Britain’s scale-up businesses are on course to raise record amounts of funding this year, having almost eclipsed the all-time highs achieved in 2018 during the first nine months of 2019 alone.
Figures published today by the accountant KPMG and the market research group Pitchfork reveal that UK scale-ups raised more than £7.4bn over the nine months to the end of September. The total is just £200m short of the £7.6bn of funding raised by UK scale-ups during the whole of 2018, itself a record year for venture capital investment.
The figures were buoyed by a remarkable third quarter of the year, which saw scale-up businesses pick up £2.4bn of additional finance, 19% more than in the previous three-month period. Two fundraisings accounted for almost a quarter of that sum, with Babylon Health attracting funding of £368m and CMR Surgical picking up £195m.
Tim Kay, a director of KPMG Enterprise, said the uncertainties surrounding Brexit and the growing nervousness about the global economic outlook appeared to have had little effect on venture capital investors’ desire to back growing UK businesses.
“Venture capital investment in fast-growth UK businesses remains as robust as ever with the domestic economic and political outlook having very little impact on their appetite for our disruptive enterprises,” Kay said.
“There’s no sign that sectors such as fintech, biotech and healthcare are slowing down. The UK’s global reputation as home to the kind of disruptive businesses that are world leading in these spaces continues to attract the capital they need so that they can expand globally. There’s still capital in the market and investors appear to have few qualms about investing in UK stalwart industries.”
However, the data does show that the number of deals now appears to be slowing, with the record values achieved this year generated by a smaller number of large transactions. There were just 245 deals completed in the third quarter of the year according to KPMG and Pitchfork, compared to 421 during the previous three months. The 2019 third quarter deal volume figure was down by more than 40% on the same period of last year.
Kay said the data suggested investors were increasingly focusing on more mature, later-stage businesses with more of a proven track record.
“While there continues to be a significant amount of liquidity in the global venture capital market, investors are putting greater emphasis on governance, business models and expectations related to profitability,” he said.
“We are seeing the number of deals being closed continue to fall as venture capital investors appear to be changing their investment thesis with regards to the cheques they are writing. This is a trend we would expect to continue over the next quarter and into 2020, particularly when we look at the number of larger late stage deals.”
KPMG also pointed out that UK businesses’ successful period of fundraising had been mirrored by similarly strong performances from European scale-ups, which also recorded a record three months of investment during the third quarter of the year. While venture capital investors continue to invest across a broad range of sectors in both the UK and continental Europe, KPMG picked out cyber-security and mobility as two particularly hot areas.
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