Post-Brexit optimism: UK VC market bounces back up after a slow Q4 2016

UK venture capital investment in Q1 2017 rose to $1.02 billion after dropping below $1 billion in Q4 2016, according to KPMG’s Venture Pulse. Here's why.

Despite fears of continued Brexit-related uncertainty, the UK VC market seems to have rebounded in Q1 this year, according to KPMG’s Venture Pulse study. Total VC investment rose in the first quarter of 2017 while Europe as a whole saw a marginal decrease to $3.4 billion. Reflecting the global trend, in the UK investment value was up but deal numbers were down. Investors backed larger, later stage deals as they looked to de-risk and fund predominantly proven ideas and startups that have demonstrated early traction.

At the same time, Corporate VC (CVC) participation in the UK continued to grow. The last quarter saw 39 per cent of VC deals involve some corporate participation, this number has grown steadily over the last two years and is up 2 percent on Q4 2016. Again, the deal count does not always correlate with more money, CVC deal value has waxed and waned over the last two years but overall, corporates are certainly showing an increasing interest in the UK.

“UK VC investment activity is at robust levels and this should be a cause for optimism in 2017.  It’s clear that, despite a dynamic political and economic environment, capital remains available for those UK start-ups that are able to articulate and demonstrate their value proposition,” Patrick Imbach, co-head of KPMG Tech Growth said.

“Whilst investor caution still prevails, startups in financial services, life sciences and biotech have been especially successful in attracting VC investment; we’ve seen very strong fundraising from Currency Cloud, Funding Circle and Atlas Genetics. Tech giants are also clearly confident in post-Brexit Britain with Apple and Snap having chosen London for their international headquarters. I expect 2017 UK VC investment to continue at a healthy level.”

Looking into 2017, the report suggests a sense of cautious optimism in the VC market globally. Many expect the IPO market to open up, which would mean greater liquidity, which may have a positive impact on the VC market as a whole. The days of companies being able to burn cash are gone for the foreseeable future, according to the report. Rather, investors will likely continue to focus on those companies that have an efficient operating structure, strong business model and defined path to profitability.

Q1 2017 global highlights

  • Global VC investment rose from $23.8 billion in Q4’17 to $26.8 billion in Q1’17, a solid increase buoyed by a number of $100 million+ mega deals.
  • The increase in funding was strongly affected by a resurgence in mega-deals, including Airbnb’s $1 billion+ Series F round, and Grail’s $914 million Series B raise.
  • Globally, the Americas led VC investment, accounting for $17.8 billion.
  • Global median deal size at early VC financing stages continued to increase, with median Series B funding hitting $14 million, Series A $5.7 million, and seed stage $1.4 million.
  • Pharmaceuticals and biotechnology saw an explosion in the percentage of overall VC investment in Q1’17, with companies raising $3.9 billion during the quarter across 188 financings, compared to the $11.4 billion raised throughout 2016.
  • The number of deals with corporate venture participation slid for 2 consecutive quarters but given the overall decline in venture financing volume, the percentage of overall financings in which they’ve participated hit its highest level since early 2007.
  • After reaching a 12 quarter low in Q4’16, the number of global unicorn financings rose slightly in Q1’17 to 14.
  • California-based companies (i.e. Airbnb, Grail, SoFi, and Instacart), and China-based companies (i.e. NIO, Ofo, Hive Box Technology and Kuaishou Technology) dominated the top 10 global VC deals rankings during the quarter. Ola in Bangalore, India and Mobike in Singapore rounded out the list.

Praseeda Nair

Praseeda Nair

Praseeda was Editor for from 2016 to 2018.

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