Investment into UK tech companies fell by more than 40% in the second quarter of the year as the UK voted to leave the European Union, according to venture capital research firm CB Insights.
VC-backed UK tech startups raised just $729 million (£549 million) in Q2 2016 across 104 deals, according to the CB Insights “Pulse” report, with both the amount raised and the quantity of deals experiencing a back-to-back quarterly decline.
Kerry Wu, tech industry analyst at CB Insights, told Business Insider: “Not only is there less deal activity for the quarter than in the previous 3 months, but the deals being done are also smaller. There was a paucity of deals larger than $40 million, which shows the extent to which investor appetite dried up.
Investors were put off UK deals because of uncertainty caused by Brexit, according to the report, with many taking a “wait and see” approach prior to the vote. “Uncertainty is rarely good for a market, but the actual impacts of Brexit will not be known for a while,” said Wu.
Harry Briggs, an investor at BGF Ventures, said he noticed some of the major VC funds in the UK were been doing fewer deals around the time of Brexit but admitted he wasn’t sure that the two were linked.
Despite obvious investor concerns, a number of UK fintech companies, such as TransferWise and LendInvest, still managed to sign off late stage deals, as did life science companies like F2G and fashion startups like Farfetch. There were also a number of large exits, with the likes of Magic Pony Technologies selling to Twitter for a reported $150 million (£112 million) last month.
There are further positive signs for the UK tech sector, according to Wu. “Our data shows UK investment activity starting on a strong note thus far in Q3 2016,” he said. “In just under three weeks, we’ve seen at least $230 million (£174 million) invested to VC-backed companies over more than 25 deals, headlined by a $65 million (£49 million) Series C to the cybersecurity outfit Darktrace.”
Worldwide, venture capital-backed firms raised $27.4 billion (£20 billion) in Q2 2016, up 3% on the previous quarter, thanks in part to large funding rounds of more than $1 billion (£750 million) raised by companies like Uber, Snapchat, and Didi. While the overall amount raised by venture capital-backed companies was up, deal volume was down 6% to 1886 deals.
Funding into European businesses over the same time frame came in at $2.8 billion (£2.1 billion) — a decline of 20% on the first quarter of 2016. While overall investment was down for European startups, the number of deals increased 5% to 385.
Briggs said quarterly reports should be “taken with a pinch of salt” as a few big deals in any given quarter can skew them significantly.
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