Q1’19 in a nutshell
The most significant funds went to late stage UK enterprises, including a £150 million fundraise for fintech Iwoca. Other notable deals included the £58 million Series E funding for GoCardless to expand the company's presence overseas, whilst corporate VC investment in the UK remained steady with Mitsubishi Corporation investing over £215 million in Bristol based Ovo Energy – a company focused on electric vehicle charging and energy storage.
Fintech, biotech, and healthtech continued to drive a significant amount of the VC investment, highlighting the resilience of these industries and the strength of the UK innovation ecosystem.
VC investment globally was down by almost 13 percent ($7.8 billion) compared to the same period last year, as numerous economic uncertainties caused some VC investors to pull back, at least in the short-term. The rapid approach of the Brexit deadline, a perceived economic slowdown in China, and heightening trade wars between the US and other regions all caused some concern to VC investors in the UK.
The UK has a robust startup ecosystem due mostly to its diversity – which keeps investors coming back. Whilst large volumes of VC investment are pumped into established startup hubs in London and Cambridge, it was great to see the largest UK deal so far this year was in Bristol, for Ovo Energy ($281.6 million). This diversity has helped keep overall VC investment in the UK strong until now and will hopefully continue once the uncertainty of Brexit has been resolved.
The strengths of the UK in AI, biotech and fintech will continue to drive deals in the traditional hubs of London, Oxford and Cambridge. However with valuations rising, and in many cases being out of reach for all but the top tier of VC firms, we expect to see more funds look across the UK ecosystem in 2019 for deal flow. Providing Brexit uncertainty can be curtailed, deal volumes should rebound as VC investors won’t want to sit on unspent cash and the UK still remains an attractive investment location for innovative businesses.
"The UK has a robust startup ecosystem due mostly to its diversity – which keeps investors coming back."
Tim Kay, Director, Innovative Startups, KPMG in the UK
Digital banks see very strong investment
Digital banking was a big winner of VC investment globally, with Chime in the US raising $200 million in a round that won it unicorn status and Germany-based N26 raising $300 million. In the first quarter of the year, the Capability and Innovation Fund, an EU-mandated package to boost competition in the UK’s business banking sector, awarded more than £280 million in funding to Starling Bank, ClearBank, and Metro Bank.
A number of European challenger banks also voiced plans to enter the US in the first quarter of the year, including UK-based Revolut and Starling Bank. Germany’s N26 also raised funds in this year, in part to fund a US expansion, while Israel’s Bank Leumiis is reportedly talking to potential partners about launching its digital Pepper offering in the US.
Part of the attractiveness of digital banks has been their flexibility, the evolution of their business model and, in some cases, their ability to package and sell their technologies to more traditional banks in a white label form.
A number of these digital and challenger banks are now well-established in their home markets and are now eyeing opportunities to grow both regionally and internationally. The US is a big target of many of the European challenger banks, with several big names looking at expanding into the North American market.
Top UK Deals Q1
- Ovo Energy (Energy) - $281.61m
- Iwoca (Financial Services) - $195.56m
- Starling Bank (Financial Services) - $97.78m
- GoCardless (Information Technology) - $75.5m
- Inivata (Healthcare) - $52.6m
- Tessian (Information Technology) - $42m
- Oxford PV (Energy) - $40.42m
- Rapyd (Information Technology) - $40m
- Osler Diagnostics (Healthcare) - $39.17m
- Featurespace (Information Technology) - $32.59m
* We define a unicorn venture financing as a VC round that generates a post-money valuation of $1 billion or more.
About Venture Pulse
KPMG Enterprise’s Global Network for Innovative Startups launched the Q1'19 edition of the Venture Pulse Report. The report analyses the latest global trends in venture capital investment data and provides insights from both a global and regional perspective. This edition of the quarterly series provides in-depth analysis on venture capital investments across North America, EMA and ASPAC and will cover a range of issues such as financing and deal sizes, unicorns, industry highlights and corporate investment.
Please note, these figures are accurate as of 11th April 2019.