In our latest instalment of The Deal we explore worrying signs of market stagnation. While 2015 saw encouraging growth in terms of total equity investment, the number of fundraisings practically flat-lined on 2014 figures – recording just 3% growth. This is a significant slow down after 3 years of rapid growth, and doesn’t bode well for 2016.
The slow down was particularly felt in the last quarter of 2015. Q4/15 deal numbers fell by just under 10% on Q3/15, and were also down 4% on 2014’s Q4 figures.
Considering the number of announced deals in January 2016, it seems this trend is exacerbating. Last month just 77 equity fundraisings were completed. This is the lowest number of January fundraisings since 2013 – when 57 deals were completed.
Why so dry, January?
Looking at January 2016 fundraisings by stage of evolution, we can see that all stages – seed, venture, and growth – fell on January 2015 figures. This is despite all stages recording steady growth since 2012. Venture and growth-stages were hit the worst, recording a 37% and 36% drop respectively. Seed-stage fundraisings also decreased by 11%. Whether this is indicative of an emerging gap in scale-up finance is yet to be seen, but it’s certainly an issue that’s been raised in the past.
Regionally speaking, it was London that felt the biggest squeeze. Deal numbers fell from 48 in January 2015, to 33 in January 2016. However, this is in absolute terms and unsurprising considering London accounts for the majority of equity activity in the UK. Although we’re dealing with a small data-set, in terms of percentages it was the South West that performed the worst, recording a 71% drop (from 7 to 2) in the number of fundraisings. Conversely, the South East, and East of England, enjoyed a slight increase in the number of deals during January 2016.
Sector analysis shows that of the top five sectors it was Leisure and Entertainment that fared the worst in January 2016. The sector recorded a 53% decrease in deal numbers on January 2015 figures. This was followed by Media (-40%), Tech (-27%), Industrials (-19%), and Business and Professional Services (-11%). Clearly then, it’s not possible to place the blame on a single faltering sector.*
Looking further back: 2015
Looking back at 2015, July was the busiest month for equity investment – responsible for just over 10% of all 2015’s deals. However, bar an uptick in November, the number of monthly fundraisings fell, then flatlined, after July – culminating in an all-year monthly low of 91 fundraisings in December.
Could this downward trend at the tail-end of 2015 be indicative of bad things to come in 2016, and could it explain January’s poor fundraising figures?
Not all January blues
While January 2016 was the slowest start in terms of absolute figures since 2013, January typically accounts for just 7% of yearly fundraisings, and is the lowest monthly average. What’s more, December 2015 recorded just 9 less fundraisings than December 2014 – not particular cause for alarm.
There were also several large rounds from a number of high-profile SMEs in January 2016. Edinburgh-based Skyscanner reportedly became the second Scottish unicorn company – joining FanDuel – after a £128m equity round led by Artemis. Mobile app Citymapper secured £28m joint investment from Balderton Capital and Index Ventures. And Air Energi Group, the Manchester-based start-up that recruits for the oil and gas industries, completed an unannounced £47.6m equity fundraising.