- According to PWC Venture Capital survey 36% of VCs see a 20% price reduction, 30% see a 30% reduction, and a further 30% see >30% price reduction
- Series B investors are more bullish than early-stage investors
- View from corporates is huge financial and operational
distractions which extends sales cycles unless the need is critical
- M&A is happening, cash-rich companies are taking advantage of the 20-30% drop in price. Corporate venture appetite is tied entirely to business performance
- One of the many cashflow management nuggets included "Burn fat, not muscle!" and develop a cash culture
2. PwC
Agenda
1. Introductions
2. VC survey â flash results
3. Impact on corporates
4. Key principles of cash management
5. UK government support schemes
April 2020Investment & Corporate Insights
2
3. PwC
Introductions
Glen Waters
PwC | Raise
glen.waters@pwc.com
Edward Reid
PwC | Raise
edward.a.reid@pwc.com
James Heath
PwC | Raise
james.x.heath@pwc.com
Gary Saunders
PwC | Reward &
Employment
gary.saunders@pwc.com
April 2020Investment & Corporate Insights
3
4. PwCPwC
PwC Raise supports fast growth businesses raise
institutional investment from ÂŁ1m through to ÂŁ30m
We provide support by:
⢠Getting you âinvestor
readyâ with your pitch
deck, financial model and
business plan;
⢠Facilitating warm
introductions to our
investor network; and
⢠Supporting the term sheet
negotiations
Our support is provided
through a cohort programme
at Series A, with bespoke
1-2-1 support for
larger raises through Raise+
200+
institutional investors
750+
warm intros
20+
countries
represented
45+
term sheets
FCA
regulated
London and Berlin,
6 cohorts to date
programmes run
every quarter &
1-2-1 service year
round
50+
active deals
April 2020Investment & Corporate Insights
4
5. PwC
⢠2019 broke records: with
ÂŁ15.2bn of UK venture
investment, 2019 saw the
highest investment amounts on
record
⢠There has been phenomenal
growth in amounts invested
over the last decade, with Seed
and Series A values stabilising
between ÂŁ1.0bn-ÂŁ1.2bn and
ÂŁ3.9bn-ÂŁ4.0bn respectively
The venture market grew exponentially throughout
the last decade
Equity investment in the UK: 2011-19
Source: Beauhurst, total UK equity fundraising (announced and unannounced) 2011-2019
0.3 0.4 0.5 0.7 0.9 0.9 1.1 1.2 1.10.9 1.2 1.3
1.9
2.2 2.5
3.4 3.9 4.0
0.3
0.5 0.5
0.6
0.7
1.0
1.1
1.7 1.7
0.9
1.1 0.9
1.7
2.4
2.2
6.7 4.5
8.5
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
2011 2012 2013 2014 2015 2016 2017 2018 2019
Noofinvestments
EquityInvestment(ÂŁbn)
Under ÂŁ1m ÂŁ1m-ÂŁ10m ÂŁ10m-ÂŁ20m ÂŁ20m+ Investment volumes
April 2020Investment & Corporate Insights
5
6. PwC
⢠While 2019 was a record year
for investment, deal volumes
have been gradually
declining from 6.2k in 2018 to
5.9k in 2019 with this
trend continuing in Q1 2020
pre-covid.
⢠This is always a troubling sign
as it suggests that investors are
becoming more risk averse and
investing in a more selected
portfolio, meaning some of the
most innovative starts up may
not get funding.
2.3
3.1
2.8
3.0
4.1
4.4
3.3
3.5
3.3
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020
Noofinvestments
EquityInvestment(ÂŁbn)
2018: 6,227
investments
ÂŁ11.2bn invested
2019: 5,876
investments
ÂŁ15.3bn invested
What trends did we see in the venture market before
COVID-19?
Venture investment in the UK: 2018-19
Source: Beauhurst, total UK equity fundraising (announced and unannounced) Q1-18 to Q1-20
April 2020Investment & Corporate Insights
6
7. PwC
Survey: We surveyed:
⢠84 leading venture capital and
venture debt providers that
operate in the UK
⢠This was comprised of 42 VCâs,
6 Corporate Ventures, 6 Family
Offices, 24 VCT/EIS funds and 6
venture debt providers
⢠The survey was run between
25th and 27th March
Our investor survey
50%
29%
7%
7%
7%
VC
VCT/EIS
Corporate venture
Family office
Venture debt
Breakdown of the 84 investor participants by type
We asked our institutional investor network about their response to COVID-19
April 2020Investment & Corporate Insights
7
8. PwC
73%
26%
1%
Both â current
portfolio and
new opportunties
Significant
Impact
New investment
opportunities only
Our investors told us...
⢠90% believe there will
be impact on
investment activity;
23% believing the
impact will be
significant
⢠73% are focusing on
both their current
portfolio and new
investment
opportunities
⢠26% stated they are
focusing on their
current portfolio only
Where will your attention be focussed
during COVID-19?
Is COVID-19 having an impact on your
investment activity or plans?
