VC investment hits £335m in Q1 as East Anglia outpaces UK

It reports 24 deals completed across Cambridge, Essex, Suffolk and Norfolk according to data compiled by Pitchbook.

The largest raise came from Cambridge-based drug discovery company Apollo Therapeutics ($260m), which was ranked one of the top 10 largest financings in Europe during the quarter.

Other stand out deals included Cambridge Mechatronics Limited ($40m), £25.2m for Mission Therapeutics and a £6.7m raise for Tagomics, the first company to occupy the new Illumina Ventures’ Labs space in Cambridge.

Five companies saw seed stage funding, including Colchester-based games developer Cathedral Studios ($6.66m) and Norwich-based digital health startup Evaro (€1.4m).

Year-on-year deal volume remained flat and only the significant financing raised by Apollo saw the region surpass the $136m total in Q1 2023.

Pre and post-Christmas can be tricky times to complete deals, of course, and shoehorning Q1 – and therefore not in the figures – were the two $5 billion+ transactions that saw Danaher Corporation take Abcam in December and Thoma Bravo buy Darktrace at the end of last week.

Joe Faulkner, Senior Partner for KPMG’s two offices in East Anglia said: “These are strong figures to start the new financial year and a real fillip for the region when compared to the rest of the UK where VC investment has been subdued.

“Over the last 18 months, the macroeconomic environment has changed dramatically with political uncertainty and the cost of borrowing both rising. Despite the global economic challenges, the diversity of fast growth businesses in East Anglia continues to appeal to investors across the globe who are looking for well managed businesses with sustainability and a robust path to growth.

“It’s likely that venture capital investment will remain stable at the very least in the face of challenges such as geopolitical complexities, and our regional businesses deserve a strong round of applause for showcasing that the East of England is ripe and attractive when it comes to investment.

“As the economy remains challenging, continuing to support fast growth businesses is important to our regional economic recovery and growth, and key to attracting and developing talent across our region.”

Salvatore Di Maggio, Emerging Giants and Founders at Cambridge lead for KPMG added:“ VC backers, including corporate investors, are really tightening their purse strings, –particularly at the later deal stages.

“The only real exceptions we’re seeing right now are companies focused on AI or CleanTech which may soon extend to include cybersecurity as corporates look to manage their AI-driven cyber risk.

“Investors are currently hesitant to commit larger funds as they may need to maintain their stakes for extended periods or further rounds. This trend, which we anticipate will persist, suggests a strategic pivot within venture capital towards value and longevity over rapid scaling. We expect this focus on less cash burn at growth to continue.”

In contrast to the East Anglia region, VC investment in UK businesses generally continued to slide in the opening quarter of 2024, falling to levels last seen in 2018.

Coming off the back of $4.9bn raised by UK businesses in the last quarter of 2023, just $3bn was raised in Q1’24 – the lowest amount seen in 22 quarters.

Deal volumes were also down with the report recording just 519 transactions 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.

The largest raises came from neobank Monzo ($431m) and Nottingham-based GeoPura (£56m), accelerating the UK's adoption of green hydrogen by expanding production capacity, growing the specialist workforce and increasing the deployment of power generation technology.

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 the report found B2B startups with embedded technology solutions will likely prove more resilient than those with additive technology offerings.

On the fundraising side, Q1’24 saw some larger VC funds in the UK showing interest in acquiring the portfolios of smaller funds. For example, Molten Ventures completed its acquisition of Forward Partners for $52m.

Another trend seen recently has been the focus on investment corridors; this has been particularly true in the FinTech sector where a number of UK operators are working to connect to the FinTech ecosystems emerging in the oil-rich Middle East.

While AI attracted the largest share of investment globally, Cleantech investment accounted for many of Europe’s largest deals in Q1’24, including raises by Sweden’s H2 Green Steel ($5.2bn) and Alternative Energy Equipment ($159m), Germany-based Sunfire ($233m), French firm Electra ($334m) and Germany’s Ineratec ($129m).

ESG more broadly also has continued to attract attention from VC backers, driven in part by regulatory pressures. During Q1’24, a majority of EU member states agreed to the Corporate Sustainability Due Diligence Directive (CSDDD).

Once fully passed, the directive will require large companies operating in the EU to audit their supply chains for ESG related concerns, including adherence to human rights and environmental protection requirements.