Venture capital investment in UK scale-ups hit a record £5.1bn in the first three months of 2021, nearly double the £2.7bn raised a year ago.
A total of £15.1bn was raised across Europe in the first three months of this year, which means the UK accounted for over one third of it.
And the UK accounted for seven of the 10 largest deals across Europe, with venture capital focusing on late-stage deals, according to KPMG research. The average deal size was larger, continuing the trend for later-stage investment.
Major deals completed during the period included virtual event platform Hopin, which raised a $400m (£290m) round, and LendInvest, a property finance start-up which secured £500m.
Fintech continued to be a key growth investment area, with UK fintechs raising £1.9bn in VC investment alone.
Three UK-based fintechs raised large rounds: LendInvest (£500m), Checkout.com (£325m) and Rapyd (£217m).
Bina Mehta, chair of KPMG UK, said: “The UK continues to be the powerhouse of Europe when it comes to attracting investment in fast growth innovative companies.”
Mehta said she was encouraged by the amount of VC investment coming into the UK from overseas post-Brexit, and that the UK is particularly attractive for US and Asian VC investors.
Mehta added: “If there’s any caution, it’s that deals continue to focus primarily on late stage companies – driving valuations up – while early stage deals continue to be more difficult to come by.”
VC seed funding drops by 40%
However, while Series C and Series D+ funding rounds got bigger, seed funding by VCs fell by 40 per cent in the first quarter of 2021 year on year.
Although angel investment in UK businesses has increased over the last 12 months, VCs have kept their powder dry for later-stage, less risky investments.
Mehta said: “As seed stage activity falls, it diminishes the pipeline for venture and growth stage deals in the future. Access to finance is huge for start-up businesses and the UK has a plentiful supply of small businesses looking to grow.
“If our smaller startups can’t attract VC investment, we need to ensure we continue to provide other funding streams, or risk losing our global reputation as the pipeline for emerging giants falls away.”
KPMG pointed to the government’s Future Fund, which launched last year to help start-ups raise capital, providing match funding for start-ups which could raise cash from private backers.
However, it said only a third of the Future Fund’s investment went to seed stage companies, with the rest being funnelled into venture and growth stage companies, suggesting that “more needs to be done to support future entrepreneurs”.