UK venture capital (VC) investment dropped by 30% in 2022, with London continuing to attract the lion’s share of funding.
According to a report from professional services firm KPMG, UK businesses secured £22.7bn in VC funding last year. In the first half of 2022, the UK attracted £14.7bn of VC investment before taking a dive to £8bn in the second half.
The tech sectors that saw “strong activity” were sustainability, gaming, along with health and biotech. However, the report noted, buy now pay later (BNPL) “struggled”.
Warren Middleton, lead partner at KPMG, said: “VC investment into UK businesses remains well above pre-pandemic levels, and as we look ahead to 2023 it is likely that we’re about to enter a period of “new normal” in terms of valuations and M&A.”
However, a previous report by Atomico that looked solely at UK tech funding found that investment dropped by 22% last year, suggesting that the tech industry faired slightly better than businesses as a whole.
A reduction in investment was also met with a decline from 3,830 deals in 2021 to 3,213 deals in 2022, a 19% drop.
In 2023, Middleton expects energy alternatives to take centre stage for investment and thinks that IPOs are billed for a “broad return” in the latter half of the year, with some coming earlier.
London continued to draw the vast majority of British VC investment, attracting £16.4bn compared to £6.2bn across the rest of the country combined.
There were 1,443 VC deals across the UK’s regions in 2022 compared to London’s 1,770 deals.
Middleton added: “Dry powder is still being deployed — what’s changing is the way it’s being invested. Soaring energy costs sparked a significant uptick in VC investment in new energy alternatives, electric vehicles, and cleantech.”
ESG companies are not likely to IPO, Middleton said, but there is the possibility that we’ll see them begin pre-IPO efforts.