What's next for private markets

C3a4b7e7e08dde3cf6a5967cd2375ecc?s=47 David Kelnar
April 20, 2020

What's next for private markets

What’s next for start-ups, scale-ups and the investors
 who support them?

We analysed thousands of datapoints from prior recessions, spoke with dozens of leading investors and distilled market dynamics we see – to explain developments and deliver a roadmap for navigating what’s to come.

David Kelnar - Managing Director, Numis

C3a4b7e7e08dde3cf6a5967cd2375ecc?s=128

David Kelnar

April 20, 2020
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  1. What’s next for private markets What’s next for start-ups, scale-ups

    and the investors who support them? We analysed thousands of datapoints from prior recessions, spoke with dozens of leading investors and distilled market dynamics we see – to explain developments and deliver a roadmap for navigating what’s to come. April 20th 2020 Growth Capital Solutions
  2. WHAT’S NEXT FOR PRIVATE MARKETS: HIGHLIGHTS Highlights: 1. COVID-19 will

    result in fewer investments into new companies and a mix shift to follow-ons, as investors’ portfolios demand attention and capital. Appetite for new investment is diverging according to firms’ risk tolerance, fund cycle and ‘dry powder’. 2. Among investors, selectivity is displacing shock. Investors are evaluating which companies’ fundamentals are aligned for post-crisis advantage. Structural growth opportunities with weakened incumbents and robust unit economics can remain attractive despite air pockets in short-term demand. Greater selectivity will widen the gulf between industry leaders and challengers. 3. Markets are refocusing on fundamentals. Validating customer acquisition costs, lifetime values and payback periods has become critical for companies’ planning and investors’ attention. 4. Start-ups and scale-ups should beware the enterprise ‘shoe to drop’. COVID-19 has caused radical, immediate and visible changes in consumer behaviour. Changes in corporate behaviour will be less sudden but as significant. 5. After 2008, rounds shrank 20%-40% and remained smaller for 4+ years. Rounds reduced by investment stage. In 2020 deals will shrink 25%-50% as large ‘offence’ rounds are replaced with ‘defence’ raises and capital becomes scarcer and more expensive, with later stage rounds more affected. (continued overleaf) What’s next for start-ups, scale-ups and investors who support them? We analysed thousands of datapoints from prior recessions, spoke with dozens of leading investors and distilled market dynamics we see – to explain developments and deliver a roadmap for navigating what’s to come. 1. Growth Capital Solutions
  3. WHAT’S NEXT FOR PRIVATE MARKETS: HIGHLIGHTS Highlights (continued): 6. After

    2008, valuations declined 15%-40% and took three years to recover. Valuations compressed progressively by stage. In 2020 we expect greater — 25%-50% — compression given greater public market declines and the tripling (Series A, B and C) or quadrupling (Series D) of valuations in the run up to 2020. Extraordinary companies can sustain a pricing premium. 7. Total investment in start-ups and scale-ups followed a multi-year ‘U-shaped’ decline and recovery after 2001 and 2008. In 2020– 2021 private capital will likely exhibit a ‘U-shape’ again, weighed by the ‘denominator effect’ — but extensive ‘dry powder’ and long term rotation into private markets will lessen the depth of the pullback. 8. ‘COVID Convertibles’ and ‘Insider+’ rounds will dominate in 2020. Frequently, priced rounds with multiple new leads will be replaced with convertible structures comprising insiders and, perhaps, a new investor with whom the Company or shareholders have some familiarity. 9. Customer acquisition, talent and rent will become cheaper in 2020, increasing companies’ capital efficiency. The cost of impressions on Facebook has declined 53% in 30 days. 10.For ‘disruptors’, beyond accelerating digitisation COVID-19 will re-shape adoption, catalyse the ‘home economy’, evolve public/ private engagement and accelerate the decline of incumbents. 11.Accelerated adoption, weakened incumbents, enhanced access to talent and more discriminating capital will bolster leading disruptors’ comparative advantage, presenting opportunity. 12.While fewer, less valuable exits will weigh on current fund returns, venture capital investment made through the downturn will likely deliver enhanced returns given lower valuations, greater capital efficiency and faster adoption of innovation. Average multiples from in-year investments increased by 1.25 and 1 turn following 2001 and 2008 respectively. 2. Growth Capital Solutions
  4. FOUNDER RECOMMENDATIONS Founder Recommendations: 1. If your company is a

