UK venture capital investment tumbles to pre-pandemic levels as market jitters linger

Venture capital investment in the UK tumbled back to pre-pandemic levels in the first three months of the year as a slump in start-up valuations and volatile markets continue to spook investors.

A total of £2.9bn was invested into UK firms in the opening three months of the year, the lowest amount of cash raised in the opening quarter of a year since 2020, according to data from big four firm KPMG.

The figure marks a sharp fall from the £8.2bn raised in the first quarter of 2021 and £12.3bn raised in the first quarter of last year, when low interest rates still fuelled a deal boom.

Soaring inflation and the shocks of war in Ukraine sparked a sharp end to funding frenzy over the previous years, as investors soured on loss-making start-ups and shifted their focus towards profits. 

Warren Middleton, UK chief of KPMG’s Emerging Giants Centre of Excellence, said the funding boom over the previous two years now looked like “an outlier period”. 

“What we are starting to see now is VC investment starting to come back to more normal levels, albeit compounded by a challenging economic environment,” he said. 

“The dynamic of the two factors together is making the disparity even bigger, but investor sentiment in the UK is starting to turn slightly with some cautious positivity that the worst of the market turbulence might be over,” he added.

VC investment was expected to “remain soft over the next few months” but could begin to tick back up in the second half of the year as volatility begins to cool, Middleton added.

London continued to attract the lion’s share of investment amid the slowdown, with two-thirds of UK VC investment – some £1.9bn – flowing into the capital, KPMG found.

Among the top rounds of the quarter were a $160m raise by fintech clearing bank the Bank of London, and a $149m raise by EV automotive company One Moto.