Our latest Global Venture Pulse Survey reveals a continued interest from investors in UK fast growth businesses in Q2 2020.
Venture Capital investment maintains a robust stronghold in Q2 2020, with UK VC investment of £2.6 billion ($3.3 billion) and while deal volumes continue to decline, investment value remains strong.
In Q2 2020 European VC-backed companies accounted for just over $10 billion across 1,062 deals compared to $8.8 billion from 923 deals across the region last quarter.
The big clusters of the UK, Israel and Germany fared well in Q2. Israel recorded its second-best quarter on record. Germany saw an increase of over 50 percent versus Q1, and the UK half year figure is just off the record values seen in 2019 with over $6.8 billion invested year to date. Smaller clusters such as Ireland and Spain both recorded large jumps in the amounts invested showing the geographic diversity Europe now has when it comes to scale-ups.
VC investment in Europe remained relatively robust compared to historical trends in Q2, driven in part by the momentum the region experienced prior to the pandemic, including a strong pipeline of in-progress VC deals. The focus was on how best to support the survival of companies and providing bridge financing rounds to cover potential gaps. The more hands-on role of angel investors providing operational support to their startups may account for the drop in angel investments.
Early-stage companies continued to struggle to attract funding given the focus of VC investors on late-stage deals. The major exceptions included companies tackling key challenges driven by COVID-19, such as health and biotech companies and B2B productivity companies.
An emerging theme is that megadeals are now part and parcel of the ecosystem. Q2 saw another spate of $100m+ deals in the UK, making three out of the last six quarters have deals of this magnitude making up over 40% of the total deal value; these included the UK-based Cazoo ($156m), Checkout.com ($150m) and Starling Bank ($123m).
The UK was not immune to the move to later stage activity. Deal volumes were markedly down – almost back to 2013 levels in line with the global picture.
Over the next quarter, VC investors in Europe will continue to assess how consumer behaviours are changing and how these changes will affect the viability of different products, services, and business models in the future. Some sectors could see a fall in investment or significant consolidation as a result.
Looking ahead, big bets in Europe will continue to revolve around healthtech, biotech, fintech and B2B solutions. Cybersecurity and data analytics are also expected to see additional VC investment, due in part to the rapid increase in remote work. Corporate investment may increase as companies begin to mobilise in the Environmental Governance space and European companies that have not emphasised innovation in the past move to accelerate their digital capabilities.
KPMG Private Enterprise releases a quarterly report highlighting the key trends, opportunities, and challenges facing the venture capital market globally and in major regions around the world.
KPMG uses PitchBook as the provider of venture data for the Venture Pulse report.
Please note, these figures are accurate as of 22 July 2020.
“In a quarter that saw global lockdowns, economic contractions and a unique health crisis unfold, the expectation was that investment would have been hit hard, but Europe, and specifically the UK venture capital market remained remarkably buoyant".
"We believe things will rebound in the coming months – especially for those that have demonstrated robust and resilient business models through the crisis. Indeed, management teams who can show they were able to grow and adapt over the last few months will be in a strong position when it comes to fundraising in 2021".