VC investment in UK scaleups off to a strong start in 2022

Fast-growth businesses in the UK continue to attract huge volumes of venture capital (VC) investment, despite the uncertain geopolitical and macroeconomic environment, according to new figures.

UK scaleups saw 745 deals completed in the first three months of this year, raising over £6.9 billion, including the $1 billion deal for Checkout.com, according to KPMG’s Global Venture Pulse survey.

The report found that a major convergence of factors has helped to continue to energise the UK’s VC market, including a rise in corporate backed VC, private equity funds looking for better returns, and increasing fundraising focused on earlier stage companies in order to achieve higher returns.

Whilst the bulk of VC investment continues to flow into London (£5.2 billion), the rest of the UK saw strong levels of VC investment, with over £1.7 billion invested across 334 deals, according to the data compiled by PitchBook.

VC investment in UK innovators based outside of London has more than doubled since the pandemic (+59% from £3.3 billion invested in 2019).

Standout deals completed in the first quarter of the year included the £94 million Series C raise by Edinburgh games developer Everywhere and the £51 million Series B funding for Cambridge-based biotech Microbiotica.

CVC-affiliated investment into UK scaleup businesses accelerated in the opening quarter of this year, accounting for half of the deals closed in Q122 (£3.4/$4.5billion from 133 deals).

With disruptive technology, digitisation and innovation continuing to dominate boardroom priorities following the pandemic, CVC-affiliated investment in fast growth businesses is expected to grow throughout 2022.

Warren Middleton, lead partner for KPMG’s Emerging Giant Centre of Excellence commented: “Despite concerns around the uncertainty in the economy, and with interest rates rising, the UK continues to demonstrate resilience and adaptability in attracting VC investment and is the jewel in the crown for innovation in Europe.

“Fintech, B2B-focused services and healthtech remain top areas of investment, while interest in cybersecurity and defence-focused solutions grew considerably in the opening months of the year.

“Fintech remains a very hot area of investment as the payments space has continued to grow. Buy-now-pay-later (BNPL) has become very attractive in the eyes of investors – not only direct BNPL companies but also other businesses diversifying into offering BNPL options. Recently, the FCA announced its intent to regulate the space in the near future, which could drive consolidation in the space moving forward.”

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The Ukraine crisis has driven a significant amount of attention to defence-related technologies, particularly in the wake of many European countries announcing increases in their defence spending. This could drive investment across a broad range of areas such as drone technologies, or anti-missile defence technologies.

Whilst it is expected the majority of investments will likely be into government entities, there could be increased investment in adjacent technologies such as communications.

Some of the largest funding rounds seen in Q1’22 were seen in healthtech, energy, fintech, e-commerce and cybersecurity, which is likely to continue throughout the rest of this year.

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