Global Venture Capital (VC) investors continue to deploy record amounts of money into UK scaleups with more than £11.8 billion raised in the first half of 2021. This equals the total sum raised in the whole of last year.
The second report of 2021 recorded more than £6.7 billion invested into fast-growth UK businesses in Q2 2021. A strong COVID-19 vaccination programme and greater business confidence in the post-Brexit environment, resulted in 706 deals being completed in Q2 21, up 40 percent from the previous quarter.
Fintech and healthtech businesses attracted the largest deals in Q2 21, including a $500m (£360 million) raise by B2B payments firm SaltPay, a $444 million (£321 million) raise by AI-powered drug discovery company Exscientia, a $443 million (£320 million) raise by digital bank Starling Bank, and a $130 million (£94 million) raise by digital health company Huma. While later-stage deals continued to attract the majority of investment, interest in earlier-stage deals grew, with more businesses beginning to raise Series A and smaller rounds.
The UK has demonstrated resilience and adaptability in attracting overseas investment in a post-Covid, post-Brexit era, which is likely due in part to the maturity of our scaleup ecosystem.
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. VC investors, particularly from Asia and the US, continue to be attracted by the strength of our businesses and the diversity of our UK scaleup ecosystems across the UK. This quarter we have seen big investments made to fast-growth businesses not only in London but in Cambridge, the Midlands and the South East of England.
While the pandemic is not over, there is a growing sense of optimism as COVID-19 vaccine distribution accelerates globally and investors focus on the sectors expected to remain attractive in the post-pandemic world –such as fintech, delivery, and B2B services. Investors are betting that consumer shifts to greater technology use are here to stay.
It is unsurprising that the pandemic has led to a surge of investment in biotech and drug discovery businesses which was a particularly hot area of investment globally this quarter. Led by a $735m raise by US-based Treeline Biosciences, several countries outside of the US also saw large biotech deals, including the UK (Alchemab Exscientia – $222 million; ViroCell Biologics –$118 million) and China (Jinwei - $123 million). The pandemic has only emphasized the importance of healthcare and biotech, driving interest in a wide range of health-focused products and services, including digital health care and medical devices. UK deals completed with biotech scaleups in Q2 21 were up 24 percent on the previous quarter.
ESG is also expected to grow in popularity with investors, given the increasing importance being placed on sustainability across the business world. Already, there is increasing investment in businesses with ESG-aligned business models, such as electric vehicles and food tech. Moving forward, it is likely investments in these areas will continue to grow, while investors may also increase their scrutiny of ESG factors when making funding decisions.
Interest in public listings continued to grow in Europe, particularly for IPOs and SPAC transactions. Q2 21 saw a number of successful IPOs, including UK-based cybersecurity firm Darktrace and fintech PensionBee on the LSE. This is a significant shift from 12 to 24 months ago, when there was more modest IPO interest. One question raised, however, is whether IPOs will substitute for larger Series D and E rounds, or whether companies will remain private through later rounds before moving to IPO.
Interest in SPAC transactions also increased in Europe. During Q2 21, UK-based Babylon Health agreed to a SPAC merger with Alkuri Global Acquisition Corp.
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 21 July 2021.
This quarter we have seen big investments made to fast growth businesses not only in London but in Cambridge, the Midlands and the South East of England.
VCs may see SPACs as a great exit route for their portfolios, however, the general sentiment is that the market is overheated. As the SPAC craze looks to migrate from the US to Europe, investors are asking: is this all just a passing phase or just the new reality?
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