LONDON — Investment in UK startups and fast-growing private companies fell dramatically in 2016 according to data from Beauhurst, a company that tracks high-growth businesses in Britain.
Deal numbers fell by 18% to 1,460 last year and the total amount invested declined by 12% to £4.1 billion ($5.1 billion), according to Beauhurst's data. It is the first yearly drop in investment since the company began tracking equity investments in private startups and high-growth companies in 2010.
Beauhurst describes the figures as "a dramatic halt to years of growth" and "a worrying trend for the short to medium term." It follows a slowdown in momentum in 2015.
The obvious explanation for the slump in investment would be Britain's vote last June to leave the European Union. However, Beauhurst cautions on this interpretation, saying there was no significant drop in deals after the vote. The busiest month for investment was September when close to £500 million was invested across 117 deals.
Still, the amount invested each month fell off dramatically after January. Press coverage in the run up to June's referendum was full of predictions of a possible recession if Britain voted to leave the European Union and this may have put off investors.
Beauhurst’s Head of Research Pedro Madeira says in a release announcing the numbers: "The large-scale drop in equity deal numbers across the board is concerning, not least for the businesses who are looking to raise capital to fund their growth.
"But it’s not all doom-and-gloom – investors and companies (many of whom opposed Brexit) have kept a stiff upper lip and continued their deal-making. Skyscanner’s acquisition was the largest (of those with disclosed values) since 2011; crowdfunding platforms are moving up the value chain and (in some cases) becoming proto-fund managers; life sciences has always been a strong sector in the UK, and the opening of the world-leading Francis Crick Institute will surely further cement that."
Beauhurst says crowdfunding is "emerging as a real alternative for funding later-stage companies," with bigger companies turning to it as a method to raise money. However, the data shows the total number of crowdfunding campaigns fell by 14% compared to 2015.
Crowdcube, one of the UK's biggest crowdfunding platforms, said on Thursday that it saw a 20% rise in investment in the six months after Brexit.
CMO and cofounder Luke Lang said in an emailed statement: "While the Government tackles the economic and political outfall of the decision to leave the EU, we believe British businesses are becoming more attractive to investors right now, particularly with the country’s reputation as a centre of excellence for fintech and other highly disruptive startups."
Beauhurt's figures also showed solid growth in early stage funding for life science businesses, up 19% to £202 million.
The biggest investment of last year was a £210 million investment in food delivery startup Deliveroo in August.
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