Digest of news and trends in the GRID marketplace in March 2016:
Manchester San Francisco link-up | Ransomware - UK business under attack | Smart cities sector | Female founders | Budget business boosters | French business | More city office space for SMEs | Northern technology boom | P2P vs invoice finance | Regional biotech clusters | Stock market decline | Reverse auctions for SME cash | Equity crowdfunding: VC / transparency | Venture funding UK
MANCHESTER / SAN FRANCISCO LINK-UP
Manchester to San Francisco flights lift northern England tech | Andrew Bounds, FT. March 30.
The tech industry in northern England has received a boost after Virgin Atlantic announced plans for direct flights from Manchester to San Francisco. Al Mackin, a Manchester-based tech entrepreneur, said: “This is huge news for the north-west start-up scene — the San Francisco area accounts for 25 per cent of all global VC investment, while London is just 2 per cent, so we now have faster and easier access to the most important start-up region in the world. Manchester is the UK’s third largest airport.
Manchester is the second biggest tech hub in the UK by number of jobs, with 52,000 working in a sector that produces £2.2bn in output a year. According to Tech North, a government agency charged with supporting the sector, the north as a whole has 283,000 tech jobs with £10bn in output. That compares with 1.6m workers nationwide producing £161bn.
Manchester lures film and TV production to the north. Over 50 per cent of productions made outside London
RANSOMWARE - UK BUSINESS UNDER ATTACK
Authorities struggle against rising tide of ransomware | Nicholas Megaw, FT. March 28.
British businesses are increasingly paying online extortionists rather than reporting attacks to police, as authorities struggle to respond to the growing threat of so-called “ransomware”.
Ransomware uses encryption to lock users out of digital files until they pay a monetary ransom, often in bitcoin, for a key. Global ransomware cases increased by almost 170 per cent in 2015, with the UK “disproportionately hit,” according to Intel Security.
Ransomware is usually spread via malicious emails, but once it has infected a network it cannot be removed like a traditional virus.
Criminals initially focused on individual consumers, but they are now targeting businesses and government organisations with higher ransom demands. Small and medium-sized businesses, which are likely to have weaker security buffers and less regular data backup systems, are particularly threatened by the attacks.
A February report about ransomware by Bitdefender, an internet security company, found that almost half of the victims surveyed across Europe and the US have paid extortionists to recover data, even though there is no guarantee files will be returned.
UK launches National Cyber Security Centre | Sam Jones, FT. March 19.
A new National Cyber Security Centre has been created by the government to address failings in the digital defences of companies and organisations across the country. The body will be the “authoritative voice on information security in the UK” and will work with GCHQ to try to bolster cyber security in the private sector.
Based in London, the NCSC is to form the backbone of the government’s new national cyber security plan…
The country is facing “the industrial-scale theft of intellectual property from our companies and universities”, said Robert Hannigan, director of GCHQ, the government’s electronic eavesdropping agency. “The NCSC shows that the UK is focusing its efforts to combat the threats that exist online,” Mr Hannigan said.
Britain is one of the biggest targets of cyber attack worldwide, with nation states and criminals regularly targeting the country and its business for commercial and strategic gain.
While some companies — such as the UK’s banks — have taken significant steps to better shield themselves from online attacks, Whitehall security officials echo Mr Hannigan’s concerns, believing there are serious deficiencies in many other industries and sectors, posing a threat to national security or the country’s economic wellbeing.
£60m - cost to mobile phone operator TalkTalk after cyber attack last year
It has been a frequent complaint from the private sector that until now there has been no obvious, formalised point of contact between business and the government, at a strategic level, over online security concerns. Existing channels, such as the UK’s national Computer Emergency Response Team, have mostly focused on sharing technical knowledge. …will inform “…the entire business community and public sector about emerging threats, providing support when attacks happen and educating everyone on how best to stay safe online.”
SMART CITIES SECTOR
Meet me on the corner and we’ll make a smarter city | Kiki Loizou, The Sunday Times March 20 2016
….10 entrepreneurs who travelled to Malaysia and Singapore last week with Innovate UK to showcase Britain’s skills in the smart cities sector and to learn from leaders in the field.