    beneficiary of COVID-19, in a deteriorating funding environment raise capital while you can attract investors’ attention and ‘dry powder’. 2. Best-in-class companies with strong structural growth stories, weakened incumbents and solid unit economics can attract investors’ interest even if short-term performance is impaired by COVID–19. 3. With capital allocation to private markets set to reduce, be proactive in seeking capital. Better to be at the front of the queue than the back of a stampede. 4. Appetite for new investments is diverging according to firms’ risk tolerance, portfolio obligations and ‘dry powder’. Seek targeted introductions and guidance regarding individual partners’ preferences. 5. Evaluate re-cutting capital raising plans to replace large ‘offence’ rounds with tactical ‘defence’ raises. Expect like-for- like round sizes to shrink 20%-40%. 6. Investors are refocusing on fundamentals. When raising capital highlight robust unit economics and consider a plan for achieving positive cash flow without further funds. (continued overleaf) 3. Growth Capital Solutions
  5. FOUNDER RECOMMENDATIONS Founder Recommendations (continued): 7. After 200% (Series A/B/C)

    and 300% (Series D) run-ups in recent years, re-adjust valuation expectations. While extraordinary companies can sustain premium pricing, anticipate compression given 25%-50% general declines in private market valuations. 8. Defer pricing, save time and reduce risk by structuring rounds as ‘COVID Convertibles’ (convertible structures specifying a percentage discount to a future round). Evaluate ’Insider+’ participation (existing shareholders plus one new investor with whom you or your shareholders have a relationship). 9. With the cost of capital increasing for two to three years, re-evaluate investment initiatives. Not all undertakings that produced a return one month ago will do so going forward. 10.B2B companies should beware the enterprise ‘shoe to drop’. Lengthening sales cycles are a pre-cursor to changes in corporate behaviour that are less sudden but as significant as changes in consumer activity. 11.Take advantage of reduced customer acquisition costs (Facebook CPMs -53% in 30 days), cheaper talent and falling rents to extend runway, boost capital efficiency and gain share. 12.Beyond ‘accelerating digitisation’, evaluate how COVID-19 will reshape your company’s fundamentals  — from user demographics to the positioning of incumbents - and present opportunity. 4. Growth Capital Solutions
  6. – COVID-19 will result in fewer investments into new companies

    and a mix shift to follow-on, as: ✦ a greater proportion of investors’ time and capital is required to support existing portfolio companies ✦ caution displaces confidence ✦ building relationships and undertaking diligence becomes more challenging without physical meetings ✦ corporate venture capital retrenches 1. EXPECT FEWER NEW DEALS AND A SHIFT TO FOLLOW-ONS VCs have re-allocated time from new investments to portfolios 0% 100% 80% 60% 40% 20% Percentage of venture firms Pre–COVID-19 Post–COVID-19 Evaluating new deals Working with portfolio companies Other Source: NfX, Numis Growth Capital Solutions “We spent the last month focusing on the portfolio.” “There’s an inevitable refocusing of time spent.” “We and other investors are very focused on our portfolios.” 5. Growth Capital Solutions
  7. – Following the 2001 and 2008 crises, private market deal

    volumes declined sharply. – After 2001 deal volumes followed an ‘L-shape’, gapping down at all stages and remaining at pre-crisis (and pre-bubble) levels for at least four years. – Early stage volumes were more impacted initially. In 2002, Angel/Seed transactions plummeted 85%, Series A over 70% and Series B over 75%. 1. EXPECT FEWER NEW DEALS AND A SHIFT TO FOLLOW-ONS 6. Source: CBInsights, Numis Growth Capital Solutions Early Stage After 2001 deal volumes followed an ‘L’-shape 1997 0 250 500 750 1,000 1,250 1,500 1998 1999 2000 2001 Deal volume 2002 2003 2004 2005 0 50 100 150 200 250 300 Deal volume Later Stage 1997 1998 1999 2000 2001 2002 2003 2004 2005 Growth Capital Solutions
  8. – After 2008 deal volumes followed a ‘V-shape’. – While

