Growth Capital Update: Q2 2024
Significant increase in activity
305
deals completed
+17%
number of deals
£1.433 billion
growth capital raised
Our view of the market
After a relatively calm 2023, the UK’s growth capital market is enjoying an upsurge in activity. Q1 2024 saw a small increase in deal numbers but Q2 has produced double-digit growth, in both the number of deals completing and the amount of funds raised. Official figures demonstrating that the UK economy is no longer in a technical recession, inflation rates returning to their long-term targets, and expectations of lower interest rates have all helped to create a more positive environment for growth capital transactions.
According to our latest research into UK private companies raising between £1 million and £20 million of growth equity capital each, 305 UK businesses raised a total of £1.433 billion in Q2 2024. The average deal size was £4.70 million, the same as in Q1.
Our Q2 2024 figures reveal an impressive 17% increase in the number of deals completing and the overall amount of growth capital being raised when compared with Q1’s 260 deals raising £1.222 billion. 305 deals completing in a single quarter reflects a higher level of UK activity than we have experienced for over a year.
Later-stage VC deals were the most common type of transaction in Q2 2024, accounting for 41% of all deals completed and 47% of total funds invested. Seed rounds also put in a strong performance, continuing the trend we first highlighted in Q1. So, while later-stage bigger transactions continue to prove most popular, earlier-stage deals are also sought after by investors.
“Q2’s data demonstrates a significant positive trajectory for the UK’s equity growth capital market. It reinforces our view that 2024, despite what has been a challenging period globally, will represent a return to higher levels of activity.”
John Cowie, Head of Growth Capital
Technology sector
In Q2, the technology sector held its position as the top choice for investors, representing 39% of all transactions by volume and 41% by value. Investors are particularly interested in UK companies specialising in climate tech and AI. The UK has the biggest AI sector in Europe, worth $92 billion, according to recent research from Tech Nation. The UK is home to more than 1,800 VC-backed AI start-ups, with 20 unicorns. It takes top place in Europe for AI investment and is ranked fourth globally behind the US, China and Israel.
Notable UK tech sector deals
Orca AI, a London-based AI operational platform for ships, raised $23 million in new funding, led by OCV Partners and Mizmaa Ventures. In 2022, Orca AI powered the world’s first autonomous commercial ship voyage and is now working on the second phase of fully autonomous ship technology to be rolled out in 2025.
Moore Kingston Smith’s corporate finance and tax teams advised Edinburgh-based 2i Testing on its investment from Rockpool Investments. 2i provides quality engineering services that de-risk its customers’ ongoing digital transformation programmes.
“We’ve been impressed by 2i’s proactive investment in talented people and automation products. The business is highly innovative and takes a strategic partner approach to working with its customers. Increased digital change poses a huge risk to organisations, as system failures can lead to significant financial and reputational issues for companies and their senior executives. 2i is well-placed to support through its focus on high-quality delivery and customer service.”
Guy Nieuwenhuys from Rockpool Investments comments on the 2i Testing deal
Trending: Financial services
We saw almost twice as many financial services deals completing in Q2 2024 as we did in Q1. Investment in the financial services sector was in decline last year, with factors such as high inflation, rising interest rates and geopolitical tensions creating uncertainty within the market and dragging down investor confidence. However, there now appear to be some green shoots of recovery. The UK’s position at the heart of Europe’s financial services industry leads us to expect further increases in UK deals in this space.
Notable financial services deals
Insurance technology start-up, London-based Urban Jungle raised £11.2 million in its latest funding round, led by existing investors including Sony Innovation Fund.
Fintech company Wagestream has secured a £17.5 million investment in a funding round led by British Patient Capital. Wagestream’s platform allows shift and frontline workers to interact with their payslips, choose their payday, save directly from their earnings, reduce bills and access free debt advice.
Active investors
BGF was the most active investor in Q2 2024 with seven deals completed. Tying for second place were Octopus Ventures, Haatch and Ascension completing six deals apiece.
BGF’s investments in Q2 included:
- investing £11.5 million in Tevalis, a Hull-based software business providing electronic point of sale solutions to the leisure and hospitality industry;
- co-leading with Mercia Ventures a £9.2 million funding round for Nottingham-based Locate Bio, a medtech business, to fund the clinical study of a bone graft substitute for spinal fusion;
- investing £6.5 million in Skewb, a Warwick-based provider of digital transformation services to the energy and water sectors;
- providing a £5.5 million investment to Tees Valley-based TaperedPlus, a flat roof design and insulation specialist;
- completing a £2.5 million follow-on investment in Edinburgh-based drinks and hospitality martech provider Hyble.
According to Insider Media’s article ‘BGF positive about deals market in 2024’, Barry Jackson, head of BGF, said that “the current market conditions present an opportunity for BGF, as it was created to fund promising businesses with limited access to capital.” He said:
“The issue of raising capital has been a real sticking point over the last few months, with the cost of lending increasing substantially. Unsurprisingly, the cost of lending has led to an increase in companies exploring minority equity deals. BGF’s unique balance sheet investment model means that we are well positioned to continue investing throughout the economic cycle, forming long-term partnerships with companies and supporting them over time as they grow.”
Outlook
In our Q1 update, we said we were optimistic about the outlook for the UK’s growth capital market. Q2’s data shows that our optimism was well founded. We are seeing activity levels surpassing those we saw throughout last year. The signs are that this high level of activity will continue, providing the economic environment continues to improve. The UK is both a hub for international investment and a leading player in the technology sector. This intersection leads to a thriving funding ecosystem for growing UK businesses, particularly technology businesses or those with tech-enabled products and services.
Contact us
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Methodology
Moore Kingston Smith has analysed transactions by UK-based companies that involve the issue of less than 50% of equity share capital to third parties and funds raised of between £1 million and £20 million. Accordingly, these numbers do not include senior debt and mezzanine debt fund raisings and smaller fund raisings by companies and start-up funding unless more than £1 million is raised. Start-up funding is generally significantly less than this amount.
The research aims to capture all transactions by UK companies that fall within the criteria. Inevitably there will be transactions that have taken place but have not been captured. The research is based on data extracted from Pitchbook.