What impact will COVID-19 have on investment activity?
67%
23%
10%
Partial impact
Significant
Impact
No impact
73%
26%
1%
Both â current
portfolio and
new
opportunties
Current
portfolio only
New
investment
opportunities
only
April 2020Investment & Corporate Insights
8
9. PwC
Our investors told us...
⢠72% believe deal
volumes will be highly
or significantly lowered
⢠43% expect a high
impact to ticket sizes,
with 14% expecting a
significant impact
⢠However, 42% believe
a minimal to medium
impact will be felt
6%
21%
15%
43%
14%
Minimal
Low
Medium
High
Significant
To what extent do you think COVID-19
will negatively impact investment
ticket sizes?
2%
11%
15%
54%
18%
Minimal
Low
Medium
High
Significant
To what extent do you think COVID-19
will negatively impact venture
deal volumes?
What will the impact be on deal volumes and ticket sizes?
April 2020Investment & Corporate Insights
9
10. PwC
Our investors told us...
⢠90% believe valuations
will take at least a
20%+ haircut to
pre-COVID-19 levels
⢠The Health and
EdTech sectors will
present the biggest
opportunity
⢠The Real Estate and
Hardware sectors will
be the most adversely
affected
30%
77%
6%
25%
31%
4%
79%
30%
27%
4%
33%
Consumer
EdTech
Energy
Enterprise
FinTech
Hardware
Health
IoT
Media
Real Estate
Social Impact
% of investors
What sectors do you believe COVID-19
will present an opportunity to?
4%
6%
36%
30%
24%
No
change
10%
haircut
20%
haircut
30%
haircut
30%+
haircut
What impact do you think COVID-19 will
have on valuations?
How will this impact valuations, and what sectors
may find opportunity in the chaos?
April 2020Investment & Corporate Insights
10
11. PwCPwC
How will COVID-19 impact different investor types?
Family
Offices
VC
funds1
3
Corporate
Ventures
VCTs and
EIS funds2
4
April 2020Investment & Corporate Insights
11
12. PwC
â The UK government recently committed ÂŁ250m towards the ÂŁ500m âFuture Fundâ investing in high-growth private companies to support the
UK tech sector through the crisis
â The government will match private investment of up to ÂŁ5m per company in the form of a convertible loan note
How will the âFuture Fundâ impact the VC market?
How does it work? What is our view of the government
support?
⢠The Future Fund will provide government loans to UK-based
companies ranging from ÂŁ125k to ÂŁ5m, subject to at least equal
match funding from private investors
⢠These convertible loans may be a suitable option for businesses
that rely on equity investment and are unable to access CBILS
⢠The scheme will be delivered in partnership with the British
Business Bank
Qualifying criteria
⢠Your business must be based in the UK;
⢠Can attract the equivalent match funding from third-party private
investors and institutions; and
⢠has previously raised at least £250k of equity investment from
third-party investors in the last 5 years
⢠We see the move to support the UK tech sector as positive
⢠Commercial terms are broadly proportionate to risk
⢠The full details of the scheme have not been published and
ease of access for early-stage businesses will be crucial
⢠Areas of potential improvement include reducing the equity
requirements, reduction of the redemption premium and giving
companies a veto over re-sale of the loan
⢠Areas which will require clarification, include:
â EIS / SEIS eligibility;
â Whether the investor or company applies; and
â The status of non-institutional investors
12
April 2020Investment & Corporate Insights
13. PwCPwC
What are corporates thinking?
What is my
business
doing?
1
13
Commercial
partnerships2
Acquisition
or not?3
Corporate
ventures4
April 2020Investment & Corporate Insights
13
14. PwC
⢠Cross group reviews of budget/actual financial performance and position
⢠What are my employees saying and doing?
⢠What are my competitors doing?
⢠Similar voices to investors; sales cycles likely to increase
⢠Virtual sales: a different skillset
⢠When thereâs a need thereâs a way: Deliveroo & M&S
⢠Current market appetite based on the current performance of the corporate
⢠CVC support for their portfolio vs venture
⢠DD levels in corporate venturing historically higher â this will be a continued upwards tren
⢠State of current deals
⢠Time to buy with valuations 20% down. Cash rich will cash in on synergetic start-ups
⢠Flipped: is it the right time for startups to buy assets?
What are corporates thinking?