    4Q08 activity declined quarter-on-quarter, volumes quickly reasserted through 2009. Deal volumes in 2009 typically exceeded 2007 and 2008. Angel & Seed activity recovered immediately and powered to new multi-year highs. 1. EXPECT FEWER NEW DEALS AND A SHIFT TO FOLLOW-ONS 7. Seed / Angel 2006 2007 2008 2009 2010 Series A After 2008 deal volumes followed an ‘V’-shape 2006 2007 2008 2009 2010 Series B 2006 2007 2008 2009 2010 Series C 2006 2007 2008 2009 2010 Series D 2006 2007 2008 2009 2010 0 50 200 150 100 250 Deal volume 0 50 200 150 100 250 300 Deal volume 0 50 200 150 100 Deal volume 0 50 25 125 100 75 Deal volume 0 50 40 30 60 20 10 80 70 Deal volume Growth Capital Solutions Source: CBInsights, Numis Growth Capital Solutions
  9. – With the 2020 recession deeper, broader and likely longer

    than precedents, new investment will decline significantly in the short term. Eight in ten investors expect to reduce capital deployment into new investment (NfX). – Appetite for new investment is also diverging according to firms’ risk tolerance, portfolio obligations, fund lifecycle and amount of ‘dry powder’ — necessitating targeted introductions and guidance regarding individual investors’ preferences. 1. EXPECT FEWER NEW DEALS AND A SHIFT TO FOLLOW-ONS 8. “The public messaging is ‘we’re open for business’. The reality is different. We’re taking meetings but it’s clear that risk has come off.” “Volumes of new investments are definitely reducing.” “A lot of funds are open for follow-ons, but for new deals there hasn’t been a lot of activity.” “There’s a slowdown for a period of time.” Capital deployment into new investment is reducing 0% 0% 40% 35% 30% 25% 20% 15% 10% 5% 20% 40% 60% 80% 100% 125% Percentage of venture firms Adjusted rate of capital deployment into new investments (prior = 100%) Growth Capital Solutions Source: NfX, Numis Growth Capital Solutions
  10. 1. EXPECT FEWER NEW DEALS AND A SHIFT TO FOLLOW-ONS

    – In the medium term, transaction volumes will be bolstered by two factors absent in 2001/2008: unprecedented levels of ‘dry powder’ and the rise of the European ecosystem. – In the last 24 months Accel, Atomico, Balderton and Index alone raised $7.4B for venture and growth investment. – Since 2010, the number of European ‘unicorns’ has grown 10x (reflecting value creation potential outside the US) while Europe’s share of US/European investment has doubled by value and tripled by volume. 9. Europe’s share of investment has doubled by value and tripled by volume 10% 20% 30% 40% 14% 14% 17% 18% 18% 22% 16% 21% 23% 22% 26% 31% 33% 33% 36% 13% 11% 13% 13% 15% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 European share of US + European investment (Private, VC-backed companies) Share of value Share of volume The number of European ‘unicorns’ has grown 10x 2010 0 40 80 120 160 2011 2012 2013 2014 2015 2016 2017 2018 2019 European ‘Unicorns’ Sources: CBInsights, Numis Growth Capital Solutions “In the UK and Europe the amount of capital is unprecedented.” “90% of the Series A market is sitting on dry powder.” Growth Capital Solutions
  11. – After moving in lock-step, sub-sector performance is public markets

