UK leads EU venture capital, but Brexit could threaten its dominance
The UK is continuing to dominate European venture capital (VC) deals thanks to a rise in mega rounds but uncertainty over the movement of talent post-Brexit could hit the sector hard, a new report has cautioned.
UK VCs totalled 63 per cent of Europe-wide deals during the first half of the year, driven by a rise in mega rounds exceeding $100m, according to research by White Star Capital.
The UK’s fintech sector has continued to lead fundraising efforts, attracting 22 per cent of all VC deals so far this year. AI came in second with 15 per cent of deals, while digital health and e-Commerce got 4 per cent apiece.
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There have been five mega rounds in the UK so far this year, including fundraising efforts by Deliveroo and Monzo. Collectively these deals constitute 51 per cent of the value of all European mega rounds during this period.
However, the UK’s mega rounds are predominately funded by international investors, who have led 81 per cent of them. This is largely because there are few sufficiently large UK funds, but this may soon change, White Star partner Nicholas Stocks told City A.M..
Stocks said that leading mega rounds is “an opportunity [UK VCs] are not able to tap into” currently, but he anticipates this will change “in the next three years” as UK funds are more successful in smaller rounds.
It has been a bumper year for UK tech investment. The report predicts this year’s total investment will easily exceed 2017’s record of $5.8bn, with $4.9bn of funding already secured this year – double the amount for the same period in 2018.
But the potential impact of Brexit on UK VC looms large over the report, which describes it as “the largest topic” concerning the sector. It cautions that supply chains will become “even more critical” post-Brexit and that a no-deal scenario could “impact profitability due to tariffs on shipments.”
Maintaining movement of talent to the UK will also be crucial, said Stocks. “We really do call on the government to make sure that the visa and tech visa situation is cleared up so there’s absolutely no uncertainty.”
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“As talented developers in the EU and the world are looking at the UK, what they need to know is what their own situation will be when they move,” he said.
Stocks added he had noticed a trend for startups opening offices in the EU in, and said this “might accelerate when it comes to uncertainty over the talent question for Brexit.”
“What we are looking for is transparency, and that’s one of the key questions we’re talking about with Brexit – the uncertainty and the lack of transparency.”