The British government hopes to follow Singapore’s lead and has thrown its weight behind pioneers in the field. ….awarded £10m to the CityVerve project in Manchester. The plans include talking bus stops that alert bus operators about queues and street furniture that will send information about air quality to people with health conditions.
A £15m “connected corridor” is planned between London and Dover, which will enable vehicles to communicate with other cars and infrastructure.
“Britain is exceptionally well positioned to capture a significant share of the connected-cities marketplace because of strengths in areas ranging from architecture to open data,” said Niraj Saraf, lead technologist for urban living at Innovate UK. “These new companies are addressing challenges that large cities face; growing populations, increased demand for energy and the integration of technology into everyday lives.”
The view from Leeds: stop whining and get on with it | Kiki Lizou, The Sunday Times
Research shows only 11% of businesses with revenues exceeding £1m are run by female founders. The figure comes from a database of about 9,000 fast-growing businesses held at Founders4Schools, which lets the founders of flourishing companies take their stories into classrooms.
The study found that about 760 firms led by women are growing at a median rate of 30%. Leeds tops the table of cities with most female-led businesses, and almost 70% of fast-growing businesses run by women are based outside London. Most of these ventures are technology-focused.
BUDGET BUSINESS BOOSTERS
Thou shall not sin (unless you’ve paid the tax) | Peter Evans, Sunday Times. March 20
George Osborne wooed Britain’s army of small companies with a basket of giveaways in a clear effort to bolster the government’s pro-business credentials ahead of the EU referendum. The budget was carefully calculated to win back sceptics among small and medium-sized businesses.
- Most eye-catching was his move to raise the threshold for BUSINESS RATES, which means that 600,000 small companies will no longer have to pay the charge.
- Cuts to CAPITAL GAINS TAX were also welcomed, with the higher rate falling from 28% to 20% and the basic rate dropping from 18% to 10%.
- There was also a giveaway for LONG-TERM INVESTORS IN NEW COMPANIES, with entrepreneurs’ relief extended to investors in unlisted companies (but including those on the Alternative Investment Market) who hold their stakes for at least three years, giving them a capital gains tax rate of 10%, with a lifetime cap of £10m. Business angels and other investors will no longer have to hold a minimum of 5 per cent of a business to qualify for entrepreneurs’ relief; nor will they have to be an employee or director of the company. The move could also help the fast-growing crowdfunding industry by encouraging more people to invest in smaller companies.
- Small companies also welcomed the cut in CORPORATION TAX to 17% by 2020, as well as the freeze on fuel duty.
- From April 2018, the SELF-EMPLOYED will no longer have to pay class 2 national insurance contributions, a move that Osborne said would help 3.4m people and mean an average tax cut of £134 per person.
- There were also plans to help small companies that have been rejected for CREDIT by high street lenders, with the chancellor designating BIZFITECH (led by chief executive Olly Betts), FUNDING OPTIONS and FUNDING XCHANGE as comparison sites to connect borrowers with alternative lenders.
- Osborne gave a nod to the “sharing economy” and to “micro-entrepreneurs”, with £1,000 allowances for people who rent out their homes and make money through sharing platforms, such as Airbnb, or by small-scale online trading.
French expats in London’s ‘little Paris’ fear the Brexit fallout | Sarah Gordon, FT. March 22.
A poll of foreign businesses operating in the UK is being organised by the Council of Foreign Chambers of Commerce, which includes France, Germany, Italy, Canada and others, to garner their views on Brexit.
The French consulate in London says there are more than 3,000 French businesses employing nearly 400,000 people in the UK. By 2012, according to the French national statistics office, the UK was France’s most significant economic outpost, with French companies in Britain turning over €120bn annually.
There are 160,000 French people living in the UK, according to Office for National Statistics census data. The French consulate in London says there are 122,000 French people registered as living in the UK, 60 per cent of whom live in the capital. But because there is no requirement to register, the total is likely to be nearer 300,000, with an even higher proportion resident in London, clustered around South Kensington and its surrounding areas.
