Given that the pound is trading at its lowest level on record, it’s encouraging to see that venture capitalists are still betting on UK startups. A new report has revealed that British entrepreneurs raised $834m in the last quarter, up from $757m in the second quarter. But the full picture is a bit more complicated.
The Venture Pulse Report Q3’16 was created in a collaboration between CB Insight, the capital and angel investment database, and KPMG, the auditing firm. It showed that trust in British startups improved, despite the sterling’s nosedive. However, it’s important to note that while there was a slight increase in the third quarter, it’s still down from $1.075bn in the same period last year.
Additionally, the report suggested that this might change in the years to come. “The long-term ramifications of Brexit haven’t been felt yet,” said Anna Scally, partner and head of technology, media and telecommunications at KPMG in Ireland. “Deals are still getting done, but many of these would have been in the pipeline before the referendum. The real impact will likely be felt heading into 2017 as the UK begins proceedings to disentangle itself from the European Union.”
While the divorce from the continent may become more of a concern further down the line, the investment in British startups is still impressive considering that the total level of global investment in startups fell to $24.1bn in the third quarter, down 14% from the second in 2016. In Europe, investment fell from $2.9bn in the second quarter to $2.3bn in the third.
The report also highlighted that the number of startups reaching unicorn status has gone down from 25 in the last quarter of 2015. So far, 2016 has failed to produce a single quarter with double-digit entrants to the unicorn club, with the first two quarters producing seven each. This quarter, Asia and North America each produced four companies valued at over $1bn, while none came out of Europe. But there’s no need for panic: the report suggested this may actually be a positive thing and could be an indication that startups are now looking for more realistic valuations rather than chasing unicorn status.
There’s also a chance that the next European startup could come from British shores, given that Deliveroo’s $275m investment in August brought it tantalisingly close to achieving unicorn status and London has been deemed one of the most likely cities in the world to produce the next tech giant.
Given the financial doom and gloom in post-referendum UK, news of healthy investment levels are certainly welcome but the drop from last year’s investment levels should give business reason for pause as we’re certainly heading towards an interesting period for UK startups.