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Venture Capital investment maintains robust stronghold in Q2 2020, according to KPMG Private Enterprise’s Venture Pulse

Venture Capital investment maintains robust stronghold

The Global Venture Pulse Survey by KPMG Private Enterprise, with data compiled by PitchBook, reveals a continued interest from investors in UK fast growth businesses in Q2 2020.

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KPMG Private Enterprise’s Venture Pulse report.

  • UK attractiveness shown in resilient second quarter
  • UK VC investment hits £2.6bn ($3.3 billion) in Q2’20
  • Deal volumes continue to decline while investment value remains strong

The Global Venture Pulse Survey by KPMG Private Enterprise, with data compiled by PitchBook, reveals a continued interest from investors in UK fast growth businesses in Q2 2020.

The value of 355 deals resulting in £2.6bn has dropped only 7% since last quarter, which recorded 472 deals at £2.8bn ($3.5bn) in the midst of the crisis. This drop represents the lowest number of deals completed since Q2 2013 when 338 deals were valued at £790m ($1.0bn).

Commenting on the findings, Tim Kay, Director in KPMG Private Enterprise Emerging Giants team, said:

“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.

“While off the peaks of 2018, the half year numbers for 2020 compare favourably to those in 2019 with almost $63bn invested across the globe, although deal numbers continue to fall with COVID-19 accelerating the trend to later stage, larger deals across the globe.”

Momentum in Europe helping VC market to remain strong

In Q2’20 European VC-backed companies accounted for just over $10billion across 1,062 deals compared to $9.8 billion from 1,383 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% versus Q1, and the UK half year figure is just off the record values seen in 2019 with over $6.8bn 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 companiesand 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.

Megadeals are the ‘new normal’

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.

Looking ahead in 2020

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.

 

Tim Kay concludes:

“The venture capital market has not been immune to COVID-19. Understandably as investors slow the pace of deal-making in Europe, heading into Q3’20, we expect to see a continuation of downward pressure on valuations.

“But 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.

 

“E-commerce, cyber security, enterprise software and healthcare have all seen increased demand and pipelines. This isn’t a short-term response – the normalisation of disruptive technology is here to stay. A positive in an incredibly challenging period. The remainder of 2020 will undoubtedly be tough as the economic fallout continues but venture capital has so far remained remarkably upbeat, and long may that continue.”

© 2020 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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