Approximately a fifth work in hotels and restaurants, and another significant proportion — analysts estimate as much as a third — in financial services in the City.
France opts for big over small with its labour reforms | Anne-Sylvaine Chassany, FT. March 20.
French socialist government came within an inch of endorsing an ambitious reform to inject badly needed flexibility into France’s dysfunctional jobs market. But after a predictable rift in the Socialist party and a day of street protests, Manuel Valls, prime minister, retreated, abandoning some of the boldest provisions deemed too favourable to business. The climbdown earlier this month could deter foreign companies, already put off by high unemployment and complex labour rules, from investing in France, economists say.
But what about the exclusion of small companies? … the bill’s great paradox, … Mr Hollande ….has withdrawn the measures that would have had the fastest impact on job creation. SMEs — arguably those that need flexibility the most — will not be able to strike specific deals on working hours because most do not have union representatives. The government also scrapped a provision setting a ceiling on severance packages in case of wrongful dismissals. The amounts, currently decided on a case-by-case basis by judges, can vary greatly and are a source of legal uncertainty for the smaller companies.
France has always focused on the larger companies …the UK, with unemployment half of France’s rate, has twice as many SMEs. France’s big company bias is partly due to its centralised economy, dating back to Jean-Baptiste Colbert, Louis XIV’s statist finance minister…. A tradition of revolving doors between the public and private sector, whereby top civil servants often land top jobs at large companies, also means the latter have a greater influence over policies.
MORE CITY OFFICE SPACE FOR SMEs
City of London moves to boost small businesses |Judith Evans, FT. March 16
The City of London Corporation has begun demanding that developers incorporate subsidised desk spaces for small businesses into new buildings after a steep fall in the number of available offices for the sector.
The number of SMEs, defined as those with 250 or fewer employees, based in the Square Mile grew by 15 per cent to 16,000 between 2013 and 2015. This was driven by technology start-ups, particularly those whose products are aimed at banks and other financial services companies based in the district.
But the number of offices of less than 500 square feet has dropped: the City had 50 fewer such offices in 2010, the most recent year for which figures are available, than in 1995, according to a study by Ramidus Consulting for the corporation.
NORTHERN TECHNOLOGY BOOM
North of England tech hubs grow in strength | Andrew Bounds, FT. March 16.
The UK is adopting digital technology much faster than many European countries, and the north is increasingly grabbing its share. Some of the UK’s biggest tech businesses, such as SAGE, the software group, and THE HUT, the online retailer with a turnover of £335m, are in the north. Manchester, Leeds, Sheffield and the north-east are building significant tech hubs.
TECH NORTH, a government agency set up last year to promote the sector, says there are nearly 300,000 digital jobs in the region, with companies accounting for almost £10bn in economic value.
GP BULLHOUND, the investment bank, says the north now has 11 tech companies valued at more than $1bn, more than Sweden and Germany.
Hugh Campbell, partner at its Manchester office, said that the region’s success was attracting investors used to looking only at London. …..(and) points to recent deals involving US investors. US private equity fund JMI Equity in December paid £32m for a minority stake in AVECTO, a Manchester based cyber security business.
GP Bullhound in March calculated that the north’s fastest-growing 50 tech businesses (including Scotland) almost doubled revenues in 2015 to £1.12bn.
UBISOFT — the world’s third-largest publisher of video games — is investing heavily in Newcastle, creating 100 jobs by setting up a customer contact base in the city last year. Ubisoft’s Reflections games studio has moved into new premises as it hopes to attract graduates from Newcastle University, a world leader in computing science research.
Newcastle is particularly strong in software development, technical support, gaming and creative services, employing more than 27,000 people. It has won £10m funding for a University Technical College to train 14- to 18-year- olds in digital skills. The city is also home to Ignite, a tech accelerator programme that has now opened in London.
Liverpool has long had a strong gaming industry and 30,000 people are employed in the creative and digital industries. Recent analysis by Amion Consulting found that the city’s creative and digital economy is responsible for almost 6 per cent of all jobs, a higher proportion than in Manchester.
