Venture capital (VC)-backed companies in the UK raised more than US$1.1 billion across 94 deals in Q2 2015, bringing the total raised by such companies to almost $2.25 billion for the first half of 2015, according to Venture Pulse Q2 ’15, the first in a quarterly VC report series from KPMG Enterprise and VC data company CB Insights.
The figures mean the UK accounted for approximately one-third of all venture capital activity in Europe in Q2 2015, with key transactions including a $500m corporate minority investment in London-based OneWeb and a $150m Series E for Funding Circle.
Across Europe, VC funding spiked dramatically during the first half of 2015, with a total of $6.6 billion invested. This puts Europe on pace to surpass 2014 totals by nearly 60 percent. In particular, the second quarter saw a significant rise in late-stage mega-deals, with the average deal size almost doubling from $26.3 million in Q1 2015 to $52.2 million in Q2 2015. Four mega-deals sized $100m or more contributed to this spike in late-stage deal size, including a $526m Series G round for digital music service Spotify.
Ben McDonald, partner, KPMG Enterprise, commented: “Both in the UK and Europe, a number of factors are driving a dramatic surge in VC activity, including low interest rates compelling investors to seek avenues of greater return, strong participation by corporate investors, and new capital sources including hedge funds, mutual funds and sovereign wealth funds. Taken together, these factors mean that VC-focused investment capital is more available than ever before.”
Ben McDonald continued: “While many analysts are predicting a slight decrease in venture capital investment in the months ahead, we believe the strength of such fundamental growth drivers have created strong conditions for continued activity. Even with a possible slow-down, 2015 is shaping up to be a record year.”
Zeal for tech sector shows no sign of abating
Tech continues to dominate the investment landscape, with internet and mobile deals accounting for 63 percent of all investments to European VC-backed companies in Q2 2015. Healthcare VC deal share in Europe was also up slightly, accounting for 12% of all deals versus 10% in the first quarter of the year.
Barry Carter, head of technology for KPMG Deal Advisory, said: “In the wake of high-profile listings such as that of Sophos and other mega funding deals, there’s no doubt that the UK tech sector is the place to be right now, with disruptive technologies and applications in particular spurring sharp interest and investment from the VC community. Indeed, the growth of new on-demand platforms continues to be particularly robust. This trend, which escalated with Uber and Airbnb, is now expanding into new verticals and new geographies.”
He continued: “An important factor underpinning the appeal of the sector for investors is the drive across Europe to foster ecosystems that create the perfect conditions for technology companies to thrive. Many of these communities are working to duplicate the model they have seen on the west coast of the US and here in the UK.
“For example, as London has continued to capitalise on its strong start-up community and culture, this has rippled across the rest of the country – making it no surprise that the tech hubs of Brighton and Cambridge ranked alongside London as the top three destinations for VC investment in the UK.”
Other key findings of the research include:
‘Unicorn’ investment grows across the globe
Q2 2015 was a banner quarter for ‘unicorns’ – venture capital backed companies with valuations in excess of $1 billion. Q2 saw the number of new unicorns more than double to 24 over Q1’s 11 new unicorns. This included 12 new unicorns in the United States and nine in Asia. Among the quarter’s new unicorns were Zenefits, Oscar Health Insurance and MarkLogic.
Corporate investing remains strong
Globally, corporate investors continue to play a prominent role in having participated in almost 25 percent of total deals in the past four quarters. In Asia, corporate investors participated in 32 percent of financing deals to Asian VC-backed companies during Q2-2015. North America and Europe also saw meaningful contributions from corporate investors with 23 percent and 22 percent of VC-backed company financings, respectively, involving corporates.
North America leads - but all regions wage strong gains
Regionally, North America, unsurprisingly, continues to lead global venture capital activity. With $37.5 billion invested in the first half of the year, funding is on pace to surpass 2014’s high by more than 25 percent.
In Asia, a mix of traditional venture capital sources mixed with hedge funds, private equity and corporates led to $15 billion invested into VC-backed companies in the first two quarters of 2015, putting Asia on track for 45 percent growth year-over-year.
Anand Sanwal, CEO of CB Insights, concluded: "Increasingly, VC-backed companies are staying private longer, and the best companies have a menagerie of funding options. This helped buoy Q2 2015 funding to levels last seen during the dot com era. Notably, the strength was global - from Berlin to Bangalore and the Bay Area to Beijing. While the funding environment is certainly frothy, we are seeing start-ups rapidly re-shape markets ranging from transportation to hospitality to healthcare."
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Katy Broomhead, Senior PR Manager, KPMG
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About CB Insights
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This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.