London-based companies received 80.6% of all venture capital investments last quarter in a sign that regional hubs continue to be overlooked by investors.
Data released by KPMG’s Venture Pulse report shows that £5.8bn of VC investments between April and June went to companies based in London, while £1.4bn was invested across all the other regions around the country combined.
Among the top regional deals was the £84m investment into Manchester-based Freedom Fibre. The company aims to bring fibre connection to two million buildings in the Northwest.
Overall, the £7.2bn raised by UK companies was a decline from the £8.5bn raised in the first quarter in a sign that soaring inflation, rising interest rates and macroeconomic uncertainty from the war in Ukraine is being felt by investors.
However, VC investment for the quarter remained up on the £7bn raised in the year-ago period. Since the start of the year, VC investors have injected £15.7bn into UK companies.
“Despite the global downturn, the value of VC investment in UK businesses continued at a steady pace in Q2 2022. UK businesses have raised over £1.2bn more in the opening half of this year than where we were at this time in 2021,” said Warren Middleton, lead partner at KPMG’s Emerging Giant Centre of Excellence.
It was a gloomier outlook for corporate venture capital investment, which decreased from £4bn in the first quarter of the year to £2.2bn in the following quarter.
UK venture capital deal volume saw a big decline, with 667 deals occurring in the last quarter, the lowest since Q2 in 2018. Deals for the first half of the year saw an 11% drop compared to the first half of 2021.
Middleton added: “Continued challenging economic conditions could hamper levels of VC investment for the remainder of this year and there are already some red flags on the horizon as the volume of UK deals being done in the first half of 2022 is down more than 11% year on year.”
The UK is not alone in a decline in funding. Global venture capital funding fell to £100bn this quarter from £138bn in Q1.
Some sectors have been affected less by the downturn than others, with KPMG observing that investors have been turning to ‘safer’ bets such as finech.
Despite regions outside of London representing a smaller majority, it was found earlier this year that startups based in Manchester, Leeds and Sheffield had raised a total of £1.3bn in the last five years.