The government has also invested £11m in four start-up hubs in the region.
Small companies can access EU-backed funding. The north-east has a £160m fund, while the other regions have a combined £400m NORTHERN POWERHOUSE INVESTMENT FUND.
Universities are collaborating with companies on a series of government-funded projects.
In Manchester there is the £61m NATIONAL GRAPHENE INSTITUTE, the £235m SIR HENRY ROYCE INSTITUTE FOR ADVANCED MATERIALS RESEARCH AND INNOVATION, with six satellite centres including Sheffield, Leeds and Liverpool. Newcastle has the £40m NATIONAL CENTRE FOR AGEING SCIENCE AND INNOVATION and Liverpool the £68m MATERIALS INNOVATION FACTORY, developed with Unilever. Sheffield has built the FACTORY OF THE FUTURE, which can be reconfigured to make different components.
Stuart Marks, a tech entrepreneur who runs tech incubators for John Lewis, the retailer, and others, says the north is on the up but needs better links to London and Silicon Valley. He sold ITIS, a traffic information business, in 2012, and is investing in start-ups.
SERVELEC, the Sheffield-based software provider, floated in 2013. The business makes and controls monitoring systems for safety critical industries and software for the health and social care sector. It provides electronic patient record and administration systems and originally grew out of the city’s steel industry.
P2P vs INVOICE FINANCE
Competitor says peer-to-peer lending heading for meltdown | Andrew Bounds, FT. March 16
People lending directly to small businesses through peer-to-peer websites could face heavy losses because the market is “overheating” and heading for meltdown, according to a big lender. David Postings, chief executive of BIBBY FINANCIAL SERVICES, has reinforced a warning from Lord Adair Turner, the former chairman of the UK’s financial watchdog, that risky loans could cost individual investors.
He said Bibby research had found at least 600 peer-to-peer lenders in the EU. Peer-to-peer websites match savers with businesses that want to borrow. They charge a fee for providing due diligence and administration.
The BRITISH BUSINESS BANK found that peer-to-peer business lending grew by 75 per cent in 2015 to almost £1.3bn. … a fraction of the £163bn stock of borrowing. From April people can invest through tax-friendly ISAs, further boosting demand.
Bibby competes with peer-to-peer lenders. It lends against invoices, plant and equipment. Mr Postings admitted its invoice finance business was flat because of competition. But he said the trade finance arm, which funds equipment, was growing 5 per cent a year.
The Banbury-based business serves a fifth of companies that use a type of financing called debt factoring and a tenth of those that borrow against unpaid invoices. But its market share by value is far smaller, as its customers are small businesses. Banks also offer these types of finance.
The biggest peer-to-peer failures have been equity investments, which are riskier. Rebus went bankrupt in February after raising £800,000. About one in five equity investments have failed.
Lord Turner is on the board of OAKNORTH, a new small business lender.
Christine Farnish, chair of the PEER-TO-PEER FINANCE ASSOCIATION, said the industry was “providing much needed competition” to the banks. The four biggest banks account for 80 per cent of small business loans.
REGIONAL BIOTECH CLUSTERS
Public-private partnerships fuel growth of UK biotech clusters | Andrew Ward, FT. March 15.
… structural change in the industry. Big pharma is breaking up industrial-scale R&D processes after years of poor productivity. Instead of doing everything in-house, pharma groups are increasingly buying-in new drugs from biotech companies or working in partnerships.
By far the greatest concentration of UK biotech activity is in the Golden Triangle between the elite research universities of Oxford, Cambridge and London.
However, regional hubs are using economic incentives to compete. Several, including Sandwich and Alderley, have been made Enterprise Zones with tax benefits and fast-tracking planning processes.
Sceptics say this experience reflects the desperation of places such as Sandwich for jobs and question if there are enough to fill the proliferating number of regional science parks. Authorities in Wales and Scotland are among others using public money to develop biotech clusters.
