Growth Capital Update: Q1 2024

20 May 2024 / Insight posted in Report

Fundraising environment improves

 

World icon

260
deals completed

City icon

+8%
number of deals

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£1.222 billion
growth capital raised

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Our view of the market

2023 was a relatively calm period for the UK’s growth capital market, following the heightened activity seen in 2021 and 2022. In our annual review, we highlighted how global and local uncertainties regarding the economic outlook, inflation rates and the tangible impact of high interest rates had a significant influence on market dynamics, affecting deal-making. We also suggested that the anticipation of lower inflation, a more stable economic environment and the expected decrease in interest rates later in 2024 would likely lead to a relaxation in the market for growth capital transactions. The data from Q1 supports this prediction, showing an uptick in both the number of deals completing and the total amount of growth capital raised.

According to our latest research into UK private companies raising between £1 million and £20 million of growth equity capital each, 260 UK businesses raised a total of £1.222 billion in the first quarter of 2024. The average deal size was £4.70 million.

Our Q1 2024 figures reveal an 8% increase in the number of deals completing and an 11% increase in the overall amount of growth capital being raised when compared with Q4 2023’s 240 deals raising £1.104 billion. 260 deals completing in Q1 2024 equals the number that completed in the same quarter last year.

Later-stage VC deals were the most common type of transaction in Q1 2024, accounting for 36% of all deals completed and 44% of total funds invested. However, despite the predominance of later-stage bigger transactions, we also saw a large number of seed rounds completing in Q1 2024, demonstrating continuing interest in earlier-stage deals, which require less leverage.

Quarterly number of deals and avg deal size

 

Q1 2024 deal volume and value by deal type

“We find it encouraging to witness a return to growth during Q1 2024, along with a revitalised interest from investors. Despite lingering economic challenges, the resilience of the UK’s growth capital market and the abundance of promising opportunities indicate that there are still plenty of deals to be done.”
John Cowie, Head of Growth Capital

Technology sector

In the first quarter of 2024, the technology sector emerged as the top choice for investors, representing 39% of all transactions by volume and 41% by value. Equity capital remains a vital source of investment for tech firms across various growth stages. Nevertheless, the investment landscape for private tech companies has evolved in the past 12 to 18 months. Investors now prioritise capital efficiency and the journey to profitability more than they did during the previous interest-rate cycle, when the focus was primarily on revenue growth. This shift in mindset is expected to persist throughout 2024.

Notable UK tech sector deals

Access pay logo

true ventures logo

Haiper logo

Octopus ventures logo

UK-based fintech AccessPay secured $24 million in a mix of equity and debt in a strategic funding round led by Silicon Valley-based venture capital firm True Ventures. The company was further backed by Beringea, Route 66 Ventures, Mastercard, NatWest and Praetura Ventures.

Video-generative AI platform Haiper announced a $13.8 million seed round led by Octopus Ventures.

“The UK is one of only three countries in the world to have built a tech industry worth more than $1 trillion – clearly the result of world-class talent, determined investors and successive governments that have prioritised tech as a lever of economic growth.”
*Hannah Seal, Partner at VC firm Index Ventures

Q1 2024 deal volume and value by sector

Active investors

Mercia Asset Management was the most active investor in Q1 2024, with no fewer than eleven deals completed. Innovate UK came second, with five deals.

The bulk of Mercia’s deals in Q1 were in the healthcare sector, including:

  • investing £2.5 million, as part of a £8.4 million syndicated funding round, into its existing portfolio company, Locate Bio, to fund its research into a product designed to help people who require surgery for chronic lower back pain.
  • co-leading with BGF a £8.5 million funding round for Wobble Genomics, a University of Edinburgh spin-out which focuses on RNA sequencing.
  • participating in a £7.5 million funding round led by Broadview Ventures for IsomAb, a University of Nottingham spin-out pioneering a new treatment for diabetics at risk of amputation.

Innovate UK’s investments in Q1 included:

  • investing £1.4 million into Belfast-based biotech company AMPLY, to develop new drug products using its proprietary AI-driven drug discovery platform.
  • supporting a £3.5 million funding round into London-based critical infrastructure AI platform OctaiPipe.

Q1 2024 top investors

**Dr Mark Payton, chief executive of Mercia Asset Management, said:

“A number of the companies in our portfolio are maturing as they scale the commercial applications of their underlying IP. Furthermore, the syndicated nature of these funding rounds, where nearly 80% of the investment funding is coming from outside Mercia’s balance sheet, reflects the confidence of the wider venture community in these companies.”

Outlook

In our review of 2023, we anticipated an increase in deal activity in 2024. The data from Q1 suggests that this uptick has arrived, which is indeed positive news. Despite ongoing economic uncertainties, particularly regarding inflation and high interest rates, it appears that investors are adopting a more long-term perspective and are eager to invest in UK businesses, particularly those within the technology sector. Our optimism regarding the outlook for the UK’s growth capital market remains strong for the remainder of the year.

Quote sources

*Hannah Seal: BBC News

**Dr Mark Payton: The Business Desk

Contact us

If you’re an ambitious entrepreneurial business with revenues of at least £1 million and are looking to scale, get in touch for an initial discussion. We can work together to assess the best action and then assist with finding the right partner for you. Contact us to find out more about our raising finance and growth capital services. We also assist investors and are experts at providing advice throughout the acquisition or investment process. Our team can help identify and evaluate potential opportunities and run the financial and tax due diligence process, allowing you to make decisions quickly and confidently.

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