VCM0023

 

 

 

Written evidence submitted by KPMG UK

 

 

  1. Thank you for the opportunity to inform the Treasury Select Committee’s short inquiry into the venture capital market. Our submission of evidence highlights key findings from Venture Pulse report, issued quarterly by KPMG Private Enterprise, and it distils the major trends, opportunities and challenges facing the venture capital market in the UK.

 

State of play in the UK venture capital market

 

  1. Our Venture Pulse findings showed that the UK saw record levels of Venture Capital (VC) investment in 2021, reaching £26 ($38.6) billion, and the market remains buoyant in early 2022. Investment levels in 2021 more than doubled when compared to the 2020 total of £11.3 ($15.9) billion. This has demonstrated the resilience and adaptability of the UK in attracting VC investment in a post-pandemic and post-Brexit context.

 

  1. Investment in HealthTech was particularly strong last year, with firms in the sector growing faster in the UK than in many other jurisdictions. VC investment in FinTech has also been strong – indicated by large multi-million-pound raises, including for Monzo and Zopa at the end of 2021 – and this looks set to continue into 2022.

 

  1. Over the past decade VC investment into the UK has increased tenfold, indicating that our scaleup ecosystems are maturing, growing and attracting greater numbers of home-grown innovators. It is also significant that the UK attracted more VC investment in 2021 than France and Germany combined, cementing its position as a leading hub for fast growth and innovation in Europe.

 

  1. Corporate Venture Capital (CVC) investment hit £10 billion ($15.6) in 2021 and, again, has remained strong in early 2022. Last year it accounted for over a third of all investment seen across the UK. Software and consumer goods continue to attract most of this investment, and with innovation and technology continuing to be boardroom priorities, CVC affiliated investment looks set to grow further this year.

 

UK venture capital market outlook for 2022

 

  1. Released in April 2022, our Venture Pulse findings showed that fast growth businesses in the UK continue to attract significant volumes of VC investment, despite an uncertain geopolitical and macroeconomic environment.

 

  1. There was a total of 745 deals for UK scaleups completed in Q1 2022, raising over £6.9 ($9) billion. In London, £5.2 ($6.8) billion was invested across 411 deals; and the wider UK regions and nations attracted £1.7 ($2.2)billion across 344 deals.

 

  1. As referenced above, VC investment into HealthTech and FinTech look set to remain strong in 2022. We also expect to see momentum across InsurTech and ESG, particularly as scaleups in micro-mobility solutions gain increasing attention from investors as governments explore alternative and sustainable solutions for travel around cities. (Last year, over £500 million was invested in micro-mobility scaleups, including £5 million for WeeVee.)

 

  1. Increasingly too, Agtech and the wider sustainability agenda could rise as investment priorities. Indicators from 2021 included the Edinburgh-based Intelligent Growth Solutions raising over £42.2 million in a Series B financing.

 

  1. In a wider context, European start up ecosystems have raised over £30 billion at the start of 2022. The Ukraine crisis is driving investors’ attention towards defence-related technologies – including anti-missile and drone technologies – particularly as several European countries have announced increases in their defence spending. While it is expected that many of these investments will flow into government institutions, adjacent technologies such as communications may prove to be key investment targets.

 

 

Venture capital investment supporting levelling up across the UK’s regions and nations

 

  1. Though the bulk of VC investment continues to flow into London, there is strong evidence to suggest that the UK’s regional ecosystems are maturing and performing well. Significant investments into fast growth businesses are happening not only in the South East, but across the Midlands, North and Scotland. This is significant in the context of the levelling up agenda, and in terms of supporting the regions and nations of the UK in terms of attracting and developing talent.

 

  1. In 2021 the regions outside of London attracted £8.1 billion of VC investment. This has more than doubled since the pandemic (+145% from £3.3 billion invested in 2019). In the first quarter of 2022, total VC investment into areas outside of the capital reached £1.7 billion across 334 deals.

 

  1. The standout deals that indicate the success and development of the UK’s regional ecosystem include the:

 

 

  1. Continuing to secure and improve scaleups’ access to funding – and making it more equal and evenly distributed across the UK, to support the early, Series A to C stages – will contribute to the health of the regional ecosystem.

 

KPMG’s Venture Pulse methodology

 

  1. KPMG uses PitchBook as the provider of venture data for the Venture Pulse report.  PitchBook defines venture capital funds as pools of capital raised for the purpose of investing in the equity of startup companies. In addition to funds raised by traditional venture capital firms, PitchBook also includes funds raised by any institution with the primary intent stated above. Funds identifying as growth-stage vehicles are classified as PE funds and are not included in this report.

 

  1. The Venture Pulse does not contain any transactions that are tracked as private equity growth. PitchBook defines a PE growth round as a financial investment occurring when a PE investor acquires a minority stake in a privately held corporation. Thus, if the investor is classified as PE by PitchBook, and it is the sole participant in the recipient company’s financing, then such a round will usually be classified as PE growth, and not included in the Venture Pulse datasets.

 

About KPMG

 

KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 15,300 partners and staff.  The UK firm recorded a revenue of £2.43 billion in the year ended 30 September 2021.

 

KPMG is a global organization of independent professional services firms providing Audit, Legal, Tax and Advisory services. It operates in 145 countries and territories with more than 236,000 partners and employees working in member firms around the world. Each KPMG firm is a legally distinct and separate entity and describes itself as such. KPMG International Limited is a private English company limited by guarantee. KPMG International Limited and its related entities do not provide services to clients.

 

June 2022