Market caution

VC investment falls as boom looks more like blip

AAC Technologies

Tech investment has fallen, but is showing signs of positivity

Venture capital investment in the UK fell back to pre-pandemic levels in the first three months of the year as the boom of the previous two years looks like a blip rather than a trend.

A total of £2.9bn was invested into UK firms in the opening three months of the year, the lowest raised in the opening quarter of a year since 2020, according to big four firm KPMG’s Venture Pulse report.

It represents a sharp fall from the £8.2bn raised in the first quarter of 2021 and £12.3bn raised in the first quarter of last year, when low interest rates fuelled a boom in deals.

Market uncertainty has seen VC investment plummet globally, with the total seen in Q1’23 less than a third of the total invested during Q1’22 and funds raised in Europe the lowest seen since Q3’18. 

On the plus side, five of the largest completed deals in Europe during Q1’23 were UK based and the UK remains the innovation crown jewel of Europe attracting more VC investment than France, Germany and Spain combined.

Warren Middleton, UK chief of KPMG’s Emerging Giants Centre of Excellence, said the funding boom over the previous two years now looked like “an outlier period”. 

He said: “What we are starting to see now is VC investment starting to come back to more normal levels, albeit compounded by a challenging economic environment. 

“But investor sentiment in the UK is starting to turn slightly with some cautious positivity that the worst of the market turbulence might be over.

“While VC investment is expected to remain soft over the next few months, we are expecting that some renewed activity will be seen in the second half of the year.”

From a sector perspective, business services and energy transition continued to attract significant attention from VC investors in Q1’23, while interest in consumer retail and real estate remained dry.

Looking forward, B2B technology enablement is likely to remain a key driver of investment, not only in areas like financial and health services but across every sector. 

See also:

Skills gap threat to tech firms’ job ambitions

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