Venture capital feeding frenzy sees UK start-up investment boom

On the back of three consecutive record-breaking quarters, 2021 has become a bumper year for venture capital in the UK. The sector has already pumped almost £20 billion into start-ups and scale-ups, including a blockbusting £6 billion just for scale-ups over the summer. 

The UK is currently at the heart of an intersecting mass of systemic and social challenges, ranging from climate change to supply change breakdown and digital disruption. As is always the case, however, every crisis also presents opportunities to entrepreneurs able to address such issues – and also to the investors who back them on the way up.

In its current context, then, with its reputation for technological innovation, the UK is currently attracting a glut of spending on young firms, from all manner of investors. According to KPMG, this is in turn driving up the country’s venture capital market activity. 

Kevin Smith, Head of KPMG Private Enterprise in EMA, explained, “There are more and more new actors entering the UK market, so it’s not just that there’s a lot of dry powder floating around, but there’s also more competition with hedge funds, corporates, and other less traditional investors. We’re also seeing more foreign investors participating in fundraising for UK-based companies. All of that is ultimately driving up valuations here.” 

The quantity and value of deals have both grown rapidly throughout the last year. KPMG analysis found that venture capital backed start-ups and scale-ups in the UK to the tune of £19.38 billion ($26.7 billion) during the first three quarters of 2021. Each of these quarters was a record-breaker in terms of deal value – which hit £6.82 billion ($9.4 billion) in the third quarter. In particular, venture capital was keen to fund UK scaleups, pumping a record high of over £6.5 billion ($8.95 billion) into their expansion campaigns. 

In terms of what segments were most attractive to investors, KPMG found that while FinTech remained the hottest area of investment in the UK, a diversity of other companies also attracted funding. The virtual event platform Hopin for example raked in £330 million in funds, while electric vehicle subscription service Onto brought in £175 million from venture capital backing, AI/ML accelerator company Graphcore took £162 million, and flower delivery service Bloom & Wild received £125 million. 

At the same time, with the COP26 climate conference approaching, investor interest in sustainability-driven scaleups remains high. In the UK, KPMG found that more than £750 million was raised by sustainability scaleups in Q3 2021 alone. The energy sector continues to attract the highest levels of investment from a range of sources. For example, UK energy company Octopus Energy, raised £400 million from Al Gore Generation Fund from the US. 

Bina Mehta, Chair of KPMG’s UK Emerging Giants practice, observed, “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.” 

London remains the key hub for venture capital in the UK, meanwhile. The city hosted the second largest venture capital financing in Europe during the third quarter, when FinTech firm Revolut took $800 million from its Series E funding round. Hopin and MarketFinance were both also in the top 10, and also took place in London.