Steve Bates, chief executive of the UK BIOINDUSTRY ASSOCIATION, says different regions have different specialisms. Alderley, for example, has inherited strengths in oncology and anti-infective drugs from AstraZeneca. South Wales is focusing on cell therapy and medical technology. Together, Mr Bates says, the regions are helping build a strong national cluster capable of challenging the big US biotech hubs in New England and California.
Financing for UK life science companies has been running at record levels in the past two years and is ahead of other European countries but remains far behind the US. Among the companies that contributed to the UK tally last year was REDX PHARMA, a Liverpool-based drug developer with an R&D centre at Alderley, which raised £15m in a London flotation.
UK’s main biotech clusters:
Glasgow has a BioCorridor, Edinburgh a BioQuarter and, between the two, there is BioCity, a former Merck R&D site. Dundee also has a lively biotech scene. Promising companies include NUCANA, an Edinburgh cancer drug developer, and TOUCH BIONICS, which makes high-tech prosthetic hands. Edinburgh’s Roslin Institute, famed for cloning Dolly the Sheep, is a force in animal science.
The opening last September of the National Biologics Manufacturing Centre in Darlingtonwith £38m of government funding was aimed at revitalising the region’s strength in pharmaceuticals production. GlaxoSmithKline has a large facility at Barnard Castle in County Durham and a former Pfizer plant in Morpeth has survived under new owners.
Alderley Park remains the heart of the region’s life science base even after AstraZeneca’s exit. The government last year committed £9m to two centres of excellence at the site: one for medicines technology and another for research into drug-resistant “superbugs”. Manchester’s Christie Hospital is a force in cancer research as is Liverpool’s School of Tropical Medicine in malaria.
It is three years this week since AstraZeneca announced the closure of its main UK research and development centre in Cheshire with the loss of 1,600 jobs. …today, the mood regarding the 400-acre site south of Manchester is much brighter... Instead of shrinking, the park’s new owners — a public-private partnership of local universities, councils and a property developer — last month received planning approval to increase office and laboratory capacity by 40 per cent.
The site is being redeveloped as a hub for smaller biotech companies, which can draw on the infrastructure and workforce left behind by AstraZeneca. Forty groups have moved in so far, creating 550 jobs, including several start-ups founded by former AstraZeneca scientists. “We can end up with something bigger than we had before,” says Glenn Crocker, chief executive of BIOCITY, the business incubator group that runs Alderley.
Ned Wakeman, director of BIOHUB — the new brand name for Alderley Park — says regional clusters should be seen as an expansion of the Golden Triangle rather than a competitor. “In America it takes me two hours to get across Silicon Valley. From here I can be in London in that time.”
Alderley is still a long way from its goal of 7,000 jobs. AstraZeneca plans to keep 700 non-R&D roles there in the long term but this is a fraction of the 5,000 it employed at its peak. Sceptics question whether the new public-private owners will be able to sustain the investment needed to keep facilities up to date.
Nottingham’s BioCity occupies the former Boots R&D facility where ibuprofen was discovered. Another site, called MediCity, in nearby Beeston is focused on medical technology. Two of the biggest UK medical charities, the Wellcome Trust and Cancer Research UK, have research centres in Birmingham, where £24m has been invested in a new Institute of Translational Medicine focused on clinical trials.
BioCity’s success … The 700 people working at its original Nottingham site is 75 per cent higher than when the Boots facility closed 13 years ago. Business “boot camps” providing support for entrepreneurs has helped ensure a 91 per cent survival rate among companies there.
The Welsh government has put £50m into a life sciences fund to invest in companies active in Wales, including RENEURON, a cell therapy specialist that has relocated from Guildford. A Life Sciences Hub has opened in Cardiff to provide support and services to the sector. The city also has an Innovation Village for medical technology start-ups alongside a GE Healthcare R&D centre.
Almost half of all 183,000 life science jobs in the UK are concentrated in the Golden Triangle of London, Oxford and Cambridge. The region boasts five of the world’s top 10 medical research universities, according to Times Higher Education. GSK has its main R&D site in Stevenage and AstraZeneca is building a £330m facility in Cambridge.
