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Venture Capital investors keep the faith with UK scaleups, but who is funding the aspiring unicorns?

Venture Capital investors keep the faith with scaleups

Mature UK businesses attract bulk of VC investment during Q219

Tim Kay


KPMG in the UK


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More than $2.5bn (£2bn) of Venture Capital (VC) was invested into UK startups over the last three months, with the bulk of funds spent on later stage deals with larger scaleup businesses, according to KPMG’s Venture Pulse survey out today.

The figures, compiled by Pitchbook found that over the first six months of the year, VC investment into the UK has risen by 37% to $5.5bn (£4.4bn) compared to 2018 ($4bn/£3.2bn). Investment levels for the latest quarter (April – June), were down by 14% on Q119 levels ($2.96bn/£2.4bn), but appetite for UK companies remains strong, with year on year VC investment for the quarter up 3%. Deal volume for the quarter was also down with 279 deals completed during Q219 compared to 324 in Q119. 

The latest figures reveal investors have not been dissuaded from plying the largest startups in the UK with plenty of VC. However they are not quite as confident on smaller prospects, and are pulling back the pace seen in 2018, seeking instead to invest their cash into those companies deemed ‘less risky’. This continues a trend that started in late 2017. Where investors were tempted to place their bets on start-ups, deal sizes were up with 2019 figures suggesting seed rounds have doubled in size from 2018 levels.

Commenting on the data, Tim Kay, Director, Innovative Startups, KPMG UK said:

“Whilst it is great to see investors continuing to plough premium values into our larger scaleup businesses, the stagnation in investment levels for our early stage startups is concerning. Just $26.9million (£21.5million) of angel and seed investment was made to UK businesses in the last three months and so we have to ask who is funding the innovators of the future. Unicorns do not just appear overnight: most are around four to six years old before they hit the big time and it is worrying to see this steady decline in early stage funding, which has been ongoing for the last few years. Access to funding is the foundation for growth and UK innovation could be impacted if our next wave of unicorns fail to attract the capital they need to grow now. 

“Last year saw a record level of annual VC investment coming to the UK and it is encouraging to see that investment levels remain strong. Hopefully the diversity of the UK ecosystem, which has helped keep overall VC investment buoyant until now, will see a renewed interest in the second half of the year. We have seen a the number of funds under $50 million in size double already since 2018 so we hope to see this being deployed into Seed stage deals in the remainder of 2019.”

The UK was home to two of the largest deals completed in Europe during April – June 2019. raised $230 million Series A funding to strengthening their leading position in the market, and expand to Jordan and Pakistan, whilst Deliveroo’s recent $575 million fundraise - has been put on hold temporarily as the Competition and Markets Authority (CMA) decides whether to investigate further. Fintech investment remained robust across Europe in Q219; deals included London based Monzo ($144 million), password management platform Dashlane raised $100 million+, Paris based payroll company Payfit raised $81.6 million and also in Paris, money management app Bankin’ raised $23 million

Investment across Europe remains strong as diversity remains its biggest asset

Overall the number of VC deals across Europe continued to decline, however total VC investment remained strong at well over $8bn. The strength of Europe’s VC market continued to be defined by the growing diversity of its innovation hubs. Increasing investment in the Nordic countries, France, Spain, Poland and others combined with steady investment in more established innovation centres in Germany and Israel helped keep VC investment in the region high during Q219.

Key investments in Europe were led by Finland-based Wolt raising $130 million. Other large funding rounds included Germany-based GetYourGuideDeutschland ($484 million), Spain-based Glovoapp23 ($174.8 million), and Poland-based ZnanyLekarz($93 million).

Q219 was a strong quarter for VC investment in France, led by a $230 million raise by photo editing company Meero–which earned the company unicorn status. Fast-growing online gardening marketplace ManoMano and digital wallet app company Dashlane also raised $100 million+ funding rounds in Q219, highlighting the growing maturation of France’s innovation economy.

The analysis also found that corporate investors now set a record high for participation percentages in Q219. This is a testament to the ongoing trend of corporates getting more involved as a matter of strategy within the venture ecosystem, as well as Europe’s still-strong entrepreneurial ecosystem.

Tim Kay observed: “Europe’s increasingly diverse innovation hubs helped drive the region’s results, with companies from seven different countries represented in Europe’s top ten VC deals this quarter. As innovation hubs in Europe continue to mature, so too will their startups. A growing number of startups are now seeking larger sized rounds, a necessity for companies looking to move into new segments or regions. This growth activity is likely helping to spur VC investment in Europe, despite existing political and economic uncertainties.”

Artificial Intelligence tops the list of investors’ must haves

Following on the last quarter, AI drew a significant amount of attention from investors, likely a result of its overwhelming applicability to all sectors. Compared to other technologies, AI is seen as a true game changer in terms of the disruption it poses for industries and verticals the world over –including healthcare and financial services. China in particular is investing significantly in the development of AI, with the expectation that it will become one of the country’s primary growth differentiators. While China’s VC market currently faces a number of challenges, it is expected that strong AI value propositions will continue to attract funding.

Tim Kay concluded: “AI is the hot ticket of the moment with VC firms, corporate investors and even a number of governments investing in AI innovations. The UK is currently implementing the first components of its AI Strategy –supporting the development of relevant Machine Learning degree programs and research institutes at UK-based universities. The UK’s Centre for Data Ethics and Innovation is also in the process of consulting on the establishment of data trusts in order to support the use of AI. There is a great deal to be gained for the country that can win the race for AI dominance.”

You can download the full global report.




For further information, please contact :

Emma Murray

KPMG Press Office

T: +44 (0)20 7694 6506


About KPMG in the UK

KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 16,300 partners and staff. The UK firm recorded a revenue of £2.338 billion in the year ended 30 September 2018. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 154 countries and has 200,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.

KPMG uses PitchBook as the provider of venture data for the Venture Pulse report.

Figures supplied are a snapshot of deals data available as of 7th July 2019. The Venture Pulse does not contain any transactions that are tracked as private equity growth by PitchBook. As such rounds are often conflated with late-stage venture capital in media coverage, there can be confusion regarding specific rounds of financing. The key difference is that PitchBook defines a PE growth round as a financial investment occurring when a PE investor acquires a minority stake in a privately held corporation. Thus, if the investor is classified as PE by PitchBook, and it is the sole participant in the recipient company’s financing, then such a round will usually be classified as PE growth, and not included in the Venture Pulse datasets.

Also, if a company is tagged with any PitchBook vertical, excepting manufacturing and infrastructure, it is kept. Otherwise, the following industries are excluded from growth equity financing calculations: buildings and property, thrifts and mortgage finance, real estate investment trusts, and oil & gas equipment, utilities, exploration, production and refining. Lastly, the company in question must not have had an M&A event, buyout, or IPO completed prior to the round in question.

© 2021 KPMG LLP a UK limited liability partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.

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