VC investment into UK businesses fell by 30 per cent in 2022, according to KPMG’s latest Venture Pulse report.
Following a record-breaking year of fundraising in 2021, which saw over £29.5bn raised by UK businesses, 2022 looked on course to follow suit with more than £14.7bn raised in the first half of last year.
However, that momentum started to dip as rising interest rates, high inflation, the conflict in Ukraine, and global recession concerns resulted in investors being more possessive of their capital.
Over £3bn was raised in the final quarter of the year, down on the £7.5bn raised in the closing quarter of 2021 – the lowest level of quarterly investment since the second quarter of 2020.
Deal volume fell in line with investment levels, with the number of deals completed in 2022 down 19 per cent on 2021.
But investors weren’t hoarding their capital away. The year concluded with £22.7bn being raised by UK businesses, which is still the second highest level since the report began in 2014.
Unsurprisingly, London benefitted the most, sucking in 72 per cent of the cash across 1,770 deals.
Meanwhile investment into the regions fell by £3bn year-on-year, with £6.2bn raised over 1443 deals in 2022.
The strongest activity included sustainability, gaming, and health and biotech. Several fintech subsectors also continued to attract investors, including regtech, cybersecurity and B2B solutions. Others, like buy now pay later, struggled with new regulations expected to hamper growth.
Headline deals of the quarter include £200m secured by London-based fintech Market Financial Solutions and a £59.7m raise by Bristol-based cyber-security firm Immersive Labs.
Warren Middleton, a partner at KPMG, said: “Despite the challenges, it was still a very good performance by our UK innovators as the past three years have seen healthy tallies for capital commitments to venture coffers. With over £22 billion committed, fund managers gathered plenty of capital commitments to fuel dealmaking in the years to come.
“VC investment into UK businesses remains well above pre-pandemic levels, and as we look ahead to 2023 it is likely that we’re about to enter a period of ‘new normal’ in terms of valuations and mergers and acquisitions.
“Dry powder is still being deployed — what’s changing is the way it’s being invested. Soaring energy costs sparked a significant uptick in VC investment in new energy alternatives, electric vehicles, and cleantech.”
Global trends
The UK figures fall in line with trends across the globe. Last year was the third-highest year for global fundraising activity on record, driven by strong performance in the US and Europe. The UK remained the jewel in Europe’s crown, attracting more investment than France and Germany combined.
Nicole Lowe, a director at KPMG, said: “While interest over the near-term is expected to focus on energy independence and energy alternatives, interest in cleantech will likely accelerate as countries in the region work to meet their decarbonisation targets. This is particularly good news for the UK, which has a great track record of producing innovative businesses set up specifically to help solve some of society’s biggest challenges.
“As we move into 2023, VCs are increasingly looking for fast-growth businesses that are efficient, responsible with capital, and focused on revenue. When they find them, they’re willing to invest just as much as they have before, if not more.”
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