In 2016, the UK tech sector notched up record deals and M&A activity to reinforce its position as the undisputed tech capital of Europe. Naturally, this is good news for recruiters.

Capitalising on this information, our latest QuickView whittled down the list of UK tech companies who received funding in 2016 to the top 50.

WHAT IS QUICKVIEW

We started the QuickView series in 2014 to highlight fast growing companies. Whether you’re a recruiter, consultant, contractor or are interested in researching industries, the purpose has always been to give actionable insights. In this QuickView, we’re looking at two things – hiring growth and total funding.

UK TECH SECTOR HIRING GROWTH

Using LinkedIn’s company growth tracker, we evaluated each of the top 50 companies hiring growth in 2016. It’s not a precise science, but it gives you a fair indication of how fast the business is growing. Breaking down the 50 businesses into four groups, we discovered in 2016:

Hiring Growth Across Top 50 Funded UK Tech Firms in 2016

Hiring Growth Across Top 50 Funded UK Tech Firms in 2016

HIRING GROWTH AND FUNDING

Is hiring linked to funding? From our research it is and it isn’t.

Helpful, not.

Broadly, the level is linked to the company’s status in relation to rounds. Seed funding helps get the idea off the ground. Series A gives it traction. Series B enables the business to scale. Series C gives the business extra capital to accelerate expansion or more products or services. Series D signals further expansion or because of missed targets, in which it’s classed as a ‘down’ round. And that’s not even accounting for Product Crowdfunding, Post IPO Equity Funding, Debt Financing, Grant Funding, or rounds E,F. You get the point, it’s complicated.

What we observed from the 50 in terms of sector was a grouping fairly consistent with the maturity of the Fintech market (seed funding down in 2016 compared to 2015) and the rise of Healthtech, which according to Silicon Valley Bank’s European Trends in Healthcare Investments 2017 report, “venture investments in healthcare are now at a historically high level”.

The top three fastest growing sectors in terms of headcount, were:

  1. Healthtech – 127%
  2. Fintech – 97%
  3. Software – 25%
Taken from the list of 50 and comparing hires made in 2016 to total headcount.

2016’s FINANCING ROUNDS IN UK TECH SECTOR

Globally, 2016 was a good year for investment in the startup ecosystem with venture investment at its highest level in five years. In the UK, the appetite was high too. Measuring activity across private equity and venture capital deals, more than £6.7 billion ($9.5bn) was invested into UK tech firms in 2016.

In January, 1,279 deals were closed in what would be a record first half to the year, with 2,546 deals taking place. Despite witnessing a slowdown in deals in the last two quarters of 2016, as the geopolitical climate cooled investment, UK tech firms received more venture capital investment than any European country in that period. In total, 4,009 deals were completed in 2016 representing an increase of 40% on 2015.

****For the financing rounds, I’ve compared 2016 with 2015 across three core criteria. Total deals concluded, total funding and deal size.***

Comparing 2015/16 Deal Volume, Size and Total Funding

Comparing 2016 with 2015 across three core criteria; total deals concluded, total funding and deal size.

SEED FUNDING

Against the backdrop of China’s economic slowdown, rising interest rates, the US election and Brexit vote, global VC activity, both in terms of total deal volume and deal value for startups, was in decline.

  1. Deals down 35% to 484
  2. Total funding down 46% to $214,554,061
  3. Deal size down 26% to $443,294

Notable points

  • The top two companies with the highest seed funding was Sirin Mobile Technologies and Evox Therapeutics receiving $72 million and $12.4 million respectively.
  • 8 out of the 10 companies have less than 50 employees, including 2 companies which have less than 10 employees – Live for Football and Evox Therapeutics

SERIES A FUNDING

Series A investment in 2016 is down on 2015.

  1. Deals down 4% to 122
  2. Total funding down 39% to $644,276,235
  3. Deal size down 3% to $5,857,057

However….in 2015 “Immunocore Limited, a world-leading biotechnology company developing novel T cell receptor (TCR) based biological drugs to treat cancer, viral infections and autoimmune disease, today announced the completion of a US $320 million (GBP £205 million) private financing round.”

Taking this mega funding round out, total funding is down 12%.

Immunocore headcount is up 110% too.