What is my
business doing?1
Commercial
partnerships2
Acquisition
or not?3
Corporate
ventures4
April 2020Investment & Corporate Insights
14
15. PwCPwC
Key principles of cash management
Understand
your cash
baseline and
position
1
Build an
accurate
and flexible
forecast
2
Identify cost
& working
capital levers
3
Implement
cost control
measures
4
Optimise
working
capital cycle
5
Develop
a âcash
cultureâ
6
April 2020Investment & Corporate Insights
15
16. PwC
⢠Ensure and assess the reliability of the underlying data and information
⢠Review recent budget/actual financial performance and position
⢠Quantify your current âfixedâ periodic cash performance and define your current runway
⢠Build a flexible, rolling 13 week forecast for variable scenarios in order to understand
âworst-caseâ vs âbest-caseâ and allow for continuous scrutiny
⢠Categorise cashflows on a granular basis (transaction type, per customer/supplier) to allow
for detailed analysis
⢠Adjust fixed periodic performance for âknown one-offsâ, and risk assess transactions
⢠Categorise cash inflows / outflows as fixed or variable
⢠Identify and prioritise cost lines to consider options â stop, reduce, change or delay
⢠Identify underperforming receivables/payables positions
Understand your baseline, build a forecast and identify
options
Understand your cash
baseline and position1
Build an accurate
and flexible forecast2
Identify cost
& working capital
levers
3
April 2020Investment & Corporate Insights
16
17. PwC
⢠Critically assess cost reduction options â burn fat, not muscle
⢠Temporary cost reduction options (e.g. furlough, recruitment freezes) should provide
best opportunity
⢠Consider all options available â many costs are not truly âfixedâ
⢠Use the opportunity to critically assess you cost base and update your growth strategy
⢠Identify key customer / supplier relationships and negotiate terms (including overdue invoices)
⢠Provide incentives/discounts for early payment (e.g. early payment settlements)
⢠Consider debt factoring and other third party options
⢠Re-baseline inventory requirements for new market environment
⢠Review and assess your cash position and performance weekly
⢠Identify cash and working capital focused KPIâs and continuously monitor
⢠Engage with your stakeholders up front
⢠Communicate and educate your workforce â establish collective responsibility
Implement changes, and develop a âcash cultureâ
17
April 2020
Implement cost control
measures4
Optimise working
capital cycle5
Develop a
âcash cultureâ6
Investment & Corporate Insights
17
18. PwC
Critical to any decisions you take will be a forensic examination of
options, your own cash pressures and thorough cost/benefit analysis
18
Working capital management
⢠Negotiate terms with key customers/suppliers to match
inflows/outflows as much as possible
⢠Identify key underperforming accounts and put into action
recovery plans
⢠Consider debt factoring and other third party options
⢠Communicate with banking providers and current investors
⢠Assess all payment deferrals being offered by HMRC
⢠Accelerate R&D tax claims
April 2020COVID-19 | Impact on UK Venture Investment
Cost reduction
⢠Delay planned capex and assess product development roadmap
⢠Temporary freeze on marketing spend
⢠Negotiate with landlords / co-working spaces
⢠Recruitment freezes
⢠Temporary compensation sacrifices
⢠Stop all discretionary spend (e.g. training, any travel unaccounted
for)
⢠Other operating costs â can you stop / reduce / change / delay
19. PwCPwC
Job Retention Scheme - information to help support you and your employees:
⢠Who can claim
⢠Employees you can claim for
⢠Payroll considerations
⢠Agreeing to furlough employees
⢠Before you claim
⢠When your employees are on furlough
⢠Practicalities
⢠Guidance v âDirectionâ
Accessing HMRC schemes
19
R&D claims
⢠Acceleration of filing claims & deadlines
⢠HMRC process in the current climate
⢠Going concern requirements
⢠Pause of investment in R&D
⢠Loss carry back
⢠State Aid and SME R&D Credits
Capital allowances and other reliefs
⢠Historical capital allowances claims
⢠Business rates and cash grants
⢠Short life assets
⢠Payable tax credits
⢠Maximise Research Development Allowances & Patent Box Claims
April 2020Investment & Corporate Insights
19
20. PwC
The impact of COVID-19 on the EIS rules
Temporary measures sought
⢠The rate of income tax relief for EIS and SEIS be raised
to 60% until such time as the Government see fits to reduce
back to the current 30%/50% level.
⢠The growth and development requirements are relaxed
⢠For investments made before 1 April 2021, that
requirements of focusing on the following are
disapplied:
⢠Maximum risk finance investments
⢠The permitted maximum age requirement
⢠The financial health requirement
⢠Connection â directors excluded
⢠Connection â existing shareholdings requirement
Potential impact of changes
⢠If the rate of income tax relief is raised to 60%, only 40% of funds
invested will be at risk
⢠Loss relief would change to an effective rate of 18% (45% of non-
relieved investment)
⢠The changes would further incentivise investors to deploy capital into
EIS funds due to the limited downside risk: up to 78% of the initial
investment would be risk free
⢠If other requirements are relaxed (e.g. growth and development,
financial health requirements) this will allow start-ups to access
finance more easily, as well as to use funds to shore up working
capital, rather than having to focus on growth
⢠The Enterprise Investment Scheme Association (EISA) are lobbying the government to enhance the benefits and relax rules on EIS investment
⢠The biggest change sought is around increasing the rate of income tax relief to 60% (from 30%) for EIS funds
⢠The Venture Capital Trust Association (VCTA) are proposing similar temporary changes to the VCT rules
⢠This could potentially unlock significant resources for early-stage companies, as retail investors will be further incentivised by the limited downside risk
20
21. Thank you
pwc.com
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