Increasing standardisation of terms, with deals and terms reflective of the challenging economic climate – but optimism and deal flows rebound

The current economic conditions including rising inflation and bank borrowing rates, due to ongoing wider global crises, have led to a worldwide reduction in venture capital (VC) investment over the last few months. The lack of certainty as to how the economy will play out this year and in 2024 has made investors wary of striking a bad deal and cautious of forecasted positive investment returns.

General UK picture

GlobalData and Pitchbook both report that in the first half of 2023, there have been in the region of 1000 venture capital deals raising approximately £6.5 billion in funds for UK-based start-ups. This represents a staggering 245% decline in total deal value and 60% drop in the number of funding rounds.

However, those statistics must be taken in context. The UK remains the most attractive market in Europe for early stage and growth investment, not least in the tech start-up space, and globally the UK ranks in the top five markets for both deal volume and value. It ranks third globally for VC investments made and it raised over double its closest European rival, France, in 2022.

The UK may have been harder hit than other European peers due to its higher proportion of later-stage companies. There has been a specific fall in larger deals and the making of new unicorns, but the reduction in deal volumes should also be viewed as a correction in the market after unusually high levels of innovation and investment resulting from the pandemic, with levels returning to a more normal base level; and that level is still high compared to historic norms.

London and the South East continue to make up the lion’s share of investment, but there is considerable growth in investment into businesses in the UK’s regions. Businesses connected to or located within the geographic areas of lead research environments such as Cambridge and Oxford universities still attract substantial investment.

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