Venture capital (VC) investment in the UK saw a slight increase in Q3 2016, bucking the global trend which saw a 14 percent fall, according to Venture Pulse, the quarterly global report on VC trends published jointly by KPMG International and CB Insights.
UK VC-backed start-ups raised $834M in funding across 110 deals, up from $757 and 108 deals in Q2 2016 reversing a series of quarterly declines since Q4 2015. The report found that while the implications of Brexit may well have long-term ramifications on the UK and European VC landscape as a whole, the current uptick in deal activity suggests that investors are not yet making any sudden changes to their investment strategies.
Commenting on the findings, Patrick Imbach, Co-Head of Tech Growth at KPMG, said:
“The increase in VC investment shows that despite Brexit, investors are still committed to funding high quality UK start ups. While many VCs are naturally being more considered about where they choose to invest, the fact remains that they are still putting their cash to work and back those fast-growing British businesses which have high potential and good equity stories.
“The full impact of Brexit on the UK economy and the VC market in particular is expected to become clearer over the next two to three years as the UK negotiates the terms of its exit from the EU. For start-up companies that operate in a dynamic and rapidly changing environment, this means Brexit is not likely to be their utmost concern at the moment – although their concern may become more pronounced as we near an actual exit.
“However, a number of VC investors are beginning to evaluate Brexit impacts on a case-by-case basis and are often looking for companies to address any implications from Brexit when pitching for new investment.”
London accounted for over half (59) of the deals done in the UK in the last quarter, followed by Cambridge which accounted for nine deals. The top three UK deals seen during the quarter were Deliveroo $275M Series E, Darktrace $65M Series C and Artios Pharma $33.2M Series A.
While current UK investors do not appear to be fazed by Brexit, other European VC hubs like Berlin, Paris and Dublin are using the referendum vote as an opportunity to attract potential companies and VC investors to their communities with the hope of growing their existing tech hubs and ecosystems.
The Global picture
After a furious cheque-writing phase through early-to-mid 2015, global funding in Q3 2016 fell with USD$24.1 billion invested across 1,983 deals globally, representing a very slight deal increase from Q2 2016, but a 14 percent decline in total quarterly funding and the lowest quarterly funding total since Q3 2014. The slowdown has been attributed to cautious investors, as major economies continue to face economic uncertainty and start-up companies experience a difficult exit environment.
Funding also trended downwards across the major venture hubs of North America, Europe, and Asia. The number of deals sunk lower in Asia and North America, though they rose in Europe. Europe also continued to see robust seed-stage activity, while seed deal shares dropped significantly in both North America and Asia.
Anand Sanwal, CEO of CB Insights, commented:
“Before everyone starts saying the sky is falling, it’s worth noting that a bit of sobriety is a good thing. 2015 funding levels were irrationally high with a new unicorn being birthed every 3rd day as investors were keen to force-feed perceived start-up winners with cash. That was not sustainable or healthy. We’re seeing a reset in deal activity and mega-rounds but the levels still remain very high relative to historical levels. A renewed focus on unit economics and sustainability versus growth at all costs is not a bad thing, especially in Asia and North America as both markets got ahead of themselves. The re-introduction of rationality that we are seeing is positive.”
*Note: all figures cited are in USD
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KPMG Press Office
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CB Insights +1 212 292 3148
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