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Despite further COVID-19 related restrictions being placed on the UK, Q4 was the strongest quarter of the year for Venture Capital (VC) backed deals. Our latest Venture Pulse Survey reveals that a record £3.8billion was raised in the UK in the final quarter of 2020. This was a 65% increase on the £2.3billion raised in Q3 although the volume of deals was significantly down with 396 deals being completed in Q4. This signifies the lowest quarter of completed deals across 2020 where deal volume fell every quarter.

Key areas of focus for UK VCs are healthcare, biotech and consumer businesses, which is good news for the UK where we are world leading in these areas.

Fast growth UK businesses finished 2020 in their strongest position of the year

2020 saw a record high with more than £11.7billion ($15.9) VC investment made into UK scaleup businesses across 196,9 deals. The UK retains world leading position for attracting VC investment during Q4 with six of the top 10 largest European deals involving UK scaleups, including digital health business LumiraDx ($389million), Financial software company Molo ($343million) and Bristol based Graphcore ($222million).

London continued to be the main driver behind the level of investments coming into the UK, with four of the top European rounds in terms of size in Q4 2020 invested in London-based companies including Cazoo ($310.7million) and OneTrust ($300million).  The value of the average deal for a London scaleup rose over 200% in the final quarter of 2020 to an average of £3.6 million.

Late stage deals continued to drive activity accounting for over a third of the deals completed in 2020 as investors raised their appetite for scaling business against the backdrop of a global pandemic. We continued to see an increase in participation from Corporate VCs,  unsurprisingly given the economic headwinds, investors dialled back activity in pricey early-stage activity with angel investment accounting for just 7% of the VC investment last year, which could hamper the UK’s ability to nuture those fast growth businesses in the future.

UK contributes to record VC investment across Europe

The resilience of the late-stage European ecosystem led to a record back half of 2020 in terms of VC invested, but overall European scaleups saw £10.5billion raised in the final quarter across 1,192 deals. 2020 was the second-highest year on record for VC investment across Europe as cautious, European and foreign investors willing to fund the best prospects with significant sums.

Germany had it’s strongest quarter on record as mega-deals came back to close out the year including the $248.8million funding of Berlin’s TIER mobility, as did a mild recovery in venture volume, testifying to attractive, longer-term factors. It was also a strong year for France as a bevy of companies matured and continued to benefit from large late-stage rounds largely driven by Ynsect’s $400 million+ round.

Global VC investment finishes strong in 2020

Early in 2020, the volume of VC investment into global scaleups contracted due to the  economic uncertainty caused by the pandemic, with early stage funding being hit the hardest.  Whilst the first half of 2020 saw a steep decline in the volume and value of VC investment into global scaleups, VC invested remained near all-time records in the back half of 2020 as economic conditions became more clear.

Almost £60billion ($80.8billion) was invested into global scaleups during the final quarter of 2020 across 541,8 deals.  Thanks to blockbuster M&A and huge debuts on public exchanges, multiple venture firms and other backers saw mature companies such as Airbnb and DoorDash finally go public to achieve multibillion-dollar valuations. Much like parts of 2018 and the first half of 2019, the back half of 2020 saw the culmination of several unicorns’ journeys as independent or privately held entities, which spurred this massive surge in liquidity. Corporate investors and their CVC arms also remained active and unlikely to change heading into 2021.

Looking ahead into 2021

The venture capital market has not been immune to COVID-19 and with economic challenges continuing at least for the first half of 2021, VC investors will continue to assess how consumer behaviours are changing, which could affect the viability of different products, services, and business models in the future. With venture fundraises continuing at a pace we expect the coming year to be a positive year for growing and scaling businesses.

Looking ahead, big bets 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 working.

About Venture Pulse

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 20 January 2021.

The UK’s ability to produce successful, innovative businesses with strong management teams has shone through this year, against the most challenging economic background.

With Brexit now concluded and a world leading vaccine roll out across the UK, we expect strong investment levels, especially for those that have demonstrated robust and resilient business models through the crisis. 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.