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Venture Capital as a Landscape – Exploring the Trends in VC Funding in the UK

By November 28, 2019December 4th, 2019Blog

For anyone who is planning to create a startup or looking for ways to effectively grow their small-scale business, understanding the term ‘venture capital,’ its trends, and the economic impact thereof, is of the utmost importance.

Venture capital (VC) is becoming a hot topic of discussion for investors and business owners alike. Therefore, it might benefit you to learn a bit more about venture capital as a landscape yourself.

What is venture capital and why is it so important? What are the trends in VC funding in the UK? And how does the UK venture capital landscape compare to that of the US?

The following article provides the answers to these questions, in addition to covering everything you need to know about the current trends in VC funding.

The Importance of Venture Capital Firms

Venture capital firms play an important role in the economic prosperity of any country. Since they support the growth and development of new business ventures, venture capital firms quite rightfully serve as the catalyst for economic change.

Put simply, VC firms invest in innovative companies with a huge potential for growth. And this is what helps improve the overall economic infrastructure automatically.

Venture Capital as a Landscape in the UK

VC funding has become a prominent thing in various developed as well as developing countries – and the concept is definitely not new to the UK either.

Over the last few years, much like the rest of the world, the UK economy too has seen a strong shift towards the entrepreneurial mindset. This led to the emergence, and subsequent expansion, of the venture capital market in the UK as well.

In 2016 alone, more than 900 VC deals were completed across the country, delivering a total of over $4 billion in investments. The next year, the figure rose to an astounding $5.8 billion.

Although there was a slight decrease in the total amount of VC funds in 2018 ($5.4 billion), this year has shown a tremendous rise again. And according to White Star Capital, 2019 is set to be the record-breaker for VC activity in the UK.

White Star Capital is a renowned early-stage venture capital firm that facilitates entrepreneurs with global ambitions. This multi-stage investment platform is committed to helping small and medium-sized enterprises located in Europe, North America, and Asia.

Earlier this year, the company released a new report to present its findings on venture capital as a landscape in the UK. The report, titled UK Venture Capital Landscape From the Eyes of an International Investor, discussed at length, the VC ecosystem and the market trends, talent pool, and government policies shaping it.

In only the first half of 2019, VC funds secured by tech companies in the UK totaled $4.9 billion – that’s around 85% and more than twice the amount of capital raised in a similar time period during 2017 and 2018, respectively.

As if that isn’t surprising enough, the report also highlighted that the UK VC investment in H1 represented a total of 63% of European deal values this year.

Amazing, right? But wait, that’s not it.

The UK has consistently represented over 33% of all mega rounds in Europe.

A mega round refers to very large-scale funding, typically in excess of $100 million.

However, the interesting thing to note is that more than 80% of all mega rounds in the country were led by foreign investors. This is somewhat alarming because venture capital, by its very nature is private equity capital. This means that the investor gets a share in the company in return for providing the business with the necessary capital.

In other words, international entities have now secured their say in various UK-based companies as a result of VC funding. This was a golden opportunity that UK venture capitalists ought to have benefitted from.

Anyway, when it comes to the industries that dominate the UK venture capital landscape, four fields top the list. This includes fintech, artificial intelligence, healthcare, and e-commerce.

The financial technology, or as it is commonly called, fintech sector, leads the way for VC funding. So far, it has attracted more than 22% of all VC deals in the UK. It is followed by the AI sector that recorded a total of 15% of all VC deals made this year. On the other hand, the healthcare and e-commerce sector both attracted a total of 4% deals each.

Reasons Behind the Growth of UK Venture Capital Landscape

Investment is always a risky activity. No matter how promising the prospective company might be, there’s no denying the likelihood that the venture capitalists’ resources might simply go down the drain.

But VC firms don’t seem to be hesitant when investing in UK-based companies. And they have every reason not to be.

There are several key factors that contribute to the continued channeling of capital in the UK ecosystem – and the report by White Star Capital proves it too.

The first key factor is the available talent. The UK market is characteristic of strong players, well-skilled employees and the underlying initiatives that support them.

1 in every 2 unicorn founder in the UK attended a local university (on a side note, 4 of the top 10 universities in the world are located in the UK). Moreover, 63% of the Series C+ founders are reported to have worked with at least one UK-based company before they launched their own startup.

Apart from the wealth of talent, another reason behind the confidence in crowdfunding in the UK is the country’s focus on technology. Over the last three years, crowdfunding was the preferred mode of raising capital for more than 50% of all startups.

To sum it up, it can be said that despite the strong headwinds resulting from the impending Brexit and whatnot, the UK venture capital landscape is constantly growing nonetheless.

However, to ensure future success, the government must continue investing in education, research, and development. Policies that encourage business growth must be put into place as nurturing and investing in entrepreneurs is what will ultimately help the country cement its position as a global VC leader.