    is diverging - with variance between daily sector changes quadrupling since mid-February. – In private markets, similarly, selectivity is displacing shock. 2. SELECTIVITY IS REPLACING SHOCK 10. Sector performance is diverging 0% 10% (10)% (20)% (30)% (40)% (50)% 20% 30% 2 Jan 20 9 Jan 20 16 Jan 20 23 Jan 20 30 Jan 20 6 Feb 20 13 Feb 20 20 Feb 20 27 Feb 20 5 Mar 20 12 Mar 20 19 Mar 20 26 Mar 20 2 Apr 20 % change in EV / Sales Remote working Enterprise software Infrastructure Security Payments Analytics Travel Financial software Consumer internet Variance between sector valuations is increasing 0.0% 02 Jan 20 0 9 Jan 20 16 Jan 20 20 Jan 20 30 Jan 20 0 6 Feb 20 13 Feb 20 20 Jan 20 27 Jan 20 0 5 M ar 20 12 M ar 20 19 M ar 20 26 M ar 20 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6% 1.8% 2.0% % Standard deviation (in variance between daily sector changes in EV/Sales) 2 A pr 20 “It’s a flight to quality. If you’ve only got a couple of bullets, you want the deals you do to be attractive.” Growth Capital Solutions Source: Numis Growth Capital Solutions Source: Numis Growth Capital Solutions
  12. 2. SELECTIVITY IS REPLACING SHOCK – It’s understood that select

    sub-sectors (grocery, telemedicine, remote working, e-sports) are beneficiaries of COVID-19 while others (travel, hospitality, leisure, recruitment, physical retail) are impaired. – But investors are asking: post-crisis, which companies’ fundamentals are (re-)aligned for absolute and relative advantage? – Best-in-class companies with: strong or strengthened structural growth stories; incumbents whose decline is accelerated by COVID-19; robust unit economics; and scope for returns on investment amidst a higher cost of capital are proving attractive irrespective of short-term ‘air pockets’ in demand’ — and vice versa. – Greater investor selectivity will amplify companies’ comparative (dis)advantage, leading to a wider gulf between leaders and laggards. 11. “There will be winners in a post-COVID recessionary-type environment.” “We’re trying to distinguish between what is a permanent behavioural shift and what’s temporary.” “We’re asking: where do long-term fundamentals remain the same but there is good value available now.” “Places like travel…is where incumbents are most vulnerable. Some of these categories are good places to hunt.” “I’m not interested in the ‘hotter’ sectors. I’m interested in good quality names that have been difficult to engage with earlier or overpriced.” Growth Capital Solutions
  13. 3. INVESTORS ARE REFOCUSING ON FUNDAMENTALS – With capital scarcer

    and more expensive, focus on unit economics has increased. – Validating the accuracy and viability of customer acquisition costs, lifetime values and payback periods has become critical for companies’ planning and investors’ attention. – Within ten days of the crisis, six in ten growth growth investors somewhat or strongly believed that scale-ups should re-prioritise profitability over growth. – Given a lower probability of attracting new investors in future, many investors are requiring loss-making portfolio companies to re-plan for cashflow breakeven at the expense of growth. 12. “Investors are less…chasing the heat.” “We’re looking for more capital efficient growth than we have in the past.” % respondents Strongly disagree Strongly agree “Generally, companies should re-prioritise profitability over growth.” Growth Capital Solutions Source: Numis Growth Capital Solutions
  14. 4. BEWARE THE ENTERPRISE ‘SHOE TO DROP’ – COVID-19 has

    caused radical, immediate and visible changes in consumer behaviour. Changes in corporate behaviour will be less sudden and apparent but nearly as significant. – Sales cycles will extend and budgets will freeze. Contract renewals will be fewer and fiercer. Payment cycles will expand and concern about suppliers’ viability will increase. – While the feedback cycle from boardroom to supplier can be less immediate than from consumer to provider, start-ups and scale-ups should anticipate pronounced changes in corporate behaviour. 13. “There will be an enterprise shake-up.” “People think software and SaaS are defensible, but that’s just because procurement managers’ credit cards haven’t been shut off yet. The bigger cuts are being made first.” “A lot of the spend adjustment that companies have made have been made at the highest level — but haven’t yet trickled down to other parts of the business. Growth Capital Solutions
  15. 5. ROUND SIZES WILL SHRINK 25%-50% – Following the 2008

