An overview of the latest trends in the VC ecosystem and an update on the British Business Bank. Slides from our Fund Manager event in September

1. www.british-business-bank.co.uk
@britishbbank
Fund Managers Event
Alice Hu Wagner
MD Strategy, Economics &
Business Development
19 September 2019

2. 2
BBB is well placed to conduct and share research on
SME finance markets with HMG and industry

3. 3
1. Research & insight
2. Opinion and engagement
3. Policy engagement
4. Project & product delivery
Focus areas for BBB Centre
of Expertise
The Bank continues to develop its capability as a
Centre of Expertise on SME access to finance
Recent publications

4. 4
Total UK equity investment rose 5% in 2018…
Total Investment, all stages
2014-18 (£bn)
Total investment, by stage
2014-18 (£bn)
2.9
4.2
3.9
6.4
6.7
20172014 20182015 2016
+5%
British Business Bank analysis of Beauhurst
1.7
2.1 2.1
3.5 3.5
1.0
1.6 1.2
2.1 2.3
0.4
0.5
0.8
0.9
2.9
20182017
0.2
2014 2015 2016
6.4
4.2
3.9
6.7
Seed
Venture
Growth

5. 5
… driven by an 11% increase in average deal size in
2018 to £4.5m…
Average deal size, by stage
2014-18 (£m)
Average deal size, all stages
2014-18 (£m)
2014 2017 20182015 2016
0
10
5
15
20
20182014 2015 2016 2017
10
0
5
15
20
Seed
Venture
Growth
British Business Bank analysis of Beauhurst

6. 6
…but also a 6% drop in the number of deals
Number of deals, by stage
2014-18 (#)
0
2014
800
2015 201820172016
200
400
600
Number of deals, all stages
2014-18 (#)
400
2014 2017 20182015 2016
0
200
600
1,800
800
1,000
1,200
1,400
1,600
Seed
Venture
Growth
British Business Bank analysis of Beauhurst

7. 7
There were fewer deals <£2m (↓14%) and more
deals >£2m (up ↑15%)
Proportion of investment value from
deals >£10m
By stage, 2014-18
60%
0%
20%
40%
100%
80%
2014 20182015 2016 2017
Number of deals by deal size
All stages, 2017 vs. 2018 (#)
622
243
242
240
114
121
129
487
237
225
264
133
151
106
Up to £499k
Undisclosed
£2m to £4.99m
£500k to £999k
£5m to £9.99m
£1m to £1.99m
£10m+
2017
2018
Seed
Venture
Growth
ALL
British Business Bank analysis of Beauhurst

8. 8
Technology and IP-based businesses are continuing
to attract greatest investment…
Number of deals, by sector
Selected sectors, 2014-18 (#)
Total value of deals, by sector
Selected sectors, 2014-18 (£m)
0
100
600
200
400
700
300
500
2014 2015 2016 2017 2018
1,000
0
500
2014
1,500
2,000
2,500
3,000
2015 2016 2017 2018
Technology & IP Business & Prof. Services Media Industrials Retail
British Business Bank analysis of Beauhurst

9. 9
…investment values outside of London grew faster
in 2018, but the capital continues to lead
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2011 201820152012 20172013 20162014
-7%
Investment Value of deals, all stages
2011-18 (£m)
0
100
200
300
400
500
600
700
800
900
1,000
2011 20172012 2013 2014 20162015 2018
-8%
Number of deals, all stages
2011-18 (#)
London Rest of UK
British Business Bank analysis of Beauhurst

10. 10
UK VC market has improved relative to the US, with
proportionately more (but smaller) deals
Number of VC deals per £trn of GDP,
all stages
2016-18
VC investment value as a % of GDP,
by stage
2016-18
161
283
126
570
140
212
129
482
Overall VCLater stage VCSeed Early stage VC
USUK
0.1%
Seed Early stage VC
0.2%
Later stage VC Overall VC
0.0%0.0%
0.1%
0.3% 0.3%
0.5%
British Business Bank analysis of PitchBook

11. 11
UK VC backed companies just as likely to raise
follow-on funding as US firms, but less of it
% of companies securing follow on funding
Cohort of companies raising first VC round 2011-12
Average deal size by round
Cohort of companies raising first VC round 2011-12
Round 1
Round 5
Round 2
Round 7
Round 3
Round 6
Round 4
£1.8m
£4m
£7.8m
£12.2m
£21.7m
£36.3m
£65.7m
£3.4m
£1.2m
£1.9m
£23.3m
£22.6m
£5.1m
£9.0m
57%
36%
22%
11%
5%
2%
Round 2
Round 3
Round 6
Round 4
Round 5
Round 7
55%
35%
19%
11%
5%
2%
British Business Bank analysis of PitchBook
USUK

12. 12
Both US and UK saw fewer VC backed companies
getting a second round of investment
UK
Follow-on funding as % of
first VC round - % of transactions
62%
32%
9%
3%
55%
35%
19%
11%
5%
2%
0%
Round 4
0%
Round 2
Round 3
Round 7
Round 5
Round 6
2008-10
2011-12
68%
43%
23%
10%
3%
1%
57%
36%
22%
11%
5%
2%
USA
British Business Bank analysis of PitchBook
(2011-12) and Preqin (2008-10)

13. 13
To keep growing the venture capital ecosystem, some
challenges in investor talent will need to be addressed
59%
10% 15%
21%
19%
17%
45%
19%
40%
48%
Junior &
Mid-level
3%
10+ years
experience
Senior
5%
3-5 years
Leader
6-10 years
<3 years
Years of experience in VC, by role
21%
68%
17%
14%
33%
14%29%
<3 years
Entered VC six or
more years ago
5%
Entered VC in the
last five years
10+ years
6-10 years
3-5 years
Pre-VC experience of Juniors
British Business Bank survey of venture capitalists (2019)

14. 14
76% 76%
80%
83% 83%
78%
73%
70%
24% 24%
20%
17% 17%
22%
27%
30%
0%
50%
100%
2011 2012 2013 2014 2015 2016 2017 2018
UK investors only
At least one overseas investor
Equity deals in UK SMEs by investor location
Percent of total number of deals – 2011 to 2018
International investors have been part of an
increasing number of UK VC deals since 2015
British Business Bank analysis of Beauhurst

15. 15
BBB is the largest UK based LP by commitment into
UK VC
British Business Bank analysis of PitchBook
Commitments to UK VC by investment origin – 2016 to February 2019
6%
6%
6%
18%
16%
9%
31%
BBB
US
European Investment Fund
Rest of Europe
2%
Family office/individuals
Rest of World
1%Government agencies
2%Foundations/ Endowments
2%
Corporations/Corp. pensions
Public Pension Funds
Other investors
UK (other
than BBB)

16. 16
• UK equity investment increased in 2018 driven by larger deals
• Technology and IP-based businesses are continuing to attract the greatest investment
• Equity investment outside of London has increased, reducing London’s dominance
• UK VC market has improved relative to the US, but deal sizes remain smaller
• Challenges in investor talent need to be addressed to keep UK VC ecosystem growing
• Non-UK based LPs are increasingly present in UK VC deals, but BBB is the biggest LP
Summary of Key Findings