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16 April, 2019 - 12:36 By Tony Quested

Cambridge startups lead regional VC boom despite UK lull

Mark Prince of KPMG in Cambridge

More than £125 million ($163.4m) of Venture Capital investment was made into the startup community in the East of England in the first three months of the year, according to Venture Pulse, a quarterly report on global trends published by KPMG Enterprise. 

The report, which provides a snapshot of VC activity in the UK, revealed that both volume and value of deals completed in the first three months of 2019 was up on the same quarter last year – bucking the national trend.  

Nineteen VC backed deals were closed during January to March 2019 – well up on the 12 deals completed over the same period last year, which raised just over £36m ($47.54m).

The bulk of the investments (15) were made to Cambridge-based businesses with significant ones including the £39.8m of Series B venture funding for Inivata to be used by the company to advance the US commercial roll-out of its InVisionFirst™- Lung liquid biopsy test and also to accelerate the development of the InVision® liquid biopsy platform into new indications to drive the future growth of the company.

Other deals included the £25m of venture funding for Featurespace which will use the funds to support international expansion and continued development of its software capabilities as well as supporting the continued distribution of its real-time, ARIC™ platform – and the £18m of Series A venture funding for Wren Therapeutics.

Mark Prince, head of enterprise at KPMG in Cambridge said: “The increase in the levels and value of VC funding in the region is testament to the strength and diversity of our startup ecosystem which keeps investors coming back. 
   
“FinTech, biotech, and healthtech continued to drive a significant amount of the VC investment in the region, highlighting the resilience of these industries. 

“The region’s particular strengths in biotech and healthtech bode well for the future with investment in both areas expected to stay strong this year as well as the growing area of health focused insurtech. Hopefully strong investment levels into the region will continue, particularly once the uncertainty of Brexit has been resolved.”

Across the UK, VC investment was flat year on year at $1.56 billion raised across 161 deals – down 57 per cent on the same period in 2018.  

Globally it was down by almost 13 per cent ($7.8 billion) compared to the same period last year, as numerous economic uncertainties caused some VC investors to pull back, at least in the short-term. 

The rapid approach of the Brexit deadline, a perceived economic slowdown in China, and heightening trade wars between the US and other regions all caused some concern to VC investors in the UK.

Germany saw a fall in investment levels over the first quarter of this year to £1 billion, whilst France continued to build a strong innovation ecosystem and saw its largest quarter of investment to date, with £760m ($1bn) invested in its growing startup community.

Prominent deals for the quarter were diverse on a sector basis, reflecting some of the strengths of the UK’s innovation ecosystem. The most significant funds went to late stage UK enterprises, including a £150 million fundraise for FinTech company Iwoca. 

Other notable deals included the £58 million Series E funding for GoCardless to expand the company's presence overseas, whilst corporate VC investment in the UK remained steady with Mitsubishi Corporation investing over £215 million in Bristol based OvoEnergy – a company focused on electric vehicle charging and energy storage.

Digital banking was a big winner of VC investment globally, with Chime in the US raising $200 million in a round that won it unicorn status and Germany-based N26 raising $300 million. 

In the first quarter, the Capability and Innovation Fund, an EU-mandated package to boost competition in the UK’s business banking sector, awarded more than £280 million in funding to Starling Bank, ClearBank, and Metro Bank.

A number of European challenger banks also voiced plans to enter the US in the first quarter of the year, including UK-based Revolut and Starling Bank. Germany’s N26 also raised funds in this year, in part to fund a US expansion, while Israel’s Bank Leumiis is reportedly talking to potential partners about launching its digital Pepper offering in the US.

Mark Prince concluded: “Part of the attractiveness of digital banks has been their flexibility, the evolution of their business model and, in some cases, their ability to package and sell their technologies to more traditional banks in a white label form.

“A number of these digital and challenger banks are now well-established in their home markets and are now eyeing opportunities to grow both regionally and internationally. 

“The US is a big target of many of the European challenger banks, with several big names looking at expanding into the North American market.”

• The global report can be found at: www.kpmgenterprise.co.uk/perspectives/venture-pulse-q1-2019/

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