UK surpasses India as world’s third-largest venture capital market

The UK has leapfrogged India to become the world’s third-biggest venture capital market, new figures show, as analysts forecast a return to growth after a drop-off in investment and dealmaking in recent years.

The venture capital market in the UK now trails just the United States and China in size, according to data from state-owned lender the British Business Bank.

Its figures also showed the UK accounts for more than a third of venture capital investment across Europe.

“This demonstrates that the UK is building on its position as a global leader in venture capital, and this presents a substantial opportunity for both domestic and international investors,” said Louis Taylor, the British Business Bank’s chief executive.

Still, the UK was hit by a 48 per cent drop in venture capital investment last year to £8.8bn compared to 2022, with the volume of deals falling 25 per cent to 2,152.

Venture capital deals had boomed in the decade to 2022 but began to slow dramatically after Russia invaded Ukraine and central bankers began hiking interest rates to cool inflation.

But as rate cuts loom and the economic outlook improves, analysts are predicting a return to growth in 2024.

Separate figures published by Dealroom on Thursday showed UK firms have received nearly a third of European venture capital tech funding so far this year, with investment in the sector up 16 per cent year on year.

“As has been the case globally, 2023 was a tough year for the UK equity finance market,” Taylor said. “However, despite the continued challenges of higher interest rates and fewer exit opportunities, it is encouraging that investment now looks to be stabilising at over £2bn per quarter for smaller businesses.”

Equity investment in privately held companies has now recovered to 2019 levels, the bank said, with Taylor adding that investments and valuations had returned to “pretty reasonable” levels.

New chancellor Rachel Reeves said earlier this week that the British Business Bank and UK Infrastructure Bank would become aligned under a new National Wealth Fund to be launched with £7.3bn of state funding.