At 11.15pm on Monday this week I sent Jonathan Boyers, who is KPMG’s UK Head of Corporate Finance, a quick email and his response minutes later confirmed two things.
The first is that there can’t be many harder-working corporate finance people than Boyers and the second is that there are genuine grounds for optimism in the worlds of tech and investment in 2021 – especially when they come together.
“We are finding that the tech sector has been the most resilient and fast-growing sector from an M&A point of view,” he replied.
“In reality almost every sector is undergoing some form of digitisation and technological advancement such that several sectors are converging around technology
“We are investing heavily in our TMT team because we can only see these trends accelerating in 2021.”
It you want to see which way the wind is blowing in terms of investment then the private equity sector is a good place to start – and the appeal of tech is obvious.
David Smith is a founder partner in DSW Ventures and also heads the tech sector team at Dow Schofield Watts.
He said: “2020 was the year for tech investment from remote working to healthcare. Volumes and valuations just got stronger.
“At some point we should expect a rebalancing to more traditional industries (what price a restaurant roll-out?) and, despite a further national lockdown, with the vaccination programmes underway this might just be a smart time for investors to take another look at neglected sectors.”
Helen Oldham is a founding board director of NorthInvest, which is a not-for-profit early stage investor business backed by the Northern Powerhouse and the UKBAA.
She said: “We saw increased activity in 2020 vs 2019, closing 19 rounds of funding for tech entrepreneurs compared to 10 in the previous year.”
Jessica Jackson, head of investment at GC Angels, was equally positive about tech. “Tech businesses have certainly been made all the more attractive as opportunities given the pandemic has forced all of us to rely on technology when it comes to work, play and social now,” she said.
“That said, some areas are suffering whilst others are thriving. B2B workplace digitisation tools will continue to go from strength to strength I feel, yet those who sell into hospitality and the creative sector for instance continue to face disruption, and uncertainty – not a good recipe (if you’ll excuse the pun) to get VCs and investors comfortable sadly.”
James Merryweather is the investment manager at Manchester-based KM Capital and specialises mainly in eCommerce and consumer tech opportunities.
He said: “I think tech businesses will continue to be popular with investors this year who will see their business models and supplier bases as more resilient to the disruption of 2020. Equally there is a view that digital adoption has been accelerated across most industries in 2020 so investors are trying to identify the fast-growing winners out of that.”
Andy Marsh is the managing partner of Beech Tree Private Equity, which has invested in four platforms in the technology space in Wavenet, Redstor, BCN and Transparity.
He said: “There is an increased drive to invest in the technology space at the moment with many investors from outside the sector now wanting access – fund deployment rates need to be maintained and they have fewer sectors to invest in at the moment.
“However the ability for those outside of the sector to get into it is likely to be more difficult as entrepreneurs now desire a level of knowledge from their investors.
“Also the speed of disruption is accelerating and as a result there are also many more pitfalls in the sector now, with the emergence or the AWS / Azure and other hyperscaler tech stacks. It becomes easier for competitors of software businesses to spring up. They have the ability to create scaleable platforms in ever shorter times at a fraction of the cost.
“Our focus on the sustainability and evolution of the USP’s is even more critical now during the life of our investments not just at entry. When we look to invest in a business we look to map this evolution out including identifying complementary acquisitions, products and service lines.”
Dan Franklin leads the M&A and investment activities for portfolio management company, handl Group, which includes 13 businesses spanning healthcare, insurance and legal.
He said: “In 2020 we observed an accelerated focus from investors in technology, both in terms of technological products and services across a multitude of sectors. The healthtech space was particularly prominent.”
Franklin said handl Group believe that great tech also needs great people.
“We don’t view technology alone as the solution for every problem – we see technology as an enabler and that vision hasn’t changed as a result of the pandemic,” he said.
“We call it ‘people + tech’ and this will lead the way for our investment strategy. Over the past two years we’ve made strategic investments into several ‘people + tech’ start-ups.”
Elizabeth Gooch, founder and CEO of The Tech Growth Factory, said Covid-19 has changed the business landscape.
“Low-tech businesses and those with cumbersome legacy systems and ways of working have been disrupted, like never before, and they need to innovate quickly to stay in the game,” she said.
“This ‘perfect storm’ creates a massive opportunity for tech companies and tech investors alike. Although there is money out there, getting investment is harder though. There is a definite squeeze on valuations and the majority that I speak to won’t even look at something that is less than £1m ARR, which leaves the start-up community at the behest of angels.
“Angels are investing less at the moment and expect to be more engaged with their invested companies so companies need to build relationships with angels to secure them as an investor as well as for the long term.”