A record high of over £6.5bn was invested by venture capital firms in UK scaleups over the summer, taking the total amount to £20bn so far this year, according to new research shared with City A.M. this morning.
After two extraordinarily high quarters in 2021, UK scaleups continued to attract funding from across the globe during the third quarter, with eager investors prepared to pay premium prices for strong UK innovators, KPMG writes today in its Venture Pulse report.
Nearly £20bn of VC investment has been raised so far this year by scaleups in the UK. While fintech was the hottest area of investment in the UK, a diversity of other companies also attracted fresh funding.
This included virtual event platform Hopin (£330m), electric vehicle subscription service Onto (£175m), AI/ML accelerator company Graphcore (£162m), and flower delivery service Bloom & Wild (£125m).
Later stage deals involving well established scaleup businesses took the bulk of funding from VC investors, but seed deal value remained steady.
More than £290m was invested in the UK at seed level over the third quarter, a slight decline from the record levels of investment seen in the first half of the year.
Seed level investment remain significantly lower than pre-pandemic levels, however, by both number of deals closed, and total amount raised.
Corporate venture capital
Corporate venture capital investment in UK innovators also reached a new high of £2.8bn in the third quarter, a 9 per cent increase in value from the previous quarter, as innovation continues to dominate boardroom priorities following the pandemic.
The volume of CVC-affiliated deals completed over the summer increased by 8 per cent on the previous quarter.
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US corporate investors such as Google Ventures and Second Century Venture continue to be the most active CVC investors in Europe, with 15 deals between them, more than the European corporate investors in the top ten combined.
“The strength of the UK innovation brand is flying high with areas such as artificial intelligence, cybersecurity and FinTech attracting interest and finance from greater numbers of new players to the UK market, driving up valuations for our most sought-after innovators,” Bina Mehta, chair of KPMG’s UK Emerging Giants practice said this morning.
Disruptive technology was the biggest threat to large corporates, so it is unsurprising that in order to accelerate their digital transformation or boost their digital capabilities, many are now partnering with, investing in, or acquiring innovative scale up businesses. Bina Mehta, chair of KPMG’s UK Emerging Giants
Corporate Venture businesses have driven some of the largest rounds of funding for UK innovators.
“The increased dependence we all have on technology has seen large amounts of funding flow towards fast growth businesses with a success story to tell around new products and services that are helping us all to adapt to a new remote world,” Mehta continued.
VCs focus on sustainability
With all eyes focussed on COP26 next month, investor interest in sustainability-driven scaleups remains high.
In the UK over £750m was raised by sustainability scaleups in the third quarter alone. The energy sector continues to attract the highest levels of investment from a range of sources.
This quarter, for example, UK energy company Octopus Energy, raised £400m from Al Gore Generation Fund from the US. Companies with ESG-related elements or solutions attracted a significant amount of funding from VC investors in Europe this quarter.
These included Germany-based sustainability-orientated electronics subscription service Grover, energy storage company Skeleton Technologies, UK-based electric vehicle rental service Onto and Israel-based cultured meat manufacturer Aleph Farms.
“Businesses are increasingly putting the Environmental, Social and Governance agenda at the heart of everything they do and interest in this sector will continue to grow,” Mehta said.
“VC investors are looking to back companies that will have long-term transformational and positive impacts on society and their own businesses and are supporting portfolio companies with appropriate ESG tools such as a measurement framework, training and insights, to progress on their ESG journey.”
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