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KPMG reveals Q1 growth in VC investment in UK innovators

Apr 23
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KPMG reveals Q1 growth in VC investment in UK...

KPMG has released its latest Global Venture Pulse Survey, offering a picture of the venture capital (VC) investment landscape in the "calm before the storm" of the coronavirus outbreak.

The data, compiled by PitchBook, showed a 53% increase in the amount of money invested in fast-growth businesses in the UK during the first quarter of 2020, compared to Q4 of 2019.

Investors recognise UK strength

Overall, investment in UK scale-ups totalled £2.6 billion in Q1 of this year, down slightly from £2.69 billion in the record-setting opening quarter of 2019. The volume of deals decreased year on year, from 558 to 301.

KPMG stressed that the VC investment picture remained strong in the first three months of 2020, with firms like LumiraDx, GraphCore and Starling Bank all securing funding of more than $100 million (£80.6 million).

The majority of deals completed during the period were VC investments in angel and seed stage businesses, particularly in the pharmaceutical and biotech, commercial services and software sectors.

Tim Kay, director of KPMG's Private Enterprise Emerging Giants team, said the trends in the first quarter showed that investors continued to recognise the strength of the "innovative and expanding" scale-up ecosystem in the UK.

He also noted that the year-on-year decline in deal volume reflected the trend of investors making fewer, but bigger, commitments to later-stage businesses.

"It will be interesting to see how the corporate VC investors react to the COVID-19 fallout over the coming quarters as their parent companies potentially move to protect their own balance sheets and cash reserves," Mr Kay added.

Continental trends

The European picture showed that the number of VC deals across the continent fell from 1,262 at the end of last year to 923 in Q1 2020, but the total value of investment increased from $7.9 billion to $8.8 billion.

KPMG noted that Europe continues to draw strength from its geographic diversity. German VC investment increased nominally to $1.37 billion at the start of the year, while France registered $1.36 billion - equating to its second strongest quarter of VC investment on record.

Germany's Lilium secured the second-biggest investment ($240 million) in the first quarter, behind UK-based fintech company Revolut. Israel's AppsFlyer ($210 million), Sweden's Klarna ($200 million) and French firm Colonies ($197 million) completed the top five.

Going into more detail on the significance of the coronavirus pandemic for global VC investment this year, Mr Kay said the health crisis is likely to have a significant adverse impact in Q2 and beyond.

"While investments will continue to be made, we can expect a significant slowdown in volume and a potential resetting of valuations," he added.

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