Few sectors have escaped unscathed by the global pandemic, but there are those that have fared much worse than most, the obvious cases being leisure, hospitality, transport operators and retail.

Research firm Beauhurst track Covid-19 impact in high growth businesses, and they put eHealth and EdTech as those sectors to have benefitted most with ranked 34% ‘Potentially Positive’, from the pandemic. While the tech sector largely sat in the middle with 54% of companies experiencing a ‘low impact’, only 13% were able to capitalise on the situation.

Uncertainty has ebbed and flowed, presenting an inconstant and difficult-to-predict environment for all businesses. Things looked dire in March, by June the mood began to change with promises of normality by September, but this was short-lived with the country returning to uncertainty by mid-October as case numbers rose.

Winning sectors
COVID-19 has inevitably had an impact on where investors are choosing to channel their funds. As The Times emphasises, there has been a shift towards investment in healthcare, in part due to the disastrous impact COVID-19 has had on even the most developed nations, highlighting the importance of innovation in healthcare.

Beauhurst has identified four areas which, for private companies, have seen rising investment as a result of the pandemic, the first being video conferencing. Whilst newer services, such as Hopin (an online platform which allows hosting of live events at a large scale), have seen some investment – Hopin has recently received a $2.1 billion valuation, just 8 months since its founding – established companies such as Zoom have remained dominant in the market. eHealth and EdTech have, unsurprisingly, seen increased investment. This rise has been stronger in eHealth, which has seen 11 and 15 deals monitored by Beauhurst in Q2 and Q3 respectively.

EdTech on the other hand has not seen as large an increase as expected – possibly due to reopening of schools, resulting in less home learning – with 12 deals at a combined value of £14.4 million in Q2 and 8 at a combined value of £7.2 million in Q3, compared to 10 in Q3 2019.

Finally, companies that facilitate ‘community sharing’ have seen increased investment – Farmdrop, a business allowing consumers to buy food directly from its source, received £6 million in equity fundraising in June. This trend, according to Beauhurst, likely came as a result of stockpiling at the start of the pandemic, resulting in “calls for people to become more community-minded”.

The biggest losers
As uncertainty hit the market, investors began favouring later stage deals. A lot of investment activity was focused on follow-on funding for existing portfolio companies, in order to help see them through the impact of COVID-19. On top of that trend, weary of risk, investors shied away from earlier stage deals and backed more mature business.

This left seed-stage businesses out in the cold. Whilst the number of seed investments was steady between Q4 2019 and Q2 2020, they fell by 20% between Q2 and Q3 2020.

The number of newly registered businesses remained fairly stable up to and including Q2 2020. In Q3 2020, however, the number fell 32%.

This spells trouble for the next generation of growth businesses. Without the capital they need to move from the concept state, many great ideas will never get off the ground – and that is a shame for the UK who holds a strong international reputation for innovation.

2020 was a tumultuous year for growth businesses. The number and value of fundraisings have dropped since 2019, a decline that started in March 2020. However, while the number of deals has dropped, the average deal value has risen. And things are looking up: vaccination roll out promises change is on the horizon – good news for all private businesses; with the end of the tax year approaching, investors will be looking to take advantage of tax savings through the EIS and SEIS schemes; and the government has rolled out several programmes to help early stage businesses. But it is worth noting the shift in the direction of funds. Investors have been focusing on portfolio companies, as well as more mature companies.

So, while the sun is rising for private businesses, we may have a long wait before we can experience the full dawn.