer later stage PE investors.
• Proprietary deals made up less than 10% of the total deals done.
• Few VC firms saw more than 50% of available investments.
• Firms with highest ‘see rates’ reported more than four investments a year.
• PE firms saw around 3 times less deal flow than early stage VC. But when they did see a company they were about twice as likely to invest as VCs.
• VC saw an average 900 business plans a year, but invested in less than 1%.
• Some VC firms made small investments (circa £50,000) in well-publicised consumer businesses just to gain publicity rather than investment returns.
Participating Firms and Upcoming Discussion
Firms interviewed included: Amadeus Capital Partners, Hoxton Ventures, Coller Capital, Reed Ventures (Reed Elsevier) and Rockpool Investments. The insights are to be discussed at a Business Breakfast at international law firm, Fried, Frank, Harris, Shriver & Jacobson LLP on Wednesday 1st October. They are part of qodeo’s ongoing in-depth global interview programme, and these latest insights covered 21 senior PE and VC professionals representing £22.5 billion under management to determine views of London’s venture industry.