    crisis, rounds shrank 20%-40% and remained smaller for 4+ years. – Rounds shrank with stage. In 2009 deals were smaller by: 6% (Angel/Seed); 22% (Series A); 31% (Series B); 39% (Series C); 36% (Series D). – In 2020 deals will likely shrink 25%-50% as: ✦ large ‘offence’ rounds to catalyse growth are delayed to 2021 and replaced with interim ‘defence’ rounds; ✦ capital becomes scarcer and more expensive; ✦ more companies rely on existing shareholders; ✦ companies’ cash requirements are reduced. – The blended impact will likely increase with stage, with the shift from ‘offence’ to ‘defence’ rounds disproportionately affecting later stage companies. 14. After 2008, round sizes shrank with stage -10% -5% -20% -15% -30% -25% -35% -40% -45% 0% 2009 2010 2011 2012 Median round size relative to 2008 Series A Seed/Angel Series B Series C Series D “A lot of round are getting smaller.” Growth Capital Solutions Source: CBInsights, Numis Growth Capital Solutions
  16. 6. VALUATIONS WILL COMPRESS 25%-50% – After 2008, valuations declined

    c. 15%-40% and took three years to recover to pre-crisis levels. – Valuations compressed with stage, reflecting increasing proximity to public market peers. – A year after the Global Financial Crisis valuations had compressed: ✦ 14% (Series A) ✦ 19% (Series B) ✦ 35% (Series C) ✦ 36% (Series D) 15. After 2008, valuations declined 15-40% 10% -10% -20% -30% -40% 0% 2008 Series A Median valuation vs 2007 Series B Series C Series D 2009 2010 2011 Growth Capital Solutions Source: CBInsights, Numis Growth Capital Solutions
  17. 6. VALUATIONS WILL COMPRESS 25%-50% – In 2020-2021 we expect

    valuations to compress 25%-50% given: ✦ the aggressive run-up in private company valuations between 2013 and 2019 – when Series A, B and C valuations nearly tripled and Series D valuations quadrupled (overleaf); ✦ greater public market declines, reflecting the greater depth, breadth and probable duration of the 2020 recession. 16. “We’ve seen valuations come down 25%-50%.” “We’re seeing down 25% at least, down to 40% — a couple down 50%.” “20%-40% down on expectations.” Growth Capital Solutions Source: NfX, Numis Growth Capital Solutions
  18. 6. VALUATIONS WILL COMPRESS 25%-50% 17. Valuations have grown 2.4x

    to 3.6x since 2013 $0m $10m $20m $30m $40m $50m $60m $70m $80m Median round valuation ($m) $0m $50m $100m $150m $200m $250m $300m $350m $400m Median round valuation ($m) 2013 26.5 31.5 38.8 37.4 40.3 59.8 68.0 2014 2015 2016 2017 2018 2019 Series A Series B 100.1 140.6 174.9 137.0 207.5 318.5 360.0 Series C Series D 2013 2014 2015 2016 2017 2018 2019 54.0 55.6 73.8 80.0 83.7 115.0 140.0 9.3 11.7 13.5 15.0 15.0 20.0 22.5 Source: Cambridge Associates, Numis Growth Capital Solutions “The last five years weren’t normal — they were exuberant. This isn’t understood on the entrepreneur side.” – Between 2013 and 2019 Series A, B and C valuations nearly tripled and Series D valuations nearly quadrupled. “The valuation run up before the GFC was less than the lead up to today.” Growth Capital Solutions
  19. – Extraordinary companies can sustain premium pricing in the context