Pfizer’s 2011 decision to close its Sandwich R&D site (now DISCOVERY PARK) – where it developed Viagra - was a heavy blow to a part of Kent whose economic fortunes have lagged behind the broader south-east. However, Pfizer ended up keeping more than 700 people at the facility and MYLAN, a maker of generic drugs, has moved in along with dozens of other companies lured by economic incentives and a strong talent pool of Pfizer veterans.
“The business of science is changing,” says Simon Westbrook, a former Pfizer researcher who now runs a biotech company called LEVICEPT in Sandwich. “R&D is being outsourced to nimbler companies which can locate anywhere in the world.”
GENEA BIOMEDX, an Australian company that makes the solution used to nurture embryos in IVF clinics, chose Sandwich for its European manufacturing facility. …Kim Giliam, the company’s commercial director.
West Sussex council announced plans in January to redevelop the former Novartis R&D site inHorsham as a mixed residential and business park focused on health and life sciences. The UK military science park at Porton Down is an important part of the local skills base and theUniversity of Southampton is known for its strength in respiratory medicine.
STOCK MARKET DECLINE
City of London stockbrokers struggle as challenges pile up | Harriet Agnew and Kate Burgess, FT. March 14.
Stockbrokers have been in a cyclical downturn since 2007. Fewer companies are using stock markets to raise money. In the smaller end of the market ...the shrinkage has been particularly stark. Since 2007, the number of companies listed on London’s Alternative Investment Market has decreased from about 1,700 to about 1,000 and trading turnover has more than halved, according to the London Stock Exchange.
“The old stockbroking model is broken,” says Laurie Pinto, former chief executive of UK broker NSBO. “It doesn’t suit companies from a capital-raising perspective and it doesn’t suit investors from an information point of view. And the costs are too high.” Retainers from corporate brokerships and deal fees no longer cover cost bases.
After the financial crisis there was a wave of consolidation among the small and mid-cap brokers:
2011: Canaccord bought Collins Stewart Hawkpoint
2013: Cantor Fitzgerald acquired Seymour Pierce
2014: Missouri-based Stifel Financial snapped up Oriel Securities
2015: Panmure bought Charles Stanley’s securities division.
This was followed in 2013 and 2014 by a wave of initial public offerings, which have now dried up. There were just 30 IPOs on Aim in 2015, raising £560m. That compares with 2014 when 80 IPOs on the junior market raised £2.8bn.
These swings are being accelerated by broader structural change to the market.
Regulators are pushing for more transparency on how fund managers pay for research through Mifid 2, the EU directive that is reshaping Europe’s financial services industry. This is putting pressure on asset managers’ research budgets. With less commission going around, many brokers are being forced to cut their research offerings.
“There is too much capacity, the regulatory environment has become more difficult and we’re [being replaced] by electronic trading,” says Mark Brown, executive chairman of Stockdale Securities.
REVERSE AUCTIONS FOR SME CASH
UK small businesses turn tables on banks | Andrew Bounds, FT. March 13
Cash-rich small UK businesses are starting to turn the tables on banks by putting their deposits up for auction. Small and medium-sized businesses are holding on to ever more cash but interest rates are at historic lows. Last year, SMEs’ cash holdings rose 7 per cent to £164bn, the British Bankers' Association said this month.
FLAGSTONE INVESTMENT MANAGEMENT, a financial services software business, has launched a “reverse auction” system for banks to bid for these deposits. Flagstone has £1bn of clients’ cash under management and deals with more than 20 banks, including Shawbrook, Barclays, Metro Bank, SG Hambros and Investec. It is regulated by the Financial Conduct Authority and carries out due diligence and customer checks on all clients, reducing banks’ paperwork.
Andrew Thatcher, Flagstone’s managing partner, said the cash holdings of small businesses were “languishing” in accounts earning almost nothing. One company was able to increase the interest it earned from zero to 0.95 per cent when the system was trialled, he claimed. He cited one entrepreneur who sold his business and had £55m in cash. “He was offered 0.25 per cent, which he felt was derisory. He came to us and within 72 hours we had opened eight accounts with three-month deposit terms.” Subtracting Flagstone’s fee of up to 0.15 per cent, he received almost 1 percentage point more in interest.
