What changes will 2021 bring to the early-stage investment space?

Business Insights

As an entrepreneur or an investor looking at early-stage investment, you may feel that 2020 brought you more challenges than you needed and be anticipating the counter-balancing opportunities.

Let’s look at what we can expect from the early-stage investment space in 2021.

Time needed for recovery

Investors dislike uncertainty and no one knows when Covidf-19 vaccinations will be completed and how this will impact life.

Throughout 2020 investment into early-staged businesses fell and rose with the number of Covid cases. Investors propped up existing investments and favoured more mature, and less risky businesses. Seed stage companies saw little investment.

The first half of 2021 is likely to be similar. Certainty is not a switch and will take time to recover. We predict an increase investment by Q3 2021.

The role of digital fundraising platforms

Early-stage investment has been slow to adopt digital believing that raising capital is all about relationships. 2020 quashed that idea.

Without in-person meetings, networks needed a mechanism to facilitate investment. Digital platforms which provide always-on access to information for due diligence, investor-founder Q&A, and analytics that make clear which deals are generating the most interest, are quickly becoming essential tools for investment networks.

 “While we have already supported over 3,500 entrepreneurs since 2002, raising finance is critical for growth and while we had an informal network of investors, we weren’t in a position to really bring investors and entrepreneurs together. We knew that in order to move forward with our vision we would have to go digital.”

explained Jake Ronay, Former Investment and Corporate Partnerships Lead at SETsquared.

These digital platforms offer benefits for all parties:

  • Fundraising companies can track investor interest, control who sees confidential documentation and streamline due diligence for potential investors
  • Investors can filter deals based on interests, track companies and ask founders questions online and conduct due diligence at their leisure
  • Investment networks can promote deals, track which deals are generating most interest and close investment online

Adoption of digital investment platforms will continue to grow throughout 2021, becoming the norm by the close of the year.

The regional super network

Between 2001 and the second quarter of 2020, 49% of all equity deals and 59% of all invested funds went into London located companies located. In 2021 we’ll see a new, more effective approach.

Every UK region has its unique set of local players dedicated to supporting growth businesses. Common to each region is that these players are disconnected. It’s difficult for businesses to navigate: from accelerators, to angel investment clubs to workspace providers to LEPs.

Towards the end of 2020, with the increased difficultly faced by early-stage businesses, we started to see a shift towards local players teaming up – understanding they shared a common goal – and working together to support those local businesses.

An example is the recently launched Birmingham Tech. This non-profit organisation is aimed at connecting the start-up ecosystem in the West Midlands.

Through its platform, Birmingham Tech provides a single access point for all entrepreneur services, programmes, and support across the West Midlands.

With 2021 promising continued challenges for early-stage businesses, we expect to see more regional super networks launching.

An increase in deal sharing

Sharing deals between distinct networks is not new. However, it was slow to gain traction as many investment networks were reluctant to open their investor base to partner deals. The challenges in raising capital throughout 2020 caused a rethink and as we closed out the year, attitudes shifted toward the concept.

A good example is the UKBAA’s Dealshare. Previously members-only, the association opened its doors to the broader industry. We also saw a collaboration between DSW Ventures and NorthInvest to help companies in the Northern Powerhouse. DWS’s David Smith said,

“With the economy feeling the impact of the pandemic, it is more important than ever that funders work together to create a supportive start-up ecosystem.”

As networks recognise the benefits of collaboration, we can expect to see deal sharing widespread in 2021.

A focus on investment readiness

Winning investment is as much art as science and passion alone won’t cut it. It requires a proposition that credibly tells an investor how they’ll get their money back. This needs detail – from the valuation to the sales forecast to market size.

With difficulties continuing in 2021 entrepreneurs will put more emphasis on investment readiness to increase their chances of securing capital investment.

2020 was a year of challenges and 2021 will bring opportunities.

By Chantelle Arneaud, Envestors