Tim Kay
Director, Innovative Startups
KPMG UK

The figures  

Looking at the first six months of the year so far, VC investment into the UK has risen by 37% to $5.5bn compared to 2018 ($4bn). However, deal volume for the quarter was down on Q1’19 with 279 deals completed during Q2’19 (compared to 324). The latest figures reveal investors have not been dissuaded from plying the largest startups in the UK with plenty of VC, however they are not quite as confident on smaller prospects, and are pulling back the pace seen in 2018, looking to invest their cash into those companies deemed less risky. This continues a trend that started in [late 2017], where investors were tempted to place their bets on start-ups. Deal sizes were up with 2019 figures suggesting seed rounds have doubled in size from 2018 levels.

The UK was home to two of the largest deals completed in Europe during Q2’19. Checkout.com raised $230 million Series A funding, to strengthen their leading position in the market, and expand to Jordan and Pakistan. Deliveroo’s considerable $575 million fundraise, led by Amazon, has been put on hold temporarily as the Competition and Markets Authority (CMA) decides whether to investigate further over fears that the two companies have “ceased to be distinct”. Other notable deals included World Remit ($175 million) and Monzo ($144 million). Fintech investment remained robust across Europe in Q2’19; digital wallet and password management platform Dashlane raised $100 million, payroll company Payfit raised $80 million and money management app Bankin’ raised $23 million.

What does this mean?

Whilst it is great to see investors continuing to plough premium values into our larger scaleup businesses, the stagnation in investment levels for early stage UK startups is concerning. Just $26.9M of angel and seed investment was made to UK businesses in the last three months, raising the question as to who is funding the innovators of the future. Unicorns* do not just appear overnight, most are around four to six years old before they hit the big time, and it is worrying that the decline in early stage funding has been ongoing for the last few years. Access to funding is the foundation for growth, and UK innovation could be impacted if our next wave of unicorns fail to attract the capital they need to grow now.  

Last year saw a record level of annual VC investment coming to the UK; it is encouraging to see that investment levels remain strong. Hopefully the diversity of the UK ecosystem, which has helped keep overall VC investment buoyant until now, will see a renewed interest in the second half of the year. We have seen the number of funds under $50 million in size double already since 2018, so we hope to see this being deployed into Seed stage deals in the remainder of 2019.

AI tops the list of investor’s must haves

Following on the last quarter, AI drew a significant amount of attention from investors, likely a result of its overwhelming applicability to all sectors. Compared to other technologies, AI is seen as a true game changer in terms of the disruption it poses for industries and verticals the world over –including healthcare and financial services. China in particular is investing significantly in the development of AI, with the expectation that it will become one of the country’s primary growth differentiators. While China’s VC market currently faces a number of challenges, it is expected that strong AI value propositions will continue to attract funding.

AI is the hot ticket of the moment with VC firms, corporate investors and even a number of governments investing in AI innovations. The UK is currently implementing the first components of its AI Strategy – supporting the development of relevant Machine Learning degree programs and research institutes at UK-based universities. The UK’s Centre for Data Ethics and Innovation is also in the process of consulting on the establishment of data trusts in order to support the use of AI. There is a great deal to be gained for the country that can win the race for AI supremacy.

"There is a great deal to be gained for the country that can win the race for AI supremacy."

Tim Kay, Director, Innovative Startups, KPMG in the UK

Diversity remains Europe’s biggest asset

Overall the number of VC deals across Europe continued to decline, however total VC investment remained high at well over $8bn. The strength of Europe’s VC market continued to be defined by the growing diversity of its innovation hubs. Increasing investment in the Nordic countries, France, Spain, Poland and others, combined with steady investment in more established innovation centres in Germany and Israel, helped keep VC investment in the region high during Q2’19.

Key investments in Europe were led by Finland-based Wolt raising $130 million. Other large funding rounds included Germany-based GetYourGuideDeutschland ($484 million), Spain-based Glovoapp23 ($174.8 million), and Poland-based ZnanyLekarz ($93 million).

Q2’19 was a strong quarter for VC investment in France, led by a $230 million raise by photo editing company Meero, earning the company unicorn status. Fast-growing online gardening marketplace ManoMano and digital wallet app platform Dashlane also raised $100 million+ funding rounds in Q2, highlighting the growing maturation of France’s innovation economy.

The analysis also found that corporate investors now set a record high for participation percentages in Q2 2019. This is a testament to the ongoing trend of corporates getting more involved as a matter of strategy within the venture ecosystem, as well as Europe’s still-strong entrepreneurial ecosystem.

Europe’s increasingly diverse innovation hubs helped drive the region’s results, with companies from seven different countries represented in Europe’s top 10 VC deals this quarter. As innovation hubs in Europe continue to mature, so too will their startups. A growing number of startups are now seeking larger sized rounds, a necessity for companies looking to move into new segments or regions. This growth activity is likely helping to spur VC investment in Europe despite existing political and economic uncertainties.

Top UK Deals Q2'19

  • Deliveroo (Information Technology) - $575m
  • Checkout.com (Information Technology) - $230m
  • World Remit (Information Technology) - $175m 
  • Monzo (Fintech) - $144m
  • Fnality International (Fintech) - $65.19m 
  • Onfido (Information Technology) - $65.19m 
  • Depop (Information Technology) - $62m
  • Quell Therapeutics (Heathcare) - $45.63m 
  • Zego (Financial Services) - $42m
  • Privitar (Information Technology) - $40m 

* 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 Q2'19 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 July 2019. 

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