Find out how much was raised by UK tech firms in 2016, who the biggest winners were and which type of tech proved most popular with investors.
Investment raised by UK tech companies totalled £1.38bn in 2016, according to the Tech City News Investment Tracker.
The data, which takes into account rounds of £400,000 or more raised by UK-founded tech companies, shows 204 rounds were raised last year.
Seth Pierrepont, investor at Accel Partners, said: “There are several signs that the UK and European markets remain healthy. Interesting tech mergers and acquisitions continue to take place, such as Softbank acquiring ARM for $31bn, or Tencent acquiring Supercell for $10bn. There also have been a number of large funding rounds.”
This year’s top round was raised by Deliveroo, which closed a $275m (£210m) Series E in August. The highest round raised in 2015, however, was the $150m (£119m) raised by FinTech firm Funding Circle.
According to data from CB Insights and London & Partners, the top ten rounds raised by UK tech companies in 2015 totalled £645.99m, in 2016 the total of the top ten rounds was significantly lower at £555.7m.
Popular verticals
FinTech was a popular area of investment in 2016, with 34 of the 204 rounds being secured by FinTech companies. These included the £17.2m raised by Velocity, the £20m by TransferWise, Iwoca’s £21m and Nutmeg’s £30m.
PropTech was another popular area, with 17 companies securing funding last year, including Student.com, which raised £46.3m. The third most popular vertical was HealthTech, with 15 of this type of company securing funding, including Babylon Health, which raised £17.4m. Companies focusing on AI and machine learning also piqued the interest of investors.
“In 2016, the majority of startup pitches we saw contained the terms ‘AI’, ‘Machine Learning’ or both. There is still a lot of hype in these areas, but we’re starting to see some applications that we’re excited about,” said Pierrepont.
He went on to say he is excited by the AI research that’s coming out of Cambridge, Oxford, UCL and other top UK universities and highlighted that some success stories have already emerged in this area, such as Magic Pony being acquired by Twitter for $150m last year.
Seasonal trends
October was the month of 2016 with the highest number of deals recorded – 26 rounds – followed by July (23). The months with the lowest number of rounds announced were December, with 10 rounds announced; and February and March, with 13 investment announcements each.
“Some months are usually more active than others; there are almost ‘deal seasons’ that relate to the availability of people to get the deals done. For example, a lot of investors will look to get deals concluded before the summer break, hence the spike in July. There is another boost in the autumn season. After Christmas, people start looking at new deals, which take a few months to conclude (hence the dip in announcements early in the year),” said Anne Glover, CEO and co-founder of Amadeus Capital Partners.
Location
The top five locations of the companies that raised funds in 2016 were London (156 rounds), Cambridge (13), Edinburgh (five), Newcastle (four) and Bristol (four).
“That doesn’t surprise me,” said Glover. “London has been a hotbed for consumer tech for the last five years. Those companies are reaching growth stage and attracting capital, which is great, but the next wave of excitement coming through is for technologies applying AI and machine learning, such as Amadeus-backed Graphcore.”
“Those skill-sets and entrepreneurs are linked to universities so I would expect the volume in university cities to go up in the next few years,” she added.
The road ahead
Glover is confident we we will see more large rounds in 2017. She said the quality of UK tech companies and the teams behind them are attracting capital from overseas as well as the UK.
“We will see more diversity in deal types and, while consumer tech will remain popular, deep tech such as FinTech, AI, HealthTech and cybersecurity will grow,” she added.
Glover went on to say Brexit has resulted in both pros and cons which will continue to be felt in 2017.
“One unexpected benefit of the Brexit vote is that sterling’s weakness is making UK assets and investment in the UK more attractive financially, but this has to be counterbalanced with the political uncertainty we’re under. Genuine risk capital is very interested in the UK but it requires targeted efforts to find it,” she said.
Pierrepont said he isn’t expecting to see a lot of major activity in the UK tech investment space in the first half of this year.
“We are likely to continue to see some conservatism, both in terms of investment pace and a focus on fundamentals through the first half of 2017. There is a lot of uncertainly still around Brexit and the US election result, but our advice to our portfolio companies is ‘keep calm and carry on’,” he explained.
Pierrepont emphasised he is particularly bullish on AI companies and looks forward to seeing more companies follow Magic Pony’s lead. He said Accel is also closely watching companies innovating in the area of eSports.
“With the launch of the British eSports Association, the UK has taken steps to help companies and athletes to get involved, so we’re excited to see what comes next,” he concluded.
This article appeared in Issue 13 of our magazine – The HealthTech Issue – published in January 2017. To subscribe to our magazine, visit techcitynews.com/subscribe. To view the Tech City News Investment tracker, visit techcitynews.com/investment-tracker.