    of broader market declines. – Later stage valuations will likely be impacted more than earlier stage pricing, given closer proximity to public market comparables and less formulaic dilution assumptions. – Volatility in valuations in 2020 will be considerable as private markets find their new level. 6. VALUATIONS WILL COMPRESS 25%-50% 18. “You’ll see a bifurcation. For the best opportunities there will still be auctions.” “There will still be some companies that get premium valuations.” “Valuations get tougher at the growth stage because we read across to public markets.” “There’s a lot of volatility in valuation.” “Post-2008 it took several quarters for valuations to stabilise.” Growth Capital Solutions
  20. – After 2001 and 2008, total investment in start-ups and

    scale-ups followed a multi-year ‘U-shaped’ decline and recovery. Capital allocation is slower to adjust than transaction volume. – Later stage capital recovered faster — two years after 2008, compared with three years for earlier stage. 7. INVESTMENT IN PRIVATE MARKETS WILL FOLLOW A U-SHAPE 19. Private market investment followed a ‘U-shape’ after prior crises $25,000m $20,000m $15,000m $10,000m $5,000m $0m 2001 1998 ..... 2002 2003 2004 2005 Capital invested Early Stage (Angel, Seed, A, B) Later Stage (C, D) $2,000m $4,000m $6,000m $8,000m $10,000m $12,000m $14,000m $16,000m $18,000m $0m 2007 2008 2009 2010 2011 Capital invested Early Stage (Angel, Seed, A, B) Later Stage (C, D) Growth Capital Solutions Source: CBInsights, Numis Growth Capital Solutions
  21. – In 2020–2021 private capital will again exhibit a U-shape,

    as investment deployment slows and due to the ‘denominator effect’: with a fixed 5%-10% of managers’ portfolios allocated to private markets, reductions in broader asset values reduce allocations for private markets. – Extensive venture ‘dry powder’, ongoing secular rotation into private markets and a pending UK Government start-up support scheme (likely, matching venture capital investment with state-backed convertible debt) will lessen the depth of the pullback. 7. INVESTMENT IN PRIVATE MARKETS WILL FOLLOW A U-SHAPE 20. “Private market allocations will have some reassessment.” “There’s a slowdown for a period.” “In the UK and Europe the amount of capital is unprecedented.” “90% of the Series A market is sitting on dry powder.” Growth Capital Solutions
  22. 8. EXPECT ‘COVID CONVERTIBLES’… – With revenue forecasts more uncertain

    than ever, pricing rounds is challenging and time-consuming. – For many companies, reduced runways necessitate earlier, more urgent investment than planned. – We see and anticipate a further mix shift to ‘COVID Convertibles’ — convertible structures specifying a percentage discount to a future, priced round. – Discounts of 25%-30%, which are higher than pre-COVID levels, will be common. ➡ Deferring pricing to 2021 will delay visibility into ownership and dilution. ➡ With COVID-19 increasing divergence in companies’ performance, 2021 will crystallise increased competitive advantage for some and weakness in others. 21. “Rounds will look funky — convertible structures, warrants, different bits and pieces.” Growth Capital Solutions
  23. 8. …AND ‘INSIDER+’ ROUNDS - A greater proportion of rounds

    will comprise existing investors only, given: ✦ a greater proportion of investors’ time and capital allocated to existing portfolios; ✦ financings timed for necessity rather than choice; ✦ the difficulty of building relationships and conviction without physical meetings; ✦ the challenge of diligencing prospects without ‘boots on the ground’. - ‘Insider Plus’ rounds, comprising current shareholders and a new shareholder close to the founder and existing investors, will become more common. - For the fewer new or ‘offence’ rounds, new names on the cap table are still expected. 22. “I’m seeing Insider+ rounds all over the shop.” “Top up rounds are mainly insider money.” “New rounds, or big rounds, need externals.” Growth Capital Solutions
  24. 9. CHEAPER CUSTOMER ACQUISITION, TALENT AND RENT WILL BOOST CAPITAL