“We don’t charge banks. Therefore we reduce their cost of funding,” said Mr Thatcher. “They get a large deposit without marketing costs.” Mr Thatcher said: “This is not a replacement for a day-to-day bank account. It is a tool for excess capital on balance sheet.”
SMEs were hoarding cash as they are “battening down the hatches and preparing for the storm”, said David Postings, chief executive of BIBBY FINANCIAL SERVICES, an invoice-finance company. In a survey of investment intentions, it found that a majority of companies expected flat or declining sales and a worsening economic picture. Mr Postings said they were also reluctant to borrow because of the memory of the 2008-09 crash when banks pulled finance almost overnight.
AIR PARTNER, a listed air services business that charters private jets and buys and sells aircraft, is one early user of the system. The £200m turnover business had £1m and €1.5m in cash deposits with RBS earning no interest. Neil Morris, the finance director, said: “We are cash-rich. In the days before the banking crisis it was easy to get decent rates but some banks now charge you to hold euros.” Using Flagstone, the business was able to get 0.95 per cent on the £1m from Santander and 0.5 per cent on the €1.5m from Close Brothers on a rolling 30-day deposit.
EQUITY CROWDFUNDING: VC / TRANSPARENCY
Crowdfunding: catch a wave or wipe-out | Kiki Loizou, Sunday Times. March 6.
According to a report by innovation charity Nesta and Cambridge University, equity crowdfunding accounts for almost 16% of UK early-stage and venture-stage equity investment. In 2011, it was just 0.3%. While still a nascent sector, the idea of trading shares in small businesses online has become the norm. The question is: what will follow?
Lang, co-founder of CROWDCUBE. Since it went live five years ago, Lang’s business has raised £140m for almost 400 companies. Last week MONDO, a digital bank backed by venture capital, raised £1m on Crowdcube in 96 seconds.
Lang said there had been a rise in the amount of venture capital-backed firms using his platform. Deals on equity crowdfunding sites are getting bigger, he said. “Last year 20 of the deals we did were between £1m and £4m; that’s your typical second round of fundraising. The diversity and collective wisdom the crowd brings is its biggest strength.”
… others want more scrutiny. According to Modwenna Rees-Mogg, co-founder of CROWDRATING, which examines data coming out of the sector, the industry needs to become more transparent. “People need more information and transparency so they can assess the risks . . . Some people would appreciate help in understanding it too,” she said.
Some valuations attached to crowdfunding campaigns have been deemed inflated, but Rees-Mogg said estimates of companies’ value had little impact on the success of their fundraising.
What the equity crowdfunding model has inspired is sites such as VENTURE FOUNDERS, which scrutinises deals already backed by venture capitalists or angel investors before presenting them to its network. James Codling, co-founder of the site, which went live in 2014, does not look at start-ups yet to make a sale. “We back only businesses that are past their proof of concept,” he said. The minimum investment required at Venture Founders is £1,000.
Numbers from the UK Business Angels Association suggest that women make up 6% of Britain’s angel investors but account for 25% of Crowdcube’s 250,000 registered investors.
VENTURE FUNDING UK
Blippar raises $54m in boost for UK tech scene | Murad Ahmed, FT. 3 March.
According to recent figures from CB Insights, a research group, venture capital firms made $27.2bn of investments in start-ups in the fourth quarter of 2015 — a decline of almost 30 per cent compared with the previous quarter.
In the US, venture funding fell to $13.8bn in the last three months of 2015, down from $20.2bn in the third quarter. Similar declines were seen across Asia and Europe.
But the UK was one of the few countries to buck the trend, achieving four consecutive quarters of more than $1bn of investment through 2015.
The figures were skewed by a handful of major deals in the fourth quarter of last year, including:
- $460m received by Jersey-based satellites group O3B NETWORKS,
- $100m gained by London’s online food delivery service DELIVEROO and
- $83m received by EBURY, the UK fintech group.