In the last 12-18 months we have been advising and helping many clients raise equity via a number of methods including Private Individuals/High Net Worths (HNW), Crowdfunding and Private Equity.
We have certainly seen more deals in this area than in previous years and there are a number of reasons for this, especially in the Private Equity and Crowdfunding arenas which I am focusing on here:
Private Equity Investment in the UK is at its highest level in the UK for 5 years. Deal volumes are up, as are deal levels.
In H1 of 2021 deal volumes increased in every sector but business services and TMT (Technology, Media and Telecoms) made up the majority of the investments.
Average multiples in deal transactions were 9.4 times earnings.
The global picture is much the same. More than £221bn had been invested globally in H1 2021 and this is double that recorded in the previous year. A lot of that investment is going into technology and innovation. Whilst increases were seen in every sub-sector, the total of mega rounds, which are rounds in excess of $100m, actually outstripped the total value of all the Series C deals completed in the whole of 2020.
Europe has been the fastest growing region for investment, outperforming the USA, China and Asia, with growth coming from many countries across Europe, not just one.
There is a huge amount of what is termed dry powder in the private equity market. This is the amount of committed but unallocated capital, i.e. the unspent cash waiting to be invested. Levels are at all time highs so there is certainly no shortage of capital.
That capital has a cost, so the market is always looking for the next investment deal or to invest it elsewhere. Some of the money may be diverted to SPACS or could be used for acquisitions. In the past 12 months, the number of UK businesses acquired by US Private Equity has jumped 65% – These are across different sectors from infrastructure through retail to healthcare. The US has been looking at the UK as being an attractive market for various reasons including similar regulation to US, depressed valuations in the UK versus their European peers and a more saturated market in the US.
This market has also seen rapid expansion in the last few years. Earlier in the year there was a planned merger between Crowdcube and Seedrs, but the UK Competition and Markets Authority blocked that on competition grounds, so each have been concentrating on their own businesses again. Crowdcube have raised more finance via their own platform as well as £10m from Circle Internet Financial, and as reported in the news items this month, Seedrs has been acquired by the US platform, Republic for $100m.
The number of investors using platforms has grown. For example, Crowdcube now have 1.2 million members who could be potential investors for any deal.
Best fit for Crowdfunding
Crowdfunding still seems to work best for B2C or financial services type businesses. Investors like to be able to understand, pick up, see and/or feel a product, which is why food and drink businesses always seem to do well on the platforms, because they are so simple to explain to investors.
For businesses looking at the crowdfunding route, the valuations that can be achieved are always higher than those seen via High Net Worths or more traditional equity routes.
SEIS and EIS
For crowdfunding pitches, having SEIS and or EIS accreditation is pretty much a pre-requisite, given investors are looking to receive the government tax benefits that SEIS and EIS provide, both at day 1, at exit, and in a worst case scenario, additional tax relief should the company/investment fail.
If you are considering raising equity in your business please come and have a chat with us to look at the different options, and how we can assist given our experience across all types of equity investment as well as the SEIS and EIS landscape.