Having a clear understanding of who receives investment in the UK can help organisations target their funding bids in a realistic way. It also helps investors spot gaps in the market and identify areas that may be over-saturated. In addition, understanding the marketplace gives business leaders a glimpse into the future. What are modern investors finding exciting, innovative and promising? Will those things be market leaders in years to come?
What are the different forms of investment?
We’ve been taking a look at the industries that have received significant sums of investment in recent years. This shows what investors think will be successful in the future. It also helps brands to approach the right kind of investor when they are looking for funding. With that in mind, here’s a quick rundown of the different forms of investments businesses can look to secure.
We’re all familiar with equity finance thanks to television shows such as Dragons’ Den. Equity financing offers a proportion of the business in exchange for a financial investment.
An individual with high net worth injects capital into a company. They often use their expertise and experience to offer advice and support, too. Angel investors can invest money individually or as part of a group, known as a syndicate. Angel investment is a form of equity financing.
This is another example of equity finance. Venture capital is financing from individuals or companies, usually for businesses that have already demonstrated a certain amount of success. This can be a form of business to business investment, for example.
Grants can offer financial assistance to startups or businesses that are growing and expanding.
Debt financing is where a business borrows money from creditors. Instead of exchanging it for a portion of the business, it is to be paid back.
For more information on business funding, you can check out our funding informational hub here.
Which industries are seeing the highest level of investment?
Unsurprisingly, technology firms are still proving to be incredibly popular with angel investors and venture capitalists. In London, £462 million venture capital money was secured in the first quarter of 2015 by technology companies alone — more than the sector gained in the whole of 2012.
The excitement around tech is usually focused on innovation and new ideas. What great concept is going to be the next Uber or AirBnB? Which app or gadget will transform the way we live our lives until we can’t imagine life without it? Investors never want to miss out on the ‘next big thing’. Funding exciting tech start-ups is a way of being part of the action.
Tech is a massive industry, so breaking it down into areas when looking at funding helps. For instance, Biotech is one area that is very popular in fundraising circles. £280 million of venture capital funding was achieved in 2014, up 71% from the year before. Fintech (or ‘financial technology’) is another up-and-coming area. This received an impressive £647.5 million of funding in 2015, up 35% from the year before.
Another area attracting a lot of attention by investors is the renewables sector. Renewable electricity has attracted the vast majority of that investment (£27.7 billion in the period between 2010-2013). Onshore and offshore wind farms, solar energy, and biomass received the majority of the attention. Renewable transport and heat have also proved to be popular with investors.
The reason for this focus is clear: there is growing pressure on the energy industries to provide services that are clean and not damaging the world. This is due to increasing public consciousness of environmental issues and meeting government targets. As wind farms and solar phone chargers become more prevalent, there is a lot of potential in the renewables sector.
Which businesses have secured the most funding?
In short, those that demonstrate innovation, good planning, a strong business model, and a decent track record in successful business.
WorldRemit is a tech company in London that enables money transfers to take place online. It received the highest amount of funding in Q1 2015. This was followed closely by Shazam, a music tech company that specialises in identifying songs that are detected by its app. Transport app CityMapper and cybersecurity firm Darktrace have already received significant amounts of investment this year.
Peer-to-peer funding business, Funding Circle, also received a significant amount of money (£97 million) in the Fintech space. It is a novel way of offering small amounts of funding to businesses in the UK and abroad. For the biotech and medical space, investment company Deepbridge Capital has invested £2m seed funds in life science companies.
This pattern of investment gives us a good indication of which businesses are likely to grow and succeed in the future. Companies that receive investment can be perceived to be in demand. Growth in health tech, financial tech, and renewable energy sources reflect both societal and business concerns.
Of course, not everything that receives high levels of investment will be a success. However, we can spot patterns from the trends we see in overall investment levels. So, if you want to see whether your own business idea will gain ground, consider it in relation to the examples above and see what you can learn from what has succeeded, in investment terms, in the last few years.
For more information on funding for your business, or whether you just need a bit of inspiration to start one, head over to our blog.