    EFFICIENCY – Customer acquisition, talent and rent will become cheaper in 2020, increasing companies’ capital efficiency. – Advertising expenditure is highly correlated with GDP; advertising spend shrank 25% following 2008. – Today’s recession, which is greater in depth and breadth, is reducing companies’ acquisition cost. – In 30 days, the cost of impressions and click- throughs on Facebook, Instagram and Messenger have fallen 53% and 46% respectively. 23. Source: Eka Ventures, ONS, Google, Numis Growth Capital Solutions The cost of Facebook advertising has halved in 30 days 0.00 0.50 1.00 1.50 2.00 2.50 3.00 1 M ar 20 3 M ar 20 5 M ar 20 7 M ar 20 9 M ar 20 11 M ar 20 13 M ar 20 15 M ar 20 17 M ar 20 19 M ar 20 21 M ar 20 23 M ar 20 25 M ar 20 27 M ar 20 29 M ar 20 31 M ar 20 2 A pr 20 4 A pr 20 6 A pr 20 8 A pr 20 10 A pr 20 Global CPM, Cost per 1,000 impressions (in $USD) Advertising spend is correlated with GDP 0 (5) (10) (15) 5 10 y/y change (%) 2013 2012 2011 2010 2009 2008 2014 2015 2016 2017 2018 y/y change in GDP y/y change in advertising spend Growth Capital Solutions
  25. – Tech salaries are correlated with general job vacancies. A

    150% rise in digital tech vacancies (2015-2018) sustained increasing pay. – After 2008 vacancies declined 36%. In the last 30 days, sadly over 25,000 employees have been laid off from 260 startups. Overall more US jobs (15m) have been lost in the last three weeks  than in 18 months of the 2008 recession. – From 2020, less expensive talent will increase private companies’ capital efficiency. – Further, rents will fall as lower employment and more remote working longer term reduce demand for office space — providing a further boost to private companies’ return on capital. 9. CHEAPER CUSTOMER ACQUISITION, TALENT AND RENT WILL BOOST CAPITAL EFFICIENCY 24. Job vacancies declined 36% following the 2008 crisis 0 100 200 300 400 500 600 700 800 900 Jan-Mar 2006 Jul-Sep 2006 Jan-Mar 2007 Jul-Sep 2007 Jan-Mar 2008 Jul-Sep 2008 Jan-Mar 2009 Jul-Sep 2009 Jan-Mar 2010 Jul-Sep 2010 Jan-Mar 2011 Jul-Sep 2011 Jan-Mar 2012 Jul-Sep 2012 Jan-Mar 2013 Jul-Sep 2013 Jan-Mar 2014 Jul-Sep 2014 Jan-Mar 2015 Jul-Sep 2015 Jan-Mar 2016 Jul-Sep 2016 Jan-Mar 2016 Jul-Sep 2017 Jan-Mar 2017 Jul-Sep 2018 Jan-Mar 2018 UK Vacancies (000) Tech salaries are correlated with demand for roles 680 700 720 740 760 780 800 820 840 54 53 52 51 50 49 48 47 46 45 44 2015 2016 2017 2018 Job vacancies (thousands) Median digital technology salary (£, thousands) Job vacancies Median technology salary “We expect people to have made their first wave of cost reductions. Be prepared for the second. People haven’t felt the second and third.” Growth Capital Solutions Sources: Eka Ventures, ONS, Numis Growth Capital Solutions
  26. 10. COVID-19 WILL RESHAPE BEHAVIOURS AND DISRUPTORS’ ENVIRONMENT Beyond accelerating

