Investment surge in Q2 puts UK back on top of Venture Capital market in Europe

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Credit: Shutterstock.com/ Linda Bestwick

Venture Capital (VC) investment in the UK gained strength in Q2’18, propelling it back to the top of the VC market in Europe according to Venture Pulse Q2 2018, a quarterly report on global trends published today by KPMG Enterprise.

A total of £1.55 billion of Venture Capital was invested in UK businesses across 244 deals in Q2 with late-stage financings responsible for the majority of the capital invested. This compares to just over £1.1 million invested in Q1 of 2018.

The UK accounted for six of the top ten European deals done in the last three months, including Revolut (£188 million), Freeline Therapeutics (£90 million), CMR Surgical (£75 million), Liberis (£61 million), Culture Trip (£60 million), and Crescendo Biologics (£53 million).

In Europe, a total of £4.2 billion was raised across 631 deals but London-based companies attracted the most capital with Q2 witnessing the third-highest quarterly sum of VC invested ever within London, against a backdrop of a slowly diminishing number of Venture deals closed.

Commenting on the figures, Patrick Imbach, Head of KPMG’s Innovative startup practice said: “Hot on the heels of a blockbuster 2017, the UK is still seeing very healthy sums of VC invested as  investors continue to feel under pressure to deploy funds, which in turn is driving a higher investment volume and higher valuations.

“The continued uncertainty in the macropolitical and macroeconomic environment does not appear to be substantially hampering appetite for investment in UK startups. Despite a trend in the number of deals continuing to drop, not only in the UK but also in Europe as a whole, we can see that investors are still focused on later stage investments in businesses with a proven track record and market traction.

“We are seeing new groups of companies emerging, in particular AI first and blockchain businesses. These have kicked off new VC life cycles with increasing venture rounds to come over the next few quarters and years. Already now, AI businesses are raising solid early- and mid-stage funding rounds. Subject to successful R&D and commercialisation, they will surely attract even more funding going forward.”

Artificial intelligence continued to be hot area of investment in all regions of the world in Q2’18, while fintech, autotech, cybersecurity and biotech were also seen as key priorities. Investment in these areas are also expected to gain significant momentum over the remainder of the year.

During Q2’18, the UK announced a massive $1 billion deal to put the UK firmly on the map in terms of AI innovation. The deal included both new government funding for AI research, and private sector investments. Under the deal, for instance, Japanese VC firm Global Brain and Canada-based VC firm Chrysalix will both locate their European headquarters in the UK and will invest a total of £145 million in UK-based AI and robotics startups.

Patrick Imbach observed: “AI is absolutely critical to the future success of the UK economy, particularly around the Government’s Industrial Strategy. The UK has a track record in creating some of the most innovative AI businesses in the world; however, we are seeing too many of these businesses exit too early.

“For the UK to be a world leader in AI, it is imperative to get more funding and infrastructure in place to help these businesses stay independent longer in order to grow further. It is also important to ensure that the UK remains an attractive destination for AI talent from across the world.”

Despite London taking the lion’s share of Venture Capital investment so far in 2018, there has been an uptick in investment for businesses across the whole of the UK.

With around 200,000 jobs in tech businesses across Manchester, Leeds, Newcastle, Sheffield, Liverpool and Hull, overseas investors are increasingly attracted to the healthtech, biotech and fintech sectors developing in the Northern Powerhouse. Already in 2018, there have been a number of significant cross-border tech deals, such as the £1bn acquisition of Leeds-based Callcredit by TransUnion.

The global IPO market gained momentum in Q2’18. The total capital raised by all the VC-backed IPOs globally has soared to £7.3 billion, already moving past 2016’s low point of £4.8 billion. Although still far from previous highs, such a sum does signify that well-prepared companies with strong equity stories can still debut on public markets and perform well.

With the success of the Adyen IPO, a number of maturing unicorns such as Deliveroo in the UK will keep an eye out for a window of opportunity for a capital market listing over the next few quarters. Global M&A activity was also robust, led by the £5.6 billion acquisition of GitHub by Microsoft and Walmart’s £14 billion acquisition of Flipkart.