London Retains Its Leading Role in the European VC Ecosystem
The LCIF has invested in alongside 14 VCs and syndicates across London, deploying thus far £20m alongside £130m+ from the private market. It backed over 120 companies, created 1,700 jobs and safeguarded close to 400 jobs.
It employs a new model for deploying early-stage capital, and catalysing the local economy, stimulating the private capital market.
A hybrid active-passive approach is adopted for managing the portfolio, which is equally spread across various stages of development, verticals and sectors. Some of the fastest growing portfolio companies have already surpassed the £10m revenue figure and already completed Series B funding rounds, while the newest entrants are still pre-revenue testing their technologies.
LCIF leverages the co-investment partners expertise and their knowledge, while still retaining direct portfolio connection and designing value-add activities.
Monitoring an extensive portfolio of companies provides a great sample and evidence for the trends observed in the ecosystem. Primarily, the business cycles are shortening as more capital flows from capital markets to venture capital and growth stages. Startups expand sooner, and so do exits. Private equity funds are more willing to acquire and invest very early on as they are deterred by a fully priced market and the drying potential in mid-market and large-cap.
In this type of marketplace, it is essential to start collaborating across industries and develop global connections. It is necessary to build knowledge sharing initiatives to enable both investors and entrepreneurs to share best practices and grow together.
The economic and political changes in Europe are another reason to shift the mindset and be genuinely global.
The Potential of London Market
- Out of the $5.2bn invested across Europe $1.7bn were invested in the UK
- $1.4bn were invested in London Market
- Top destination for tech companies and VC activity
- Key for high-growth, biotech, fintech and deep tech
Before looking at London, we must understand the context in which investments are made on the continent, currently $5.2bn have been invested in early-stage and growth companies just in Q3 2018.
We are operating in high volatility environment where political decisions have the potential to shift the appetite of investors from one territory to another. It is not just about Brexit it goes beyond into a fundamental shift that is happening in Central and Eastern Europe too, with more right-wing governments forming and protectionist agendas working against global mindsets.
These factors contribute quite a lot when it comes to the flow of capital and of talent from one country to another.
The UK still claim 30% of all the transactions in the venture capital space and London stands clearly as a representative for the whole country with $1.4bn out of $1.7bn invested. Most of the companies are going to Series C+, as a substantial percentage ends up backing what we would consider “portfolio winners”. The perception of a lesser risk in Europe is creating exuberance pushing valuations higher.
For early stage companies, the world of venture capital is not so rosy, as most are faced with a dire prospect of becoming too risky for London investors, or end up competing against thousands of other start-ups. Only growth companies with £5m+ of revenue are becoming incredibly valuable and can attract just as much capital as they would in the US.
Investors are adopting a global portfolio strategy they no longer want to be bound to one region, broadening the spectrum of opportunities across continents.