Q1 2023 Venture Pulse Report

Venture Capital (VC) investment into UK innovation continues to slump

VC investment into UK businesses has continued to slump in the opening quarter of 2023. The ongoing economic conditions and challenges has made investors nervous, as they continue take a cautious approach to investments.

A total of $3.6 billion was raised by UK businesses in the opening three months of the year, continuing the significant slowdown seen in the end of 2022. Total VC investment in Q1 23 is the lowest raised by UK businesses in the opening quarter of a year since 2020 and significantly down on the $10.2 billion raised in Q121 and $15.2 billion raised in Q122. Deal volumes were also muted with just 402 deals completed, the lowest recorded in any quarter since the report began in 2014.

Two-thirds of VC investment ($2.4 billion) coming into UK businesses in the opening quarter of this year flowed into London, with more than half of the deals completed (219) by businesses being based in the capital.

As the cost-of-living crisis continues, investors are increasingly turning away from those sectors that rely on consumer spend to drive growth and doubling down on investments in those sectors where technology is addressing big macro trends such as health tech and ESG. However, the UK remains the innovation crown jewel of Europe attracting more VC investment than France, Germany and Spain combined in the opening of the year

Warren Middleton
Lead Partner, Emerging Giants
KPMG in the UK

Globally, VC investment sank from $86 million across 9,619 deals in Q4’22 to $57.3 billion across 6,030 deals in Q1’23 as the major uncertainties in the market showed no sign of waning. The protracted war in the Ukraine, increasing interest rates, stubbornly high inflation, domestic and geopolitical challenges, and concerns about the stability of the global banking system all combined to make it a difficult quarter for VC investment across all regions.

Traditional VC investors will remain cautious, scrutinising deals carefully to assess whether business models are resilient. Whilst the picture varies by sector, the overall market for fundraising is likely to be significantly more difficult than in 2021-2022.

Robert Baxter,
UK Head of Corporate Finance
KPMG in the UK

UK trends to watch in Q123

Improved Geopolitical and macroeconomic conditions could impact positively on investor sentiment and VC funding in the region
Innovations in alternative energy , cleantech, defence, cybersecurity, and B2B services will remain most resilient areas of global investment.
Focus on generative AI could see a spike in investment.

Read more UK and global insights in the Global Venture Pulse Q1 2023 report.