UK investment nearly doubled in 2017: what’s happening underneath

Written on February 9, 2018 by Yoram Wijngaarde

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The advent of big tech and mega-rounds

UK investment nearly doubled from $4.2 to $7.8 billion in 2017. Mega-rounds were a major growth driver. For instance, 2017 saw 22 rounds over $50 million, compared with nine in 2016. However mega-rounds were not the only factor: even when excluding the top-10 rounds in each year, investment increased from $3.2 to a new record of $5.1 billion. Note that the decline in number of rounds will likely reverse, once all smaller 2017 rounds have been announced.

Is UK investment overheating? 

One way to answer this question is by comparing investment per capita. U.S. investment in 2017 was $250 per capita (320 million people, ~$80 billion(1) investment). UK investment in 2017 was $120 per capita (65 million people, ~$7.8 billion investment). The chart below gives a pan-European view:

The above chart indicates that European VC investment still has plenty of upside. European tech is growing up. And the UK acts as a crucial tech hub to Europe’s 700 million people. UK investment now accounts for 37% of all venture capital investment in Europe. Indeed, the vast majority of funded UK companies are active across Europe.

More capital is available than ever before

Europe’s venture capital industry has been on the rise with more capital available than ever. At the same time, UK investment from the USA and Asia more than doubled in 2017. Corporate investment into the UK also more than doubled. Investment from domestic UK funds also grew, but less so (more on that below).

What about any impact from Brexit?

A year ago when VC activity in the UK did decline, we stated that Brexit was not driving that decline. We’re opposed to the idea of Brexit, but high-growth tech companies are among the least vulnerable constituents, at least in the short term. Manufacturing, hospitals, and finance employment are more vulnerable. The long-term ramifications on tech have yet to play out (macro impact on consumer demand, ability to attract foreign talent). Luckily for the UK, big tech players like Facebook, Amazon, Softbank and Google all placed firm votes of confidence on the UK in 2017.

Are there any warning signs in UK market conditions?

Firstly, the UK is seeing a decline in seed rounds below $1 million while this trend is not yet visible in Continental Europe. However, UK seed rounds larger seed rounds.

Secondly, the UK is no longer the undisputed capital of European venture capital. Continental Europe’s venture capital industry is catching up to the UK. The following heatmap shows how France is nearly on par with the UK while other countries are also on the rise, for example:

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1. $80 billion investment in the U.S. as per average of Pitchbook and CB Insights