Innovative businesses in the East Midlands attracted $36 million across 13 deals in venture capital (VC) funding in the first quarter of the year, according to the latest KPMG Private Enterprise Venture Pulse report.
While the number of deals remained relatively stable, decreasing only from 13 to 12, the total value of these deals experienced a significant decline, falling from over $58 million to $36 million compared to the same period in the previous year.
Some of the largest raises came from businesses with a healthcare focus – Locate Bio raised $10.6 million for a clinical study, University of Nottingham spin-out IsomAb raised $9.4 million to develop a new treatment for cardiovascular diseases, and Neupulse secured $3 million to advance a wearable device aimed at tackling Tourettes Syndrome.
In 2023, there were a total of 47 VC investments in the East Midlands, worth more than $155 million.
Khush Purewal, partner and head of deals at KPMG in the Midlands, said: It is reassuring to see that funds continue to flow into businesses in the Midlands, particularly those that are pioneering in the healthcare sector.
“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.
“The diversity of our scaleup ecosystem still attracts VC investors who are looking for innovative companies with robust unit economics and a 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.”
UK national outlook
Nationally, VC investment into UK businesses continued to slide in the opening quarter for 2024, falling to levels last seen in 2018.
Coming off the back of $4.9 billion raised by UK businesses in the last quarter of 2023, just $3 billion in funding was raised in Q1’24 — the lowest amount seen in twenty-two quarters. Deal volumes were also down with the Venture Pulse report recording just 519 deals completed in the period, levels not seen since 2016.
While deal volume was very subdued, deal sizes remained quite healthy as VC investors focused their funds on the most promising startups.
B2B businesses looking for VC investment faced particular challenges as companies across sectors felt pressure to tighten their pocketbooks and improve their internal efficiencies. This slowdown is likely to affect the interest of VC investors heading into Q2’24, although B2B startups with embedded technology solutions will likely prove more resilient than those with additive technology offerings the report found.
On the fundraising side, Q1’24 saw some larger VC funds in the UK showing interest in acquiring the portfolios of smaller funds; during the quarter, for example, Molten Ventures completed its acquisition of Forward Partners for $52 million. Another trend seen recently in the UK has been the focus on investment corridors; this has been particularly true in the fintech sector, where a number of UK fintechs are working to connect to the fintech ecosystems emerging in the Middle East.
What’s happening elsewhere?
Global VC investment fell slightly from $83.8 billion across 9,458 deals in Q4’23 to $75.9 billion across 7,520 deals in Q1’24 amid geopolitical tensions, the extended drought in exits among VC-backed companies, and a continued pullback in investment at later deal stages. The level of VC investment in Q1’24 was the lowest since Q2’19, while the number of VC deals was the lowest since Q2’16.
VC investment in Europe rose from $15.1 billion in Q4’23 to $17.9 billion in Q1’24, buoyed by a large $5.2 billion raise by H2 Green Steel in Sweden. With few exceptions, VC investors in Europe continued to show caution given the challenging geopolitical and macroeconomic environment, including the high interest rate environment; while interest rates have smoothed, there is little sign that they will decline to a significant degree in the near future.
The number of VC deals dropped considerably in Europe, falling from 2,419 deals in Q4’23 to 1,798 deals in Q1’24. This decline was particularly noticeable at later deal stages, with the number of Series D+ deals in the region dropping to just eleven. The geographic diversity of VC investments held strong during the quarter, with eight jurisdictions in the region attracting at least one $100 million+ funding round in Q1’24, including Sweden, the Netherlands, France, Germany, the UK, Spain, Israel, and Italy.
