Savills’ Workthere division is predicting an uptick in venture capital investment in tech in the latest economic downturn.
Looking back at investment during the global financial crisis, Savills believes that the current situation could be an opportunity for start-ups and scale-ups.
During the GFC, venture capital investment in the UK remained resilient for the first year, before falling by 22% in 2009. However, despite the fall, 2009 venture capital investment remained at elevated levels compared to the few years prior to the GFC and was more than double that seen in 2004.
The top five fastest growing verticals were all related to tech, particularly healthtech, nanotechnology, marketing tech, mobility tech and cleantech.
Cal Lee, head of Workthere, said: “Recessions often cause a shift in risk aversion. You could assume that investors would turn their attention away from early-stage start-ups and focus on later-stage VC investments with longer track records. However, the UK data from 2008-09 shows that 2009 saw the proportion of investment going into early-stage start-ups in the UK near all-time highs as risk appetites shifted.
“Investors started writing a greater number of smaller cheques in order to diversify their portfolios and the average UK deal size fell by 29% in 2009 to £1.8m. In the battle of track record versus diversification, the latter won. For investors with available capital, recessions can be a golden opportunity for value investing.”
This potential growth in venture capital investing and the launch or scaling up of businesses in the tech sphere could also be a boost for flexible offices, said Savills.
“Start-ups with great ideas and great leaders will raise money to grow and most will need office space to have a productive, collaborative and happy workforce,” said Lee. “Millions of people around the world have already lost their jobs as a result of Covid-19, which is a huge tragedy, but for some this might prove the perfect time to start a business…The GFC gave birth to a number of start-ups and scale-ups that changed the world and, for all the devastation that has been caused by the pandemic, the current situation could be an opportunity for innovation and change.”
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