COVID-19 pandemic has encouraged more global investment, with European venture capital investments at a record high says Amelia Armor.
Partner in the Early Stage Funds at global technology investor Amadeus Capital Partners. “In the six months to June 2021, we have already exceeded the total investment for 2020 – and 2020 was a big year.”
Given the widespread disruption and impact to the economy caused by the COVID-19 pandemic, Armour’s words may come as a surprise. Yet if anything, the pandemic inadvertently created the ideal conditions for investors and seed-stage companies to come together.
The inability to travel ironically made the market much more global. It meant US investors looked at UK-based companies in the same way as they would a US company. “The pandemic actually made it easier for companies to access funding because everything was online. It didn’t matter where you were based.”
Indeed, private capital market insights and trends specialists PitchBook say that the European venture capital industry set a ‘new annual record’ for ‘deal value’ in the first six months of 2021, despite ‘continued’ pandemic-related uncertainty and economic ‘volatility’, with €47.1bn worth of transactions.
Amadeus Capital Partners is a deep tech investor with a specific interest in machine learning, cybersecurity, novel materials, medical tech and digital health companies. It has identified several significant trends over both the long term and over the course of the pandemic. Armour says they’ve seen growing numbers of seed-stage UK companies utilising AI over the last five years and, more recently, an increase in quantum computing start-ups while at the funding level. Despite Brexit, there’s a lot more inbound investor interest, particularly from the US and the EU.
This, says Armour, is in part down to the UK’s strong academic reputation – UK universities are leading the way in AI research: official government research found that the UK’s AI sector increased by 17% in 2019. UK universities also make up the highest number of internationally ranked academic institutions across Europe, including the University of Oxford, the University of Cambridge, University College London, Imperial College London and the University of Edinburgh. The UK also has good ecosystems for funding.
Over the past few years, there’s been a ‘definite shift’ in more companies addressing environmental and sustainability issues and utilising novel materials and the potential of quantum computing as solutions to these issues.
Two of Amadeus’ portfolio companies do just this. Xampla, a spin-out from the University of Cambridge, has created a bioplastic product dubbed the ‘natural alternative to single-use plastics’. It is the world’s first plant protein material for commercial use, which breaks down to the constituent amino acids under normal, household compositing conditions. The technology was developed over ten years by researchers at the university, which licensed the IP to the team when they set up Xampla.
“With a ban on plastic microbeads, many FMCG companies such as L’OREAL, Procter & Gamble and Unilever are looking for alternatives to replace capsules and other single-use plastics used in homeware products,” Armour explains.
Then there’s Riverlane, which is building an operating system for quantum computers. This, among other applications, will enable complex chemistry simulations, replacing time-consuming and expensive laboratory testing to speed up the development and production of pharmaceutical drugs and new industrial materials.
Amadeus Capital Partners invested in both these companies at the seed stage, with Armour sitting on the boards as director, helping them grow and move towards the next investment round with new investors.
Xampla and Riverlane are two of over 30 portfolio companies currently on the investor’s books. In its 23-year lifetime, Amadeus has invested in more than 180 deep tech companies. Some have become extremely successful, such as Bristol-based Graphcore, most recently valued at $2.77bn, and others not so, but that, as Armour points out, is part of the inherent risk that comes with venture capital investing. Having an extensive portfolio of investments is how you mitigate that risk.
So what do venture capital investors look for in new investment opportunities?
“It’s generally three overarching factors,” says Armour. “Strength of the leadership team, the disruptive nature of the product and finally, the size of the market the product is being sold into. We want to know that there’s the potential for each investment to reach “unicorn” status and become a category leader.”
Right now, there’s a strong market and investor interest in deep tech companies like River lane and Example. Yet, investors are aware that these companies require more time and considerably more funding before reaching their potential. “Deep tech investing can take considerably longer than other companies, but investors know to be patient because the prize at the end is so high.”
Source ICAEW