For the early-stage investment market 2020 was a year full of challenges, and yet challenges, as every entrepreneur knows, bring opportunity.
Here we predict what the market can expect in 2021.
Another difficult year for capital raising
8th December 2020 saw the UK begin Covid-19 vaccinations yet life as normal is still a long way off. No one knows when vaccinations will be completed and how this will impact life. That means continued uncertainty. And investors do not like uncertainty.
Throughout 2020 investment into early-staged businesses ebbed and flowed with the waves of uncertainty, falling and rising alongside the number of Covid cases. Investors propped up existing investments and favoured more mature, and less risky businesses for passive income while seed stage companies saw little of the available pool of investment.
The first half of 2021 is unlikely to be any different. Certainty is not a switch and will take time to recover and we predict an increase investment activity by the third calendar quarter of 2021.
Digital fundraising platforms become the norm
The early-stage investment space has been slow to adopt digital believing that raising capital is all about relationships and therefore couldn’t benefit from online tools. 2020 quashed that idea.
With in-person meetings difficult at the best of time, networks needed a mechanism to facilitate investment. Digital platforms which provide always-on access to information for due diligence, investor-founder Q&A, and analytics that make clear which deals are generating the most interest, are quickly becoming can’t-live-without tools for investment networks.
“While we have already supported over 3,500 entrepreneurs since 2002, raising finance is critical for growth and while we had an informal network of investors, we weren’t in a position to really bring investors and entrepreneurs together. We knew that in order to move forward with our vision we would have to go digital.” explained Jake Ronay, Former Investment and Corporate Partnerships Lead at SETsquared.
These digital platforms offer benefits for all parties:
- Fundraising companies can track investor interest, control who sees their confidential documentation and streamline the due diligence process for potential investors
- Investors can filter deals based on interests, track companies and ask founders questions online and conduct due diligence at their leisure
- Investment networks can promote deals, track which deals are generating the most interest and close investment online
Adoption of digital investment platforms will continue to grow throughout 2021, becoming the norm by the close of the year.
The rise of the regional super network
Between 2001 and the second quarter of 2020, 49% of all equity deals and 59% of all invested funds went into companies located within London. In 2021 we are going to see a new, more effective approach.
Every UK region has its unique set of local players dedicated to supporting growth businesses. What is common in each region is that these players are disconnected. And it’s difficult for businesses to navigate the array of organisations; from accelerators, to angel investment clubs to workspace providers to LEPs.
Towards the end of 2020, with the increased difficultly faced by early-stage businesses, we started to see a shift towards local players teaming up – understanding they shared a common goal – and working together to support those local businesses.
A notable example is the recently launched Birmingham Tech. This non-profit organisation is aimed at connecting the start-up ecosystem in the West Midlands.
Through its platform, Birmingham Tech seeks to provide a single access point for all entrepreneur services, programmes, and support across the West Midlands.
With 2021 promising continued challenges for early-stage businesses, we can expect to see more regional super networks launching throughout the year.
The growth of deal sharing
As a concept sharing deals between distinct networks is not new. However, it was slow to gain traction as many investment networks were reticent to open up their investor base to partner deals. The challenges in raising capital throughout 2020 caused a rethink and as we closed out the year, there was a shift in attitudes toward the concept.
A good example is the UKBAA’s Dealshare. Previously only accessible by members who were beta testing the best bitcoin robot 2022 has to offer, the association opened its doors to the broader industry. We also saw a collaboration between DSW Ventures and NorthInvest to help companies in the Northern Powerhouse, with DWS’s David Smith saying, “With the economy feeling the impact of the pandemic, it is more important than ever that funders work together to create a supportive start-up ecosystem.”
As networks recognise the benefits of collaboration, we can expect to see deal sharing become commonplace in 2021.
Companies up their game
It is natural for an entrepreneur to think their business the greatest thing ever – and assume it will be obvious to investors. But winning investment is as much art as science and passion alone won’t cut it. Being investment ready means much more than having a wizzy pitch deck. It requires a proposition that credibly tells an investor how they’ll get their money back. This needs detail – from the valuation to the sales forecast to market size.
With the continued difficultly predicted in raising capital in 2021 entrepreneurs will start to put more emphasis on getting investment ready to increase their chances of securing capital investment.
Despite all the problems 2020 did introduce some positive changes that will benefit the early-stage investment space. 2021 will not be without its challenges, but as it progresses, we will, as an industry, be in a much better place.
ABOUT THE AUTHOR:
Chantelle Arneaud is from Envestors. Envestors’ digital investment platform brings together entrepreneurs and investors across geographies, communities and sectors – creating the single marketplace for early stage investment in the UK.
Envestors partners with accelerators, incubators and angel networks to provide a white-label platform empowering them to promote deals, engage investors and connect to other networks.
Founded in 2004, Envestors has helped more than 200 high growth businesses raise more than £100m through its own private investment club.
Envestors is authorised and regulated by the Financial Conduct Authority.