Sunday, December 5, 2021

Corporate VCs have UK innovators in their sights as investment levels reach a new high

A record high of over £6.5 billion was invested by Venture Capital (VC) in UK scaleups over the summer, according to new research.

The KPMG Venture Pulse report found that after two extraordinarily high quarters in 2021, UK scaleups continued to attract funding from across the globe in Q3 21, with eager investors prepared to pay premium prices for strong UK innovators with a proven track record. Nearly £20 billion 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 funding – such as virtual event platform Hopin (£330 million), electric vehicle subscription service Onto (£175 million), AI/ML accelerator company Graphcore (£162 million), and flower delivery service Bloom & Wild (£125 million).

Later stage deals involving well established scaleup businesses took the bulk of funding from VC investors, but seed deal value remained steady.  More than £290 million was invested in the UK at seed level over Q3 21, 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 (CVC) investment in UK innovators also reached a new high of £2.8bn in Q3 21, a 9% increase in value from Q2 21 – as innovation continues to dominate boardroom priorities following the pandemic.

The volume of CVC-affiliated deals completed over the summer increased by 8% on the previous quarter. 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.

Commenting on the investment finding its way to UK innovators, Bina Mehta, Chair of KPMG’s UK Emerging Giants practice says:“The strength of the UK innovation brand is flying high with areas such as artificial intelligence (“AI”), 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.

“Our recent CEO survey found that disruptive technology was cited as 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.

“Corporate Venture businesses have driven some of the largest rounds of funding for UK innovators.  The increased dependance 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.”

VCs focus on sustainability

With all eyes focussed on COP26 next month, investor interest in sustainability-driven startups remains high.  In the UK over £750 million was raised by sustainability startups in Q3 2021 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 £400 million 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.

Bina Mehta observes: “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.  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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