UK follows global drop in Venture Capital financing | KPMG | UK

UK follows global drop in Venture Capital financing - though unicorns spotted in Scotland

UK follows global drop in Venture Capital financing

Venture Capital (VC)-backed businesses in the UK raised US$1.264 billion, across 105 deals, in Q1 2016, representing a 14 percent drop against the previous quarter, though a five percent increase by value on the same period last year.


Office Senior Partner, Head of KPMG Enterprise for the UK

KPMG in the UK


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These are the findings of Venture Pulse, the quarterly global report on VC trends published jointly by KPMG Enterprise and CB Insights.


The most significant deals seen in the UK this quarter included the $192m Series C funding round for Skyscanner; making the Edinburgh-based business Scotland’s second unicorn, joining FanDuel in the elite club of private businesses valued at $1 billion plus.


The $86m Series C backing for MISSION Therapeutics and the $60m Series B investment in Autolus were also notable Q1 transactions behind the 36% share of European financing claimed by UK companies. 


Ben McDonald, head of KPMG Enterprise in the UK, said: “Given the liquidity in the funding market and the relatively healthy investor appetite for backing exciting businesses, in the longer term context, I expect to see significant funds being deployed throughout 2016, despite the quarter to quarter drop our report highlights. It is likely that uncertainty surrounding the UK’s relationship with Europe is having some effect on markets and this should probably be expected to impact next quarter’s data also. 


The fact that two of the UK’s three largest deals are in the health tech sector - both university spin outs – highlights continued demand for a share in this more resilient part of the market.” 


Across the continent, one key deal, Spotify’s $1 billion funding round, meant Europe bucked the global slowdown by value, with 338 deals raising $3.5 billion. This represents a nine percent increase on Q4 2015’s $3.2 billion across 370 deals. 


Among the major markets, Europe had the highest share of deals at the seed stage – 35 percent of all deals - which may suggest good things for the market as these companies mature, although seed deal volume overall dropped dramatically. The two largest markets within Europe – the UK and Germany – saw funding declines. 


Patrick Imbach, head of KPMG’s High Tech Growth Team, commented on the demands made by VC investors. He said: “UK start-ups seeking to attract investment need to provide increasingly defined plans for how they will achieve their targets, and a roadmap for profitability, in the context of somewhat sceptical investors. In fact we are seeing demands for guarantees and protections from VC funders being called upon to a greater extent. Looking over to mainland Europe, this was certainly a feature of Spotify’s $1 billion investment.


”Globally, sharp falls in Asian markets drove an eight percent drop in investment which totalled  US$25.5 billion across 1,829 deals, marking the second-straight quarter in which investors dialed back VC funding and activity.


Other key global findings of the research include:

  • Q1 saw fewer mega-round deals (those over $100 million in size) than previous quarters - 37 in total versus 40 in the prior quarter. 
  • Aggregate deal activity fell to 1,829 deals, the lowest volume of deals since Q2 2013 – and down from the 1,907 deals seen in Q4 2015. The downward trend in deals volume was driven primarily by a slowdown in seed deals globally.
  • At five, the number of new unicorn companies fell by more than half compared to Q4 2015, when there were 13 - and plummeted significantly compared to Q2 and Q3 2015 when 25 new unicorns were born in each quarter. 


Anand Sanwal, CEO of CB Insights, commented: “This is the new reality. It’s harder to get financed at all stages, harder to raise massive rounds of financing, and harder to get the much coveted unicorn valuation. Versus years past, it’s worth noting that the level of funding in Q1 2016 is still quite healthy. But we’re now at a point where startups and investors who got drunk on easy money and big valuations are now sobering up.”

- Ends -


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