• UK fintech and biotech sectors remain hot areas of VC investment • Government policies help keeping UK startup ecosystem attractive • Funding across Europe up significantly over 2017 - but falls shy of 2015 peak
VC investment in the UK reached a record high in Q4 2017, accounting for the lion’s share of investment in Europe with a total of £2.0 billion ($2.7 billion) raised over the quarter, and playing host to seven of the top 10 European deals.
KPMG Enterprise’s latest Venture Pulse survey reveals that as 2017 came to a close, a flurry of £100 million+ mega-financings propelled the amount raised in the UK to previously unmatched heights. Total fundraising across Europe during the quarter hit £4.1 billion ($5.7 billion), with UK investment accounting for 48 percent of this total. Over the course of the year, £5.5 billion ($7.5 billion) in aggregate VC was invested in the UK, the second-highest tally of the decade.
Benefiting from the steady nurturing of innovative startups over the past decade, plus ongoing interest from deep-pocketed foreign investment firms and corporate investors, standout deals over the final quarter included the likes of Truphone (£255 million), TransferWise (£211 million), OakNorth (£154 million), Orchard Therapeutics (£85 million) and Secret Escapes (£83 million).
Commenting on the findings, Patrick Imbach, head of KPMG Enterprise’s Innovative Startups team in the UK, said: “The strength of the VC market in the UK is even more noteworthy when taking into account the ongoing conversations around economic uncertainty in the UK this year. The start-up sector in the UK is firmly established with a number of superb later stage companies based here which are proving attractive to investors. This is enabling companies to remain private longer, supporting them with the capital they need to compete at a very large scale.
“The UK Government is also doing much to support innovation and investment, which can only bode well for the future. The Chancellor’s recent Budget placed a big emphasis on supporting the start-up ecosystem, with funding and additional measures focused on AI and autonomous driving. Going forward, more Government initiatives to help our start-ups scale up will be key if the UK is to continue to maintain its attractiveness for VC investors.”
The Financial Services sector surged onto the spotlight this quarter, attracting more than 15% of all investment dollars in Europe (8.3% for the full year 2017). Leading the charge were 9-figure investments in London-based Transferwise and OakNorth.
While investments in technology retreated slightly, healthcare made healthy gains in terms of dollars attracted over the quarter. Pharma & biotech also attracted a significant amount of attention, with Switzerland-based ADC Therapeutics raising £146 million, London-based Orchard Therapeutics £85 million and Germany-based CureVacraising £73 million.
UK continues to lead the pack over France and Germany
Total VC investment in France and Germany paled in comparison to the £5.5 billion invested in the UK in 2017. In France, 2017 saw £1.3 billion VC investment which is flat when compared to 2016. Total VC investment in Germany increased from £1.4 billion in 2016 to £1.9 billion in 2017.
Commenting, Patrick Imbach said: “Historically, France has often been slightly neglected as a European technology hub, despite being home to a number of successful startups like BlaBlaCar. However, I do think this is starting change. Positive economic indicators, combined with a new government committed to innovation and a strong ecosystem for early-stage startups are helping to raise the profile of Innovation hubs across France. The ability to achieve scale will be important if it wants to start tapping at the UK’s heels.”
The Global picture
A robust final quarter propelled total annual global VC funding to the third-highest quarterly tally of the decade. A number of billion-dollar mega-deals over the course of the year, including six £1 billion+ rounds in Q4, drove the significant funding upswing. VC funding was up year-over-year across all regions, including the US, Asia, and Europe.
However, the number of deals continued to decline globally during Q4’17, potentially reflecting a shifting investor focus on quality over quantity. Rather than invest in a myriad of different companies, investors at all deal levels have leaned toward placing bigger bets on a smaller group of companies they feel have the strongest path to profitability/potential.
Commenting on what we can expect in 2018, Patrick Imbach concluded:
“As we head into 2018, VC investment in Europe is expected to continue to thrive. The implementation of PSD2 (Second Payment Services Directive) is likely to have a strong influence on investment patterns within fintech, particularly in Europe, as companies look to take advantage of the new regulations and requirements. In addition, healthtech and autotech are expected to gain additional traction from VC investors which is good news for UK hubs outside of London.
“We are also expecting to see a major increase in investor focus on cross-industry solutions, such as the applicability of AI across sectors, and the use of technology to increase the effectiveness and efficiency of less technology mature industries. Blockchain has been a huge talking point in the investment community over the previous quarters and we expect this to continue to be the case as we enter 2018.”
Further commentary and the full report can be found: https://www.kpmgenterprise.co.uk/perspectives/venture-pulse-q4-2017/
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