Private Equity: UK VCs invest GBP8 billion in 1999 …

With so many UK-based venture capitalists casting an eye towards continental Europe and many taking the plunge both by raising funds to target that geographic area and opening offices on the ground, it is interesting to note that interest did not fall away from the UK home market in 1999. British Venture Capital Association (BVCA) figures, compiled based on responses received from 95 per cent of its members, note that investment by UK venture capitalists in their domestic market increased by 63 per cent in 1999 to GBP6.17 billion (EURO10.1 billion). This is more than double the figure two years previously. Almost a further GBP2 billion was invested by UK venture capitalists outside the UK, although exact jurisdictions are not specified either in terms of number of deals or amounts invested.

Trends in UK venture capital investment showed that 23 per cent of all the companies backed last year were classed as early stage venture, rather than private equity, investments. Start-ups accounted for 15 per cent or

GBP218 million and early stage investments for 24 per cent or GBP219 million. The overall number of start-ups dropped from 115 in 1998 to 101 in 1999 but investment in early-stage companies increased on 1998 by 26 per cent to 159.

While the average size for start-up and early-stage investment was recorded as being over GBP1 million, it was also found that over 50 per cent of companies had received less than GBP1 million in funding.

The management buyout continued to reign in the popularity stakes while the management buy-in took a bit of a battering. Just GBP384 million was invested in management buy-ins in 1999, a decrease of 40 per cent on 1998 figures. Management buyouts, on the other hand, more than doubled with GBP4.3 million being invested. Small and mid-sized management buyouts and management buy-ins – that is, those receiving less than GBP10 million in venture capital investment – accounted for 75 per cent and 82 per cent, respectively.

As would be expected, high-technology companies, those classed as computer, electronics, medical, biotechnology, and communications-related, were a significant beneficiaries of UK venture capital investments in 1999. These companies received 43 per cent of all UK venture capital investment funds in 1999. This corresponds to a cash figure of

GBP1.1 billion. Investment in Internet-related companies was seven times higher than it had been in the previous year.

Fund raising did not present difficulties for UK venture capital firms in 1999. During the year, GBP5.8 billion was committed to venture capital funds by external institutions and private individuals. In the previous year the figure was only slightly lower, at GBP5.6 billion. Not much of this came from UK pension funds, whose level of equity commitment has again fallen in 1999.

Respondents suggested that 60 per cent of venture capital funds raised in 1999 would be invested in UK-based companies while the majority of the rest of the funds will target continental European companies. See table on page 5 for UK regional investment figures.

EVCJ understands that the European Venture Capital Association (EVCA), following its announcement of 1999 levels of activityto be made in June at the EVCA annual symposium, will in future be producing half-yearly activity statistics.

Investment by UK region

Region Number of companies Amount invested (GBPm)

1999 1998 1997 1999 1998 1997

South East 190 204 210 802 588 557

London 241 184 158 2,376 957 511

South West 61 76 69 230 267 175

Eastern 87 85 53 379 316 243

West Midlands 96 79 99 590 294 384

East Midlands 58 79 72 172 331 291

Yorkshire & the Humber 66 91 82 312 248 249

North West & Merseyside 103 111 129 736 392 334

North East 39 46 47 95 66 28

Scotland 109 121 130 208 275 196

Wales 42 33 44 234 24 78

Northern Ireland 17 13 23 35 17 20

Totals 1,109 1,122 1,116 6,169 3,775 3,066

Source: BVCA