Regional innovators help propel UK to record levels of VC investment in 2021
Investment in UK innovators soars by 56% in 2021 to £26 ($35.5) billion
Investment in UK innovators soars by 56% in 2021 to £26 ($35.5) billion
The diversity of the UK’s scaleup ecosystem saw innovators attract a record £26 billion Venture Capital (VC) investment last year, according to research out today.
KPMG’s Venture Pulse report found that the UK attracted more VC investment in 2021 than France and Germany combined, with the amount invested in fast growth businesses in the UK more than doubling (56%) in 2021 compared to 2020 (£11.3 billion). Deal volumes also rose by 10% from 2745 in 2020 to 3065 in 2021 according to data compiled by PitchBook.
Whilst the bulk of VC investment continues to flow into London (£17.9billion), the rest of the UK saw buoyant levels of VC investment, with over £8.1billion invested in regions across the UK over the last 12 months. VC investment in UK innovators based outside of London has more than doubled since the pandemic (+59% from £3.3 billion invested in 2019). Standout deals in 2021 included the Series E raise by Greater Manchester-based Matillion who raised just under £110 million, £162 million raise by Bristol-based Graphcore, £112 million Series A raise for Peterborough-based Carzam and Newcastle-based The Handbag Clinic, who secured £97.5 million in funding.
Warren Middleton, lead partner for KPMG’s Emerging Giant Centre of Excellence commented :
“The UK has demonstrated immense resilience and adaptability in attracting VC investment in a global pandemic and post-Brexit era, and continues to shine as the jewel in the crown for innovation in Europe.
“Over the last decade we have seen VC investment levels in the UK soar tenfold, as our regional ecosystems continue to mature, grow and attract greater numbers of home-grown innovators. The power of our disruptive businesses to deliver impact on a global scale is more important than it’s ever been, and our UK innovators are a real success story. This year we have seen significant investments made to fast growth businesses not only in the South East but in the Midlands, North and Scotland. Continuing to support fast growth businesses will become more important as part of our levelling up agenda to attract and develop talent across our regions.”
The road ahead – sectors to watch in 2022
Both VC and CVC investment in UK innovators are expected to remain strong in Q1’22.
CVC-affiliated investment into UK scaleup businesses hit £10 billion this year, more than double the £4.5 billion invested last year according to the research.
CVC investment now accounts for over a third of all the investment seen across the UK in 2021 with software, and consumer goods attracting the most investment. With disruptive technology and innovation continuing to dominate boardroom priorities following the pandemic, CVC-affiliated investment in fast growth businesses is expected to grow in 2022.
Investment in healthtech was particularly strong in 2021, with healthtech players growing faster than in many other jurisdictions and the pandemic is likely to continue to drive strong interest in a wide-range of healthtech and biotech solutions. Surging interest in using technology to support and deliver a broader range of healthcare services – such as mental health care – combined with an increased willingness to use digital tools, will likely keep healthtech investment strong well into 2022.
VC investment in fintech is likely to remain one of the hottest areas of investment, following several digital banks in Q4 21 large VC rounds, including multi-million-pound raises by Monzo and Zopa among the largest deals of the quarter. The Buy Now Pay Later (BNPL) space will be an area to watch in 2022 as the FCA looks to introduce regulations for BNPL companies, which could drive some consolidation in the space.
Investment in insurtech and ESG will continue to gain momentum with scaleups in the micro-mobility space also gaining increasing attention from investors as Governments explore ways for people to find alternative solutions to travel around cities. Over £1 billion was invested in European micromobility scaleups in 2021, including the £5 million raise for UK based WeVee.
Agtech is also expected to gain significant attention in 2022 as early stage agtechs across the region grow and begin to attract larger funding rounds. In Q4 21, Edinburgh-based agtech business Intelligent Growth Solutions (horticulture) raised over £42.2 million in a Series B financing as more investors focus on climate and sustainability issues.
Warren Middleton observed :
“Since the pandemic, there has been increasing pressure on large organisations to enhance their core business models – which has driven an explosion of growth in CVC investment. Disruptive technology is a board priority these days for most 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. Given the immense amount of change that many corporates need to make, CVC investment will likely remain high for a while.
“With FinTech and HealthTech still high on the radar for VC investors, world leading regions such as London and Cambridge will continue to attract large volumes of investment next year. Additionally, we could see some big things happening in more rural ecosystems around the UK as agtech and sustainability rise up the investment agenda.
“Following COP26, investor interest in sustainability-driven startups remains high. ESG is an area where investment levels are picking up in the UK. 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 31st December 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.