    adoption of e-commerce, videoconferencing, virtual consultations and e-sports, COVID-19 will: 1. Reshape, as well as accelerate, adoption of online services (groceries, healthcare consultations, meetings, gaming). For Echo, an online prescription fulfilment service, users aged ≥65 grew from 20% to 50% of the Company’s user base in three weeks. Having accessed online shopping or consultations, seniors are unlikely to revert. 25. Users aged ≥65 increased from 20% to 50% in three weeks for Echo (online prescription fulfilment company) 0% 23 Mar 16 Mar 9 Mar 2 Mar 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100% Unique patients Below 18 18 to 24 25 to 34 35 to 44 45 to 54 55 to 64 65 or above Source: Echo, Numis Growth Capital Solutions “There will be winners in a post-COVID recessionary-type environment.” Growth Capital Solutions
  27. 10. COVID-19 WILL RESHAPE BEHAVIOURS AND DISRUPTORS’ ENVIRONMENT 2. Catalyse

    the ‘home economy’: – populations with new experience of at-home functionality and autonomy embrace new models of commerce, food and entertainment. e.g. For the first time, Universal is making films available to stream on the same day they appear in cinemas. 3. Reshape public/private engagement and procurement dynamics — as COVID-19 highlights: – the value of state support combined with private logistics – the possibility of accelerated procurement e.g. NHS England issued a 48 hour tender for immediate provision of online primary care 4. Accelerate the decline of offline incumbents - many of which will struggle to survive additional financial challenges posed COVID-19 and are less capable of adapting service offerings to emerging consumer demands. 26. “Places like travel are painful right now — but also where incumbents are most vulnerable and where buyers will commit to efficiency gains.” Growth Capital Solutions Accelerated adoption, weakened incumbents, enhanced access to talent and more discriminating capital will bolster leading disruptors’ comparative advantage, presenting opportunity.
  28. 11. RETURNS FROM PRIVATE MARKET INVESTMENT WILL INCREASE – Venture

    capital investment through a downturn delivers increased returns. – After 2001/2008, realised multiples from in-year investments increased  by 1 (2008) to 1.25 (2001) turns. – Lower valuations, leaner companies, less expensive talent, cheaper marketing and accelerated dislocation increase capital efficiency, adoption and returns. 27. – Returns from private capital invested in 2020–2022 will likely exceed those of recent years, as: ✦ entry points reduce 20%-50% following a near- tripling (Series A/B/C) or quadrupling (Series D) of valuations in 2014-2019 ✦ companies’ marketing and salary costs will fall after years of increases ✦ capital outflows from private markets reduce competition – New fund managers, without portfolios and with lower blended entry prices, are particularly well positioned. Source: Correlation Ventures, Numis Growth Capital Solutions Venture capital investment through a downturn delivers increased returns 0.0X 0.5X 1.0X 1.5X 2.0X 2.5X 3.0X 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 U.S. venture mean realised multiple by financing year Financing Year “It’s been startling how little competition for deals there is.” Growth Capital Solutions
  29. Disclaimer: Numis Growth Capital Solutions is provided by Numis Securities

    Limited (“Numis”). Numis is authorised and regulated by the Financial Conduct Authority (Firm Reference Number 144822). Numis has not independently verified the information contained herein, nor does Numis make any representation or warranty, either express or implied, as to the accuracy, completeness or reliability of the information contained in this document. The information in this document should not be regarded by the recipient as a substitute for the exercise of its own judgment. The receipt of this document by any recipient is not to be taken as constituting the giving of investment advice by Numis to that recipient, nor to constitute such person as a client of Numis. To the fullest extent permitted by law Numis does not owe any duty to the recipient whether in contract, in tort (including negligence), under statute or otherwise with respect to or in connection with the recipient’s use of this document. Numis specifically prohibits the redistribution of this material and accepts no liability whatsoever for the actions of third parties in this respect. This report has been prepared and approved by Numis Securities Limited ("Numis"), a securities dealer in the United Kingdom. Numis is not a registered brokerdealer in the United States. The author is not registered/qualified as a research analyst with FINRA. Numis Growth Capital Solutions We enable the world’s most ambitious companies to achieve their ambitions. Our team delivers strategic advice, trusted relationships with global investors and best-in-class transaction expertise. Get in touch at numis.com / d.kelnar@numis.com to see how we can accelerate your journey.