Corporate VCs have UK innovators in their sights as investment levels reach a new high
£19.5 billion raised by UK scaleups so far in 2021
£19.5 billion raised by UK scaleups so far in 2021
A record high of over £6.5 billion was invested by Venture Capital (VC) in UK scaleups over the summer, according to new research out today.
The KPMG Venture Pulse report found that after two extraordinarily high quarters in 2021, UK scaleups continued to attract funding from across the globe in Q3 21, with eager investors prepared to pay premium prices for strong UK innovators with a proven track record. Nearly £20 billion of VC investment has been raised so far this year by scaleups in the UK.
While fintech was the hottest area of investment in the UK, a diversity of other companies also attracted funding – such as virtual event platform Hopin (£330 million), electric vehicle subscription service Onto (£175 million), AI/ML accelerator company Graphcore (£162 million), and flower delivery service Bloom & Wild (£125 million).
Later stage deals involving well established scaleup businesses took the bulk of funding from VC investors, but seed deal value remained steady. More than £290 million was invested in the UK at seed level over Q3 21, a slight decline from the record levels of investment seen in the first half of the year. Seed level investment remain significantly lower than pre-pandemic levels however, by both number of deals closed, and total amount raised.
Corporate Venture Capital (CVC) investment in UK innovators also reached a new high of £2.8bn in Q3 21, a 9% increase in value from Q2 21 - as innovation continues to dominate boardroom priorities following the pandemic.
The volume of CVC-affiliated deals completed over the summer increased by 8% on the previous quarter. US corporate investors such as Google Ventures and Second Century Venture continue to be the most active CVC investors in Europe, with 15 deals between them, more than the European corporate investors in the top ten combined.
Commenting on the investment finding its way to UK innovators, Bina Mehta, Chair of KPMG’s UK Emerging Giants practice said:
“The strength of the UK innovation brand is flying high with areas such as artificial intelligence (“AI”), cybersecurity and FinTech attracting interest and finance from greater numbers of new players to the UK market, driving up valuations for our most sought-after innovators.
“Our recent CEO survey found that disruptive technology was cited as the biggest threat to large corporates, so it is unsurprising that in order to accelerate their digital transformation or boost their digital capabilities, many are now partnering with, investing in, or acquiring innovative scale up businesses.
“Corporate Venture businesses have driven some of the largest rounds of funding for UK innovators. The increased dependance we all have on technology has seen large amounts of funding flow towards fast growth businesses with a success story to tell around new products and services that are helping us all to adapt to a new remote world.”
VCs focus on sustainability
With all eyes focussed on COP26 next month, investor interest in sustainability-driven startups remains high. In the UK over £750 million was raised by sustainability startups in Q3 2021 alone. The energy sector continues to attract the highest levels of investment from a range of sources. This quarter for example, UK energy company Octopus Energy, raised £400 million from Al Gore Generation Fund from the US.
Companies with ESG-related elements or solutions attracted a significant amount of funding from VC investors in Europe this quarter. These included Germany-based sustainability-orientated electronics subscription service Grover, energy storage company Skeleton Technologies, UK-based electric vehicle rental service Onto and Israel-based cultured meat manufacturer Aleph Farms.
Bina Mehta observed:
“Businesses are increasingly putting the Environmental, Social and Governance agenda at the heart of everything they do and interest in this sector will continue to grow. VC investors are looking to back companies that will have long-term transformational and positive impacts on society and their own businesses and are supporting portfolio companies with appropriate ESG tools such as a measurement framework, training and insights, to progress on their ESG journey.”
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Venture Pulse Methodology
KPMG uses PitchBook as the provider of venture data for the Venture Pulse report. Data is correct as of 1st October 2021.
PitchBook defines venture capital funds as pools of capital raised for the purpose of investing in the equity of startup companies. In addition to funds raised by traditional venture capital firms, PitchBook also includes funds raised by any institution with the primary intent stated above. Funds identifying as growth-stage vehicles are classified as PE funds and are not included in this report.
A fund’s location is determined by the country in which the fund is domiciled; if that information is not explicitly known, the HQ country of the fund’s general partner is used. Only funds based in the United States that have held their final close are included in the fundraising numbers. The entirety of a fund’s committed capital is attributed to the year of the final close of the fund. Interim close amounts are not recorded in the year of the interim close. Mega-funds are classified as those of $500 million or more in size for the following fund categories: venture and secondaries.
The Venture Pulse does not contain any transactions that are tracked as private equity growth. PitchBook defines a PE growth round as a financial investment occurring when a PE investor acquires a minority stake in a privately held corporation. Thus, if the investor is classified as PE by PitchBook, and it is the sole participant in the recipient company’s financing, then such a round will usually be classified as PE growth, and not included in the Venture Pulse datasets.