Investment in UK startups has fallen by the largest amount in five years, with annual deal numbers for 2016 decreasing by 18% since 2015. The total amount invested also fell by 12% to £3.6bn.
That’s according to a report by Beauhurst, which has recorded all equity investment into UK startups in 2016.
Toby Austin, CEO and co-founder of Beauhurst, commented: “A year ago we predicted that 2016’s investment numbers would be flat on 2015’s. At the time, we thought that was a pessimistic outlook. It looks like we weren’t pessimistic enough.”
“The Deal” report also discovered crowdfunding suffered an overall decline of 14%, with 301 crowd investments completed in 2016. However, crowdfunding at the growth stage increased by 10%, with 80% of these companies crowdfunding for the first time, showing that this alternative funding route is emerging as a means for scaleups.
Despite the drop in total investment, Beauhurst also reported that the average deal size increased by 5%. Deliveroo’s $275m Series E was the largest UK round raised last year, followed by Skyscanners £128m raise and the £100m closed by Oxford Nanopore.
“There are still some things to celebrate from 2016,” added Austin. “We saw some mammoth investments made into UK companies that genuinely have the potential to be world leaders in their industries.
“We saw a number of successful exits, demonstrating that the cycle of investment can indeed pay off. And even crowdfunders had something to celebrate, with their reach expanding significantly into the funding of later-stage companies,” he said.
Additionally, although UK investment dropped, startups in Wales and Northern Ireland received more funding than in 2015, seeing a 30% and 8% increase in deal numbers respectively.
In stark contrast to yesterday’s report released by Innovate Finance, which looked at the decline in UK FinTech investment, “The Deal” did not directly link the overall fall in investment to the EU referendum result.
“Despite the broader decline, we saw no significant drop in deal numbers after the EU referendum, suggesting Brexit has had little to no short-term impact on equity investment. The long-term effects, of course, remain to be seen,” Austin concluded.