Investment into South West firms dip as VC funds proceed with caution

Innovative businesses in the South West secured £53m in venture capital investment in the third quarter of the year, according to new research from KPMG.

The firm’s latest Venture Pulse report found that although deal values were down compared to last quarter (£63m), the number of companies securing funding was up by 52 per cent from 12 to 23 deals.

KPMG said this highlighted that the UK scaleup ecosystem continues to appeal to investors but they are increasingly cautious about how much they are investing.  

Among the companies securing investments were Sparx, an in-class and homework platform, and BBC Maestro, the online education platform providing access to expert masterclasses, showing the growing demand for online on-demand learning solutions.  

Kay Drury, transaction services partner at KPMG, said: “Amid a growing energy crisis, economic turbulence, continued pandemic impacts and increased pressures on businesses, funds continue to flow into educational solutions, business productivity software, and cleantech. 

“Whilst some VCs will be focussed on existing portfolios, many have a commitment to investors to deploy capital so there is still dry powder and opportunities for good businesses with solid growth plans. Competition for good businesses in strong sectors will be fierce and could lead to some deal heat as we head into the final quarter of the year. However, as the economic conditions continue to deteriorate, it is likely that VC investment will remain subdued heading into Q4 2022 and beyond.”

VC investment into the UK fell dramatically during the summer as the economic challenges and an impending global recession saw VCs take a cautious approach to investments. 

While London continued to attract the lion share of investment by value pulling in $3.2bn in the quarter, VC investments in innovative businesses outside of the capital accounted for 51 per cent (293 deals) of UK deals completed over the summer.     

Warren Middleton lead partner for KPMG’s Emerging Giant Centre of Excellence, added: “Despite strong fund-raising activity in the first half of the year, the global economic turmoil has seen VC investment decline across all markets, including the UK where the value and volume of completed deals fell significantly in Q3. 

“As the cost-of-living crisis deepens, investors are increasingly turning away from those sectors that rely on consumer spend to drive growth and doubling down on investments in those sectors where technology is addressing big macro trends such as health tech and ESG. 

“With an abundance of these businesses being nurtured outside of London, more deals were completed in our regions than in London during the quarter, the majority of which were at later stage. Continuing to nurture fast growth businesses is an important part of our levelling up agenda to help regions develop their own infrastructure to support growth, investment and employment.”