By Chantelle Arneaud, Envestors
2020 was a tough year for early-stage investment, but it forced us to innovate and evolve
With the UK’s vaccination programme underway, 2021 will undoubtedly be a better year than its predecessor.
For the early-stage investment market 2020 was a year full of challenges, and yet challenges, as every entrepreneur knows, bring opportunity.
And while there was plenty to bemoan, the year ushered in a number of much-needed changes that will ultimately benefit every player in the industry – growth businesses, investors and all of the organisations that serve them.
As we get settle into 2021, let’s look back at what 2020 taught us.
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 times, 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.
These 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.
‘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.
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. While there have been efforts to address the imbalance and ensure that businesses across the UK have access to funding and support services, not enough headway has been made. In 2021 we are going to see a new, more effective approach.
Every region across the UK has its unique set of local players dedicated to supporting growth businesses. What is common from region to region is that these players are all disconnected. This makes it incredibly difficult for businesses to navigate the array of organisations —from accelerators, to angel investment clubs to workspace providers to LEPs. It also represents a duplication of effort and therefore inefficiencies. 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. Founder Yiannis Maos explains, ‘I started off with a focus on creating Birmingham Tech Week, but quickly realised that there was a much bigger job to be done in fostering collaboration across the tech ecosystem.’
Through its platform, Birmingham Tech seeks to provide a single access point for all entrepreneur services, programmes and support across the West Midlands. Yiannis admits this approach was met with some initial scepticism, ‘A lot of people felt the concept had been tried before and that it wouldn’t work. But eighteen months later as it started to come together, minds quickly changed and many who initially viewed the idea with pessimism are fully behind us and supporting our initiatives.’
While Birmingham Tech only launched a little more than a month ago Yiannis estimates they have 70% of the community on-boarded including the West Midlands Combined Authority, Bruntwood SciTech and Aston University.
With 2021 promising continued challenges for early-stage businesses, we can expect to see more regional super networks launching throughout the year.
The rise 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, 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
Every investor knows the value of investment readiness, but companies that do are few and far between.
It is natural for an entrepreneur, who has poured blood, sweat and tears into a business, to think it’s the greatest thing in the world – and then to 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 the articulation of a proposition that credibly tells an investor how they will get their money back. And that is all in the 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.
So, while it’s easy to condemn 2020 as a terrible year, it introduced a number of positive changes that will benefit the early-stage investment space. 2021 will not be without its challenges, but as we progress through the year we will ultimately, as an industry, find ourselves 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.