What have we learned from this years’ experience of equity fundraising?

What have we learned from this years’ experience of equity fundraising?

In the past year growth companies have continued raising equity capital. Although the number of raises is slightly more than in 2020 it’s still well below 2019.  What further information can be gleaned from the stats and what do they suggest for the year ahead?

All data referred to are based on UK-headquartered companies who raised equity capital from 01 January to 01 December in comparative years. Data comes from Beauhurst.

Where have the funds been invested?

The press is full of stories about the outliers ‘ the huge amounts that certain early-stage companies like Hopin and Revolut have attracted.  It’s impressive, but it doesn’t give the founders of other start-ups a good feel for what is happening in the market overall, and how they might fare when they are looking for their own early-stage investment.

If we look at the four broad stages of development–seed, venture, growth, established–we can see that companies at the seed stage made up almost 50% of all the funding rounds in the past 11 months. 

Data from Beauhurst shows the number of rounds for 2021 as follows:

Seed: 2572

Venture: 1907

Growth: 440

Established 283

The data excludes dead and exited businesses

How much money has been invested?

However, this does not tell the full story. Inevitably some companies will be counted in multiple categories and often companies will have several small rounds, which will each be counted in the numbers above.  

What do the data on round size tell us?  In summary, 70% of all rounds were under £1million and 40% were under £250k.

Does the fact that there is more activity at the lower end of the scale suggest that a company’s strategy should be to run several smaller rounds rather than one large one?   This will depend on the type of investor you want to attract.

Another aspect missing from the story is that the data does not tell us about the raises that failed. How many did not reach their minimum target?  We don’t have the stats but experience suggests that the majority do not achieve their target.  

Where are the funds going?

The spaces proving most successful in attracting funds are all tech-related: Fintech, AI, ehealth, digital security and edtech. This applied to all levels of funding from <£250 up to £1-1.5million in the last 11 months.  You won’t be surprised to hear that fintech achieved a number of mega deals.  

It is also notable that when used as a label AI will help to attract more investment.  This is despite a 2019 study by MMC Ventures. Of the European firms classed an AI start-up which the researchers looked at, as many as 40% did not use AI in any significant way. 

In some case the AI label has been applied by a third-party research site rather than by the company itself.   However it came about, leaving the impression uncorrected has proved beneficial. It has helped achieve 15%-50% more funding than other technology start-ups. The study was undertaken a few years ago, but there is little to suggest any significant change to this situation.

While we need more time to understand the impact of the Omicron variant, the early-stage investment space in 2022 is likely to be similar to 2021. This isn’t such a bad thing, since many companies successfully raised capital. It does mean competition for cash will continue to be demanding and for any company looking to raise equity the best advice is to take time to prepare and expect a marathon; fundraising is never a 100-metre sprint. 

Oliver Woolley
Oliver Woolley

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