Tim Kay
Director
KPMG Enterprise

Figures at a glance

VC investment in UK scaleup businesses has surged during Q3’19, led by the £368 million funding round by Babylon Health and £195 million for Cambridge based CMR Surgical. The snapshot figures compiled by Pitchbook revealed a total of £2.4bn was invested in innovative, fast growth businesses in the UK during July to September 2019, up 19% on the previous quarter (£2.0bn) and £537 million more than the £1.9bn raised during the same quarter last year.

The figures show that more than £7.4bn has been invested by VCs in UK scaleups during the first nine months of the year, which almost equals the £7.6bn raised for the whole of 2018.

The number of VC investments being made continued to fall however.  There were just 245 deals completed in Q3'19 versus 421 in the previous quarter.  This was a substantial drop (42%) on the 420 deals completed in the same quarter last year.

A positive outlook

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 VC investors appear to have few qualms about investing in UK stalwart industries.

While there continues to be a significant amount of liquidity in the global VC market, investors are putting greater emphasis on governance, company business models and expectations related to profitability.  We are seeing the number of deals being closed continue to fall as VC investors taking a cautious approach to the investments they are making. This is a trend we would expect to continue over the next quarter and into 2020, particularly when making large late stage deals. 

"VC investment in fast growth UK businesses remains as robust as ever, with the domestic economic outlook having very little impact on their appetite for our disruptive enterprises."

Tim Kay, Director, KPMG Enterprise

Cybersecurity becoming a big ticket for VC investors

The scope and breadth of cybersecurity has VC investors flocking to the space, according to the Pitchbook analysis.

In 2018, $6.4 billion in VC investment went to cybersecurity companies –a record of investment that could be exceeded by the end of 2019. In Q3’19 alone security and risk management platform OneTrust raised $200 million in the UK, in addition to other deals. While Israel has long been a leader in VC investment in cybersecurity, other countries are also rising on the radar of cybersecurity-focused VC investors. 

Given the growing need for companies to become more efficient and to manage a more complex array of regulatory and compliance requirements, it is expected that this is an area that could see further investment in the future

Bumper quarter for scaleups across Europe as new unicorns are born

Europe has already exceeded 2018’s record level of VC investment – with one quarter remaining in the year. The region had a record quarter for VC investment during Q3’19. The diversity of innovation hubs across the region continued to play a key role in the strength of Europe’s VC market – with Germany, the UK, Sweden, Israel and Belgium all attracting significant funding rounds during the quarter. The diversity of companies attracting funding was also substantial, with VC investors in Europe embracing opportunities across financial services, healthcare, transportation, mobility, pharma and biotech, B2B services, and others. 

The availability of funding continued to be strong across Europe during Q3’19, not only from traditional VC firms, but also from family offices. This likely contributed to the lack of interest in IPOs, and the rise of unicorn companies in Europe as new technology companies matured, yet remained private. Last quarter also saw seven new unicorns birthed, including FlixMobility(FlixBus) and Deposit Solutions in Germany, Acronis and Numbrs in Switzerland, Babylon Health and Cambridge based CMR Surgical in the UK and Lighttricks in Israel.

Sectors to watch

Fintech, transportation, mobility, healthtech, and biotech are all expected to be hot areas of VC investment on a global level, with AI continuing to be a critical focus at a technology level. B2B solutions, productivity solutions, and solutions with real world impacts are also expected to grow on the radar of investors. 

Transportation and mobility companies were among the hottest areas of investment during Q3’19. In China, these sectors bucked the slowdown trend, accounting for three of the deals in China, including DidiChuxing’s $600 million investment by Toyota, CHI Automotive’s $530 million funding round, and a $400 million raise by Hellobike. Looking at Asia more broadly, Ola Electric Mobility in India also raised $250 million during the quarter. 

In Europe, transportation mobility app FlixMobility in Germany raised the largest funding round of Q3'19, while in the US transportation logistics company Samsara and Nikola Motor Company raised $300 million and $250 million respectively. With e-commerce levels only growing, VC investment in transportation and logistics is expected to grow, particularly as it relates to commercial solutions. This is particularly true in developing nations where transportation and logistics operations are less mature

Top European Deals Q3'19

  • FlixMobility (Transportation) - $564.43m
  • Babylon Health (Healthcare) - $550m 
  • N26 (Software) - $470m 
  • Klarna (Software) - $460m 
  • BioNTech (Healthcare) - $325m 
  • CMR Surgical (Healthcare) - $254.23
  • OneTrust (Software) - $200m 
  • Drylock Technologies (Consumer Non-Durables) - $167.85
  • Monday.com (Software) - $150m
  • Acronis (Software) - $147m

* 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 Q3'19 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 10th October 2019. 

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