London venture capital funding halves as deals sink to eight-year lows

London venture capital funding fell to its lowest level since 2018 during the first quarter of this year, with only $1.7bn (£1.4bn) in funding raised.

This sharp drop from $3.7bn (£3bn) in the last quarter of 2023 is the lowest amount raised in 22 quarters, according to data from KPMG.

Meanwhile, the number of London venture capital deals fell even further, with only 279 deals done throughout the three months, down from 370 the quarter before and the worst level since 2016.

Nationwide UK venture capital funding fell similarly, with only £3bn (£2.4bn) raised in 519 deals, also falling to 2018 and 2016 levels, respectively.

While deal volume was very subdued, deal sizes remained quite healthy as venture capital investors focused their funds on the most promising startups.

The largest raises nationally came from neobank Monzo ($431m), Cambridge-based drug discovery company Apollo Therapeutics ($260m) and Nottingham-based GeoPura (£56m).

Only one of the top 10 venture capital fundraisers throughout Europe came from London venture capital – that being Monzo – while only one other (Apollo) came from the UK.

Meanwhile, the quarter saw larger venture capital funds looking to buy up smaller funds, such as Molton Ventures acquiring Forward Partners for $52m.

Another trend flagged by KPMG within the UK and London venture capital, has been a focus on investment corridors, with various firms working to connect to fintech ecosystems developing globally, especially in the Middle East.

Globally, venture capital investment fell slightly to $75.9bn in 7,520 deals throughout the quarter, compared to $83.8bn in 9,458 deals in the last quarter of 2023.

This put venture capital funding at its lowest level since 2019, with the number of deals falling to a 2016 low.

However, European venture funding actually rose in the quarter to $17.9bn, due to a $5.2bn raise from H2 Green Steel. Deals still fell considerably, from 2,419 to 1,798.

Nicole Lowe, UK head of KPMG’s emerging giants practice, said: “It’s clear that the oversupply of capital and record levels of VC investment that the UK experienced in 2021-2022 were a reaction to the pandemic and very much an outlier period.

“Over the last 18 months, the macroeconomic environment has changed dramatically with political uncertainty and cost of borrowing all rising. As we find ourselves in a new normal, we need to think about how we move ahead, and right now, investors are focusing on companies prioritising routes to profitability and that are creating sustainable growth to succeed in the current environment.”

Lowe added: “The diversity of our scale-up ecosystem still attracts VC investors to the UK who are looking for innovative companies with sustainability and a robust path to growth. As the economy remains challenging, continuing to support fast growth businesses is important to the UK’s economic recovery and growth, and is key to levelling up as we look to attract and develop talent across our regions.”