The impact of COVID-19 on UK businesses has varied greatly between sectors. Whilst the entertainment, leisure and services industries have suffered, much of the tech industry has leapt forward. Startups operating in deeptech, cybersecurity, and areas of emerging tech performed well during the tumult of 2020.
This post examines the fastest-growing industries through 2020, by comparing announced equity fundraisings made in 2019 with those made last year. Six key startup industries have emerged, each showing substantial and rapid growth since 2019 and a record year in 2020, in terms of both the number of deals completed and the amount invested.
The protector of the technology industry, competition is clearly hotting up in the digital security market. Three of the UK’s 23 active unicorns operate in the space, and a large volume of deals have gone ahead during coronavirus. And that stands to reason, as the pandemic has accelerated digitisation, forcing many companies to immediately review their security systems. Investors can see that there is a clear appetite for innovative solutions in this area, and are willing to bet on its future success.
Digital security companies secured a total of £522m across 55 announced rounds in 2019. Throughout 2020, £976m was deployed over 75 rounds, marking a 87% increase in value and 36% increase in deals completed.
Insurtech companies are exploring avenues that large incumbent firms might have less incentive to pursue. These include ultra-customised policies, social insurance, and using new streams of data to dynamically price premiums. Insurtechs can provide products and services to consumers, or develop tech to streamline or overhaul processes for existing insurance firms.
The insurtech industry has seen rapid growth in the past five years. Just £8.68m was deployed across three announced equity rounds in 2015, compared to £207m across 28 rounds in 2020. Between 2019 and 2020, the amount invested grew 47%, while the number of rounds completed rose 12%, surpassing the previous record of 27 deals in 2018.
A third of the rounds completed in 2020 took place in January, before COVID had arrived in the UK. But the largest of these rounds took place in May, well into the initial national lockdown.
The nature of insurtech companies, and the highly regulated market in which they operate, means many will need to build partnerships with underwriters and more established firms in order to trade. While investors continue to deploy capital to the sector, the success of individual companies through the pandemic will also depend on these corporate partnerships.
Analysts have warned that “while carriers are committed to the innovative projects and insurtech partners they’re already involved with, they are less likely to take risks on new, unknown insurtech companies.”
Cryptocurrencies have gained something of a reputation for facilitating nefarious and anonymous activity, but many companies are trying to move them into the mainstream—and they seem to be doing a pretty good job of it.
The sector experienced 1,533% growth in deal value and 113% increase in deal numbers between 2019 and 2020. £539m was invested across 32 deals in 2020. The most prolific investors in the sector were crowdfunding platforms Seedrs and Crowdcube, which facilitated nine and three rounds last year, respectively.
Using the principles of quantum mechanics, quantum computing makes computation faster and less energy-intensive. The sector is nascent, but applications are already extensive, and businesses are jumping at the chance to be at the forefront of this new technology.
There have been 21 announced equity deals into UK quantum companies since 2011, and £90.2m deployed across the sector. 2020 saw the most activity to date, with 8 deals completed (double those in 2019) at a total of £67.4m—more than seven times the £8m invested in 2019.
And private investors aren’t the only ones betting on this industry. In June 2020, the Government pledged £70m to help develop quantum technologies, and ensure the UK is a world-leader in the sector. This investment is part of its £1b Quantum Technologies Challenge, led by UKRI, which has involved over 80 companies across the UK, along with almost 30 research organisations. This latest funding will help with projects like the diagnosis of cancerous tumours during surgery.
The UK’s best performing startup sector continued at an incredible growth rate through 2020. The nature of COVID and the risks involved with exchanging cash has put a greater emphasis on contactless payments, and the alternative forms of payments available through fintech.
The squeeze on working capital has also forced many businesses, big and small, to take a closer look at their finances and find more convenient and insightful ways of managing cash flows. For B2B fintechs, demand for lending has skyrocketed, and some helped roll out the Government’s Bounce Back Loan Scheme.
And there’s no doubt that fintech will be sticking around for the long term, well beyond coronavirus. Thus, current uncertainty has made little dent in investor confidence in the sector. Between 2019 and 2020, deal numbers increased 9%, from 209 to 227, whilst the amount invested increased 35%, from £2.44b to £3.29b.
This growth was largely driven by more established firms raising eye-watering amounts. Together, growth and established stage businesses announced 66 deals over the course of 2020, totalling £2.5b. But the bulk of active, private high-growth fintechs remains in the seed (45%) and venture (34%) stages of evolution.
It will be interesting to see how the fintech landscape changes, and how younger companies develop, as the more established, first generation of UK fintechs mature, and potentially exit the private market.
Now a staple in every millennial’s financial arsenal, challenger banks provide more efficient, personal and flexible banking services than those offered by established firms such as HSBC, RBS, and Santander.
This subset of fintech has seen astonishing growth over the last decade. And after a drop in deal numbers in 2019—which ended with just 13 investments completed—2020 rebounded. The amount invested into these companies in announced rounds totalled £869m last year—a 19% increase from 2019—whilst the number of deals completed grew 115% to 28.
The year was far from smooth for the sector, but businesses showed resilience, and growth persisted.
And it’s not just the big dogs securing funds. There are several newer entrants making moves, and focussing on sustainable growth rates rather than the ‘growth at all costs’ mantra associated with the sector.
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