The media and tech sector has responded robustly to the coronavirus lockdown. Although not emerging unscathed, the tech sector in particular has managed to adapt quickly to the ‘new normal’. This is characteristic of the tech industry generally. Technology companies are set up to be agile so that they can adapt to compete in a competitive marketplace.
For some businesses, the coronavirus lockdown has been the shakeup needed for their technology to come into its own. It highlighted how important technology is to society in keeping us connected with friends and family, and the mass exodus from offices has resulted in businesses with video conferencing tech finding thousands of new customers.
However, for an expanding and robust sector 2020 has still seen growth slow down. The industry has seen the gap between investment series increase as funders try to assess the impact of the pandemic on the global marketplace. This has meant that companies looking for their next injection of cash have had to conserve capital to decrease their cash burn rate to make sure they are able to reach their next series.
When private equity meets tech
Private equity and tech businesses have always naturally worked together. Tech companies tend to be looking to do or produce something new, which lends itself to the flexibility and long-term nature of a private equity investment.
As tech companies are often loss-making for years and some have a high ‘burn rate’ private equity is also frequently the only viable funding for such an expensive sector. And competition for attractive investment opportunities has just increased:
Generalist investors will not be wanting to invest in many of the most impacted sectors at the moment. Travel and restaurant sectors will take some time to recover. It is very likely that generalist investors will turn their attention to the media and tech sector for their next investment. This will mean specialist tech investors will have more competition for deals. So that’s good news for tech companies looking for investment.’
Charlie Jolly, RSM private equity specialist
For an industry that has already seen new and experienced investors coming in from the USA this is an added layer of competition in a rapidly changing market.
Back in the first month of lockdown tech focused private equity funding totalled $93.1 billion across North America and Europe, a 93 per cent increase from 2016.
The ecosystem in the USA has developed to naturally foster growth. Communities like Silicon Valley have evolved to facilitate finding the leadership, funding and technical talent needed to grow tech businesses. As many US funders now look for opportunities in to the UK and Europe, their wealth of experience and slick best practice is rubbing off on the domestic investment community. So, although this dynamic creates an added element of competition for investments, domestic investors have been quick to learn from their US competitors.
London remains the largest venture capital market in Europe. The city has raised more venture capital investment than Paris, Stockholm, Berlin and Tel Aviv since the start of the year. Even with the impact of the coronavirus lockdown investment has continued to pour in with funds amassing $5 billion between January and June 2020. Encouragingly this is a healthy increase on the prior year when $5.4 billion was raised over the whole of 2019 so in spite of the challenges, the sector looks set to continue to adapt and grow for the foreseeable future.