There are currently 327 active venture capital (VC) funds in the UK that are investing in the UK’s most ambitious and innovative startups, and supporting them to scale their businesses. Venture funds are focused on more early stage, high-risk and high-reward investments than other types of investment funds. Each individual fund will have a set of more defined criteria, including sectors and location, which guides what kind of companies they invest in and how much capital they can provide.
These 327 funds have announced their participation in 5,050 deals worth a combined £42.7b, deployed to over 3,500 companies since 2011. £20b worth of these deals went to 2,500 high-growth companies in the UK, across 3,700 deals. In this post, we take a bird’s-eye-view of where these funds are headquartered and where they’re investing.
This post looks at the headquarter location of funds, it’s worth noting that many will have offices in a number of other locations too, which will affect where they are investing.
The distribution of venture Capital funds in the UK
It’s no secret that London dominates the UK VC scene. Of the 327 currently active funds, 263 (80%) are based in the capital. Most reside in central London, specifically in the west of the city – around Mayfair and Westminster. No VC funds are headquartered in the outer boroughs, and only eight have drifted into the South East.
Outside of the capital, the North West has the most funds (15), followed closely by Scotland (13). Businesses in Wales have to look further afield for venture funding ,with no traditional VC funds headquartered within their own borders. There are, however, other funders in Wales, such as the Development Bank of Wales, which is dedicated to funding Welsh businesses.
Are the number of deals going into each region proportional to the number of VC funds situated there?
Not quite. London-based companies secured 48% of deals with a UK VC participant since 2011, significantly less than the city’s share of funds. All regions have a higher proportion of venture deals compared to venture funds.
Although London still dominates the venture scene in terms of its VC deal share, this is not to the same extent as its share of VC funds.
The regional distribution of deals made by London-based VC funds
From the maps above, it’s clear to see that London-based funds are paying some attention to the ambitious companies headquartered across the rest of the country. But what does the geographical distribution of deals made by London VC funds really look like?
57% of deals are still made into the capital, with the next most popular destination being the South East (12%). Clearly, proximity to investors provides a huge benefit to companies looking to raise equity funding. Northern Ireland is the least attractive for London-based VCs, securing just 0.6% of deals in the last eight years.
Does this preference for investing in companies in the same area apply to VC funds across the country?
This varies, and is likely dependent on the investment theses and location restrictions of the funds that populate each region.
Funds in Scotland and the North West have the biggest focus of deals in their own regions. But Scotland is also the biggest regional provider of venture capital to London companies.
Funds in the West Midlands, North East and East Midlands invest most frequently in companies located in other regions, outside of their own and London. It’s also interesting to note that ‘other regions’ is the biggest category when combining all regions. At the other end of the scale, funds in Northern Ireland have only announced participation in deals made into Northern Irish companies.
Although London is the smallest category, companies in the capital still attract a high proportion (20%) of deals made by regional funds. London will always be a popular destination for investment, because it’s home to so many innovative tech companies, which are particularly attractive for venture capital funds. This is because there is a particularly high-risk / high-reward opportunity in this class of fast-growing companies.
How many deals by UK VCs go to foreign companies?
70% of deals made by UK VCs stay within the UK, but over 50% of the pounds invested are sent overseas.
The vast majority of these foreign deals are destined for companies based in the United States. Since 2011, 625 deals by UK VCs have headed stateside.
The next most popular destination is Germany, home to Challenger Bank N26 and takeaway service Delivery Hero.
Outside of the US, few deals have left Europe. Israel is the only other non-European country i the ranking, having secured 39 deals since 2011.