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A look into the British Market

By November 11, 2022No Comments

Everything is rapidly changing and economic models are following this trend. Inflation is getting worse than ever and the UK is feeling its effects. Inflation increased to 10.1% in July 2022 and it is expected to rise to 13.3% in H2. As a consequence of the high inflation, the Bank of England increased the interest rates by 50 points to 1.27%.  This is expected to lead to a flattening in the VC investment space. The burden of this flattening will be mostly on late-stage companies with high burn rates. The fundraising focused on earlier stage companies have increased to achieve higher returns. The pressure from the Russia-Ukraine war, increasing inflation, and interest rates push VC investors to move more quickly to close the deals. It is anticipated that investors will reconstruct their portfolios to have less risk which could result in challenging times for startups seeking seed investments.  The following provides a short overview of the PE and VC activities in the UK. 

For the PE side, H1 2022 shows a slower pattern in terms of PE investments, especially after record figures for 2021. Considering the major deal of 1.3 billion pounds by Triton in the healthcare sector and the increased spending of the Department for Health and Social Care in the National Health System, it is expected that the appetite for healthcare will increase. Also, the attention on disruptive technologies and FinTech will continue, pursuing the effects of the pandemic.  It is also expected that the currency parity between the USD and British Pound will lead to more VC activities in the UK. The UK is the largest market for VC in Europe with a focus on startups so it is an interesting, cheaper alternative for US investors. Therefore, an increasing flow of interest from US investors to the UK might be observed. In 2021, capital raised from US investors in the UK is 8% more than capital raised from UK investors. 

Asset Managers have shown significant interest in VC in the UK. Electric Vehicles are a topic of interest indicated by the increasing number of deals and deal sizes. This supports the fact that investors now value ESG and sustainability more than ever. Another sector that is trending amongst investors is technology. Especially remote working conditions are a major key player in this increasing appetite for the technology sector. Pensions are the majority of the institutional investors in the UK, covering 43% of the total assets.  Due to globalization, investments focused on the UK have decreased. Over 63% of the investments are committed to funds that are domiciled overseas. This is partly due to Brexit cautions from the investors.