KPMG Venture Pulse: VC investment in the UK softens in Q3’20 while Europe reaches a record high
VC investment in the UK softens in Q3’20 while Europe
In the face of concerns related to COVID-19, geopolitical tensions and a potential hard Brexit.
- Q3’20 UK VC investment softens by 20% since Q2’20.
- Q3’20 sees UK VC deals drop by almost 50%, and value drop by almost 20% compared to Q3’2019, pre-pandemic.
- Deal volumes continue to decline but average deal value increases.
- Biotech, fintech and future of work remain key focus areas.
For immediate release
In the face of concerns related to COVID-19, geopolitical tensions and a potential hard Brexit, a quarterly report on global Venture Capital (VC) trends by KPMG Private Enterprise, with data compiled by PitchBook, reveals that the volume of UK Q3 deals dropped by almost a half (46%) compared to Q3 2019. This reflects a decline from 549 to 294 deals while the value of these deals has dropped by almost 17% from £2.8bn ($3.6) to £2.3bn ($3.0) over the same period.
In the last three months during which the UK experienced easing of COVID-19 related lockdown restrictions, the value of investment into the UK softened by 20% from £2.91bn ($3.8) in Q2’20 to £2.3bn ($3.0) in Q3’20 while the number of deals dropped 40% from 493 to 294.
Corporate VC (CVC) affiliated investment has fallen by 53% since this time last year from £1.3bn ($1.7) to £600m ($800m) while the number of completed investments during this time dropped from 77 to 53. A similar more marked trend is seen in the 60% decline from Q2’20 where the data stood at £1.5bn ($1.9bn) secured from 74 deals.
The key focus areas for UK VCs are future of health and biotech, fintech and future of work.
Bina Mehta, Emerging Giants Centre of Excellence and KPMG UK Board Member said:
“With more than 50% of funding coming from outside of Europe, low interest rates combined with the current exchange rate makes UK assets good value for global investors at a time when the UK has a strong global reputation for building innovative and disruptive businesses.
“While we’ve recorded a significant decline in deals, the businesses that have been able to secure funding stimulus throughout this period show there is plenty of capital to be deployed for later stage firms, with investors demonstrating a strongpreference for well-established businesses with long track records.
“As CVCs expand their reach and product offering it will be interesting to see where trends begin to emerge – likely around deeptech which we are seeing early signs of across Europe.”
Key Highlights – Q3’20
- Global VC investment rose from $70bn across 5,674 deals in Q2’20 to $73.2bn across 4,861 deals in Q3’20. The number of individual VC deals, however, dropped for the sixth straight quarter to the lowest volume seen since Q4’13.
- VC investment in Europe reached a new record of $12.1bn across 1,024 deals in Q3’20 – up from $11.5bn across 1,513 deals in Q2’20.
- UK makes more than 25% of European VC backed deals.
- UK VC backed companies raised $3bn across almost 300 deals.
- London sees two $100m+ deals in Q3.
The UK continues to attract large rounds
VC investment in the UK remained relatively strong in Q3’20, despite a significant decline in the number of deals. Fintech was a key area of investment with digital bank Revolut raising $580m and cloud-based banking platform Thought Machine raising $125m. London-based kitchen startup Karma Kitchen also made news with a $314m raise this quarter.
During the quarter, the UK government continued to focus on supporting recovery initiatives – announcing a £2bn Kickstart scheme focused on providing young people with job placements for 6 months. The program could enable startups to find and retain talented young people.
Record levels of VC investment in Germany, Israel and Nordics propel Europe to new high
VC investment in Europe reached a new record high of $12.1bn across 1,024 deals in Q3’20, led by a $650m raise by Klarna and a $600m raise by Northvolt in Sweden, a $633m raise by Germany-based CureVac, and a $580m raise by Revolut in the UK.
The Nordic region ($2.2bn), Germany ($2bn), and Israel ($1.5bn) all saw record levels of VC investment this quarter. Despite a quarter-over-quarter decline from $3.8bn in Q2’20 to $3bn in Q3’20, the UK continued to account for the largest share of VC investment in Europe.
Pharma and biotech very hot in Q3’20
VC investment in pharma and biotech remained very hot in Q3’20, at the end of the quarter, total year-to-date investment in the sector was $31bn – already well above the total of $27.1bn seen during all of 2019.
Heading into final quarter of 2020, VC investment expected to hold steady
VC investment is expected to remain quite steady heading into Q4’20. Late stage deals are expected to remain a top priority for VC investors, which will likely continue to make it difficult for early stage companies to attract investment. On a sector basis, fintech, business productivity, edtech, healthtech and biotech are all expected to remain very attractive.
Bina Mehta concludes:
“Scaling business leaders must remind themselves that venture funds do have money to deploy and CVCs will continue to look for opportunities, particularly in the digital market, not least so that they can accelerate their own transformations.
“Although the pandemic has overshadowed Brexit negotiations in recent months, concerns over the possibility of a hard Brexit as of 31 December 2020 are growing, making it a critical area to watch heading into the last quarter of the year.”
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