25 September 2013

Luck of the Irish struggles to stop likely angel investment decline in Q3

Western Europe has experienced mixed fortunes in 2013 to date with regard to angel investment, according to Zephyr, the M&A database published by Bureau van Dijk. The first quarter of the year declined from Q4 2012 in terms of value, dropping 10 per cent from EUR 90 million to EUR 81 million. However, Q2 went some way to making up for this, with investment of EUR 131 million recorded during the period. In spite of this promising showing, Q3 looks likely to drop, thereby continuing the series of peaks and troughs. From the beginning of June until the 18th September, there were 56 deals targeting companies based in Western Europe worth EUR 86 million. Since there are only 11 days left of the quarter, results look unlikely to reach the same levels as in Q2. The same is true globally, where in Q3 to date 253 transactions with an aggregate consideration of EUR 844 million have been recorded, compared with 384 worth EUR 1,247 million from April to June.

In September so far there have been 10 European angel deals worth a combined EUR 28 million. However, only seven of these had disclosed values, which ranged from EUR 290,000 to a high of EUR 13 million. The top transaction by consideration involved UK-based text prediction software developer TouchType securing funding from parties including Cambridge Capital, Octopus Investments and Index Venture Management. Individuals such as Jon Craton, Nick Hynes and Carl Uminski also took part, as well as a number of undisclosed individuals and angels. It is notable that this deal accounted for 46 per cent of all angel investment in Western Europe during September to date. Second place was filled by Swedish home food delivery service Mathem i Sverige, which brought in EUR 9 million from GP Bullhound and Karl-Johan Persson, in addition to other shareholders and investors.

In fifth place was a notable deal involving an Irish target. Dublin-based NewsWhip Media tracks news from about 5,000 English-language sources and analyses social media data and responses on each to assess their overall popularity. The company received a seed round of EUR 800,000 on 12th September, with investors including Enterprise Ireland, the AIB Seed Capital Fund, Shane Naughton, Hal Philipp and Hannes Smárason. Prior to the injection, NewsWhip said it would use its next round to support product development and marketing and upon closing it said its main focus will continue to be its Spike platform, which chief executive Paul Quigley described as  a story-finding tool designed to make journalists’ jobs easier. In addition to the funding round, the company simultaneously announced plans for geographic expansion with the opening of a new office in New York City. NewsWhip was founded in 2010 by Quigley and chief technology officer Andrew Mullaney.

The deal is by no means the first time angel investors have ploughed funds into a data processing company, nor is it the largest investment. According to Zephyr, the top ranked deal by value of this type since January 2006 came just two months ago and involved Brazilian online logistics contracts and services comparison platform Sontra bringing in EUR 240 million from Mola Factory and undisclosed individuals. Second place was worth less than half this amount, as Fab.com, an online discovery platform operator, secured EUR 112 million from a range of investors, including Lars Hinrichs, Itochu Corporation, Menlo Ventures and Andreessen Horowitz.

The majority of the top deals continue in this vein, with the lion’s share involving US targets. The highest European data processing angel investment in the period targeted a German firm. Small business process mobile and online application platform operator NumberFour, which is headquartered in Berlin, raised EUR 29 million from individuals Andreas von Bechtolsheim, Jerry Yang, Klaus Hommels, Lars Hinrichs and Simon Levene, as well as T-Venture, Allen & Company, Lakestar and Index Venture Management. NumberFour was founded by Marco Boerries in 2009 and has additional offices in Hamburg and California. It claims its offering helps more than 200 million people to run their businesses.

To sum up, as we near the end of Q3 a drop in the aggregate value of angel investment in Europe looks likely. However, as shown by historical deals, blockbuster transactions involving angel investors are not unheard of, so there is still a chance that one or two deals could propel values level with, or even higher than, those recorded in Q2. September to date has accounted for investment of EUR 28 million across 10 transactions. Almost half of this is attributable to the TouchType deal, but more investments of this size in the next few days could possibly prop Q3’s results up so it can stand level with previous quarters.

© Zephyr