The value of VC investment in UK businesses remained steady in Q2 2022, as global VC investment dropped to a six quarter low, according to new research by KPMG.
• UK businesses attracted £7.2 billion ($8.6) of venture capital (VC) investment in Q2 2022 as global VC investment dropped to a six quarter low
• Fintech remained the UK’s hottest area of investment in Q2 2022, while health and biotech also continued to attract attention
• London continued to attract the lion’s share of VC investment at £5.4 billion with just £1.4 billion going to businesses outside of the capital
The value of VC investment in UK businesses remained steady in Q2 2022, as global VC investment dropped to a six quarter low, according to new research by KPMG.
KPMG’s Venture Pulse report found that UK businesses attracted £7.2 billion ($8.6bn) in VC investment during April–July 2022, down on the £8.5 billion ($10.2bn) raised in the opening quarter of the year. VC investment for the quarter was up however, year on year, with £7 billion ($8.4bn) raised in the same period last year.
More than £15.7 billion ($18.8bn) of VC funding has been invested in UK businesses in the first half of 2022, up on the £14.6 billion ($17.5bn) raised in the first half of last year.
However, deal volumes were down significantly, with 667 deals completed in the latest quarter – the lowest volume of UK VC deals recorded by the report since Q2 2018. Overall, the volume of VC deals completed in the UK in the first half of 2022 is down by over 11% on the first half of last year (1768 versus 1568) as increasingly cautious VC investors renew their focus on late-stage deals and take longer to conduct due diligence on their investments.
VC funding levels globally saw a decline in Q2 2022, falling to £100 billion ($120bn) from £138/$165.3 billion in Q1 2022) – a six quarter low – as the war in Ukraine, high levels of inflation, and rising interest rates shook global markets.
Fintech remained the UK’s hottest area of investment in April– July 2022, led by a £522 million ($626m) raise by SumUp and a £260 million ($312m) raise by GoCardless. Health and biotech also continued to attract attention, in part because of their resilience to inflation compared to other sectors, whilst those businesses championing ESG continue to whet investor appetite including the £266 million ($318.75m) raise by cleantech firm Newcleo.
The bulk of UK VC investment (£5.8/$6.9 billion) in Q2 2022 benefited businesses in London, with £1.4 billion ($1.7bn) going to businesses outside of the capital, including the £84 million funding of Manchester based Freedom Fibre to accelerate the roll-out of FTTP to over two million premises in the Northwest. There was also a £49.8 million Series D funding for Brighton based MPB, the world’s largest reseller of photo and video kit to further international expansion into US and European markets. Meanwhile, Corporate VC investment in UK businesses fell from £4 billion ($4.8bn) in Q1 2022 to £2.2 billion ($2.7bn) in Q2 2022.
A total of 97 new unicorns emerged globally in Q2 2022, with fintech companies representing more than a third. The Americas accounted for over half of the world’s new unicorns, whilst Europe saw 18 new unicorns come from eight different countries (UK, Germany, Finland, Sweden, Norway, Netherlands, Switzerland, Israel), reflecting the huge geographic diversity of the European VC market. Asia also saw quite a geographic spread of new unicorns, with 17 coming from seven jurisdictions in Q2 2022.
While unicorn births remained steady during the quarter, there are concerns that down rounds could cause unicorns with $1 billion valuations to lose their status. Unicorns valued at exactly $1 billion could consider giving significant concessions to investors in order to retain their unicorn status.
Key Takeaway | GPs: Given the number of geopolitical and macroeconomic uncertainties affecting the VC market globally, there will likely continue to be downward pressure on valuations, which could lead to decreasing levels of investment.
