Global Venture Capital (VC) investors continue to deploy record amounts of money into UK scaleups with nearly £17bn raised in the first half of 2021. This already surpasses the total sum raised in the whole of last year according to Venture Pulse – a quarterly report published by KPMG Private Enterprise.
The research published today using data supplied by PitchBook recorded more than £6.5billion invested into fast-growth UK businesses in Q2 21. A strong COVID-19 vaccination programme and greater business confidence in the post-Brexit environment resulted in 708 deals being completed in Q2 21, up 7 percent on the previous quarter.
Fintech and healthtech businesses attracted the largest deals in Q2 21, including a $500million (£360million) raise by B2B payments firm SaltPay, a $330million+ (£240million) raise over two rounds by AI-powered drug discovery company Exscientia, a $453million (£322million) raise by digital bank Starling Bank, and a $130million (£94million) raise by digital health company Huma. While later-stage deals continued to attract the majority of investment, interest in earlier stage deals grew, with more businesses beginning to raise Series A and smaller rounds.
Bina Mehta, Chair of KPMG UK and Head of the firm’s UK Emerging Giants Centre of Excellence said: “The UK has demonstrated resilience and adaptability in attracting overseas investment in a post-Covid, post-Brexit era, which is likely due in part to the maturity of our scaleup ecosystem.
“The power of our disruptive businesses to deliver impact on a global scale is more important than it’s ever been, and our UK innovators are a real success story. VC investors, particularly from Asia and the US, continue to be attracted by the strength of our businesses and diversity of our UK scaleup ecosystems across the UK. This quarter we have seen big investments made to fast growth businesses not only in London but in Cambridge, the Midlands and the South East of England.
“Whilst it is our established late stage businesses that are attracting the big investment, Angel investors and university incubators are playing an increasing role in developing strong and active programmes in the regions, which attribute to our diversity and growing number of disruptive scaleup businesses. It is great to see that early stage businesses are starting to attract the funding they need in order to scale. Supporting our early stage businesses will be crucial in order to continue to develop our ecosystem and maintain our global position as leaders in innovation.“
While the pandemic is not over, there is a growing sense of optimism as COVID-19 vaccine distribution accelerates globally and investors focus on the sectors expected to remain attractive in the post-pandemic world –such as fintech, delivery, and B2B services. Investors are betting that consumer shifts to greater technology use are here to stay.
It is unsurprising that the pandemic has led to a surge of investment in biotech and drug discovery businesses which was a particularly hot area of investment globally this quarter. Led by a $735m raise by US-based Treeline Biosciences, several countries outside of the US also saw large biotech deals, including the UK (Alchemab – $82m; ViroCell Biologics –$118m) and China (Jinwei – $123m). The pandemic has only emphasized the importance of healthcare and biotech, driving interest in a wide range of health focused products and services, including digital health care and medical devices. UK deals completed with biotech scaleups in Q2 21 were up 24% on the previous quarter.
ESG – environmental, social, and governance – is also expected to grow in popularity with investors, given the increasing importance being placed on sustainability across the business world. Already, there is increasing investment in businesses with ESG-aligned business models, such as electric vehicles and food tech. Moving forward, it is likely investments in these areas will continue to grow, while investors may also increase their scrutiny of ESG factors when making funding decisions.
Bina added:“The pandemic has hyper-accelerated certain tech sectors for which the UK is particularly strong, including consumertech, edtech and healthtech. As home to some of the world’s top science clusters, there are some fantastic young spin outs coming out of our universities.
“Environmental, social and governance (ESG) concerns are increasingly playing an important role in investor thinking and becoming a major trend for VCs. We are seeing some exciting businesses coming out of the UK which are focussed on solving some of the world’s most pressing issues. Greentech and cleantech will continue to be particularly important in supporting and accelerating the move towards achieving global climate commitments and helping to meet Net Zero targets.”
Interest in public listings continued to grow in Europe, particularly for IPOs and SPAC transactions. Q2 21 saw a number of successful IPOs, including UK-based cybersecurity firm Darktrace and fintech PensionBee on the LSE. This is a significant shift from 12 to 24 months ago, when there was more modest IPO interest. One question raised, however, is whether IPOs will substitute for larger Series D and E rounds, or whether companies will remain private through later rounds before moving to IPO.
Interest in SPAC transactions also increased in Europe. During Q2 21, UK-based Babylon Health agreed to a SPAC merger with Alkuri Global Acquisition Corp.
Bina said: “SPACs are the 2021 investment craze – nine of the 13 European companies that have gone public via SPAC, have been UK based companies.
“VCs may see SPACs as a great exit route for their portfolios, however, the general sentiment is that the market is overheated. As the SPAC craze looks to migrate from the US to Europe, investors are asking: is this all just a passing phase or just the new reality?”