The value of venture capital (VC) investment in South East businesses rose by more than half (52%) in Q3 of 2023, according to KPMG’s latest Venture Pulse report, compiled by PitchBook.
A total of £758.2m was raised by the region’s businesses from July to September, compared to the £498m raised in Q2.
Despite the volume of transactions dropping slightly quarter-on-quarter, from 67 to 52 (a decrease of 22%), a number of strong fundraising rounds of more than £30m each significantly raised the Q3 total value.
Abingdon-based Tokamak Energy secured the largest capital injection from investors of any business in the region during the quarter, raising £159.4m from a funding round.
Oxford-based businesses drove the highest proportion of deals, with seven firms based in the city raising a total of £145.8m.
At a national level, the value of VC investment remained stable in Q3, despite the volume of deals falling by over a third quarter on quarter. $5.2bn (£4.2bn) was invested in UK businesses during the quarter, down marginally on the $5.6bn raised in Q2.
Deal volume, however, continued to fall with 469 deals completed during the period, down 34% on the 713 deals completed in Q2, and 44% down on the same period last year (845 deals).
Given the uncertain geopolitical and macroeconomic environment – including concerns about valuations, potential returns, the lack of exits, high interest rates and other factors – the time to complete VC deals slowed considerably across most regions of the world during the last quarter.
Emma Gibson, South hub and Reading office senior partner at KPMG in the UK, said: “Whilst Q3 has seen a slowdown in the number of deals completed, the value of those deals has shown that there are significant opportunities here in the South East for business leaders and investors alike.
“As we’ve seen in previous quarters, the biotech and medical sectors have been significant drivers of investment and remain buoyant in what is a challenging market.
“The region has consistently performed well, and even outperformed, other regions in this sector, with significant expertise in pharmaceuticals, medical devices and related areas.
“The South East’s resilience comes against the backdrop of a slow deals market. Investments are continuing to take longer to complete with investors remaining particularly cautious and asking more questions of their investment prospects and holding out for deals that they can be certain have clear paths to profitability.”
VC investment is expected to remain relatively soft in the final quarter of the year, given ongoing uncertainties in the global VC market and a heightened level of investor caution.
Energy, cleantech, and AI, however, are expected to remain highly attractive to VC investors across much of the world.
The major question heading into the end of the year is whether there will be any additional IPO activity in the wake of the three IPOs in late 2023.
Although a dramatic reopening of the IPO market is not expected, additional exits could spark a renewal in IPO activity heading into the first half of 2024.