Some of the heat has come out of Europe’s hotspot for venture capital and fintech investment. VC investment into UK start-ups dropped by almost a third (30%) last year as global economic turmoil prompted a more cautious approach, according to KPMG’s latest Venture Pulse report.
- VC investment into UK start-ups dropped by a third in value last year, says KPMG
- Levels began to tail off in H2 2022 amid global pullback from late-stage funds
- Strong pockets of activity remain in UK sustainability, gaming, and health and biotech
Some of the heat has come out of Europe’s hotspot for venture capital and fintech investment.
VC investment into UK start-ups dropped by almost a third (30%) last year as global economic turmoil prompted a more cautious approach, according to KPMG’s latest Venture Pulse report.
The decline is part of a global retrenchment among VC funds – particularly at the late-stage, with investment in both the Americas and Asia dropping for the fourth straight quarter in Q4 2022 and Europe experiencing a third quarter of declining investment.
In the UK, a bumper £29.5bn ($36bn) of venture capital was invested into start-ups in 2021 but levels started to tail off in the latter half of 2022 as the ongoing conflict in Ukraine, rapidly rising interest rates, high levels of inflation, and concerns about a global recession all combined to drive VC investment down, and the year ended at £22.7 bn ($27.7 bn). Deal volume also fell with the number completed in 2022 (3,213) down by 19% on the 3,830 deals completed in the previous year.
However, though a significant decline on the previous year, total UK VC investment for 2022 still represented the second highest level since KPMG’s Pulse began in 2014. And although many sectors saw a fall in VC investment, several pockets of strong activity remained, including sustainability, gaming, and health and biotech.
A number of fintech sub-sectors also continued to attract VC investors and corporates — including regtech, cybersecurity, and B2B solutions — while others, like BNPL (buy now pay later), struggled. With new regulations expected in the UK during 2023, the BNPL space could see smaller start-ups either fail or snapped by larger players over the next few quarters, said the report. Consumer-focused start-ups will see the most strain this year, it added.
London continued to attract the lion’s share of VC investment flowing into the UK last year, with over £16.4bn ($20bn) raised across 1,770 deals, said KPMG. Deal value into the UK regions meanwhile fell by £3bn year-on-year, with £6.2bn ($7.6 billion) raised over 1,443 deals during the year, it added.
Key Takeaway | VC investment into UK start-ups remains well above pre-pandemic levels but some sectors now look vulnerable amid a global pullback