Notable points:

  • 80% of the companies are located in London, with 20% located in Cambridge.
  • Condeco is the only company to have more than 200 employers. 6 companies have less than 50 employees.
  • 30% of the companies are within the healthtech sector, with 20% in biotech and 20% in fintech.

SERIES B FUNDING

The volume of deals concluded in Series B is typically less as the value per funding round increases. Compared to 2015, Series B fared a lot better than Series A did.

  1. Deals up 31% to 38
  2. Total Funding up 51% to $513,950,500
  3. Deal Size up 7% to $13,525,013

Notable points:

  • 60% of the companies have over 50 employees.
  • Majority of the companies were founded between 2012 and 2014.
  • 20% of the companies are Fintech companies and another 20% are in the Property sector.
  • The company with the highest funding is Citymapper with $40 million.

SERIES C FUNDING

Large funding rounds took place in 2016 across core growth sectors, big data, cybersecurity and clean energy. Healthtech is also present in MISSION Therapeutics and Gymbox , albeit at both ends of the health spectrum.

  1. Deals up 44% to 38
  2. Total Funding down 28% to $246,987,000
  3. Deal Size up 54% to $35,283,857

Notable points:

  • 60% of the companies have over 50 employees.
  • 20% of the companies are Fintech companies and another 20% are in the Property sector.
  • Darktrace plans to use their $64m funding to accelerate the roll-out of its technology.

IN SUMMARY

Averaging 39% growth and 31 hires per company in 2016, I hope this article gives you a good overview of the broader link between funding and hiring. For next month’s article, I will delve deeper into funding and hires per round to see what correlation between hiring and funding exists in the fintech sector.

2017 is set up to be a very interesting year. In terms of market outlook, EY predict that global venture funding will continue to decrease. However, in the UK, off the back of a record year in which VCs invested more than double in UK tech companies than in Germany and France, post Brexit vote, the mood is bullish.

Overall, the tech sector is at the forefront of change in economic value. Financial services, industrial, and consumer products no longer hold the power. In 2016, the top five companies by market cap* are all technology-native businesses. This is a huge shift and It’s encouraging that alongside VC funding tech giants Apple, Google and Facebook are committed to hiring in London.

 

NEXT STEPS

  • Digest the possibilities of the Cybersecurity industry. (Darktrace hired 150 people last year. Scary times..)


NEXT MONTH’S QUICKVIEW

  • UK Fintech: The Growth Index. (Downloading this month’s QuickView will automatically add you to the mailing list.)

CURRENCY CONVERSION

For consistency, USD ($) has been used for funding totals and taken at time of writing. (14.01.17)

  • GBP – USD = 1.23
  • EUR – USD = 1.06
  • YEN – USD = 0.0086
  • CHF – USD = 0.99

MARKET CAP

In order as of 11/22/16:

  1. Apple — $596B
  2. Alphabet/Google — $551B
  3. Microsoft — $478B
  4. Amazon — $372B
  5. Facebook — $348B

REFERENCE SHELF

Crunchbase, LinkedIn, FT ,GP Bullhound, CBR, Pitchbook, Bloomberg

GLOSSARY

  • Seed Capital: initial capital used to start a business, it usually comes from friends and family and is relatively small.
  • Angel Investor: individual who invest private capital in a start-up for it to gain traction.
  • Series A: Series A funding is useful in optimising product and user base.
  • Series B: Series B rounds are all about taking businesses to the next level, past the development stage.
  • Series C: Series C round of funding when the business looks for greater market share, acquisitions, or to develop more products and services.
  • Series D: Series D investment signals two things. One; the business has strong fundamentals but needs extra capital to accelerate expansion. Two: The business hasn’t hit growth expectations set from series C. In this event, Series C this would be a ‘down’ round and the series D is meant to keep the company afloat.
  • Down Round: A down round is a round of financing that occurs at a lower firm valuation than an earlier round of financing.
  • Exits: method by which investors sell their stake in a business to realise their gains (or losses):
    • Trade Sale: sale of a company, in whole or in part, to another business rather than to the public.
    • IPO (Initial Public Offering): first sale of the company’s stock to the public.
    • M&A (Mergers and Acquisitions): consolidation of companies. A merger is the combination of two companies to form one new business while an acquisition is when a company purchase another one.

One to Watch

Keep your eye on AI. More than 300 companies raised seed or early stage venture financing, while only about a dozen closed late stage rounds in 2016.