VC funding for start-ups drops in Q1 2016

Venture capitalists invested less in companies around the world in the first three months of the year

Start-ups based in the UK received less venture capitalist (VC) funding during Q1 2016 than in Q4 2015, as venture capitalists scale back the amount and size of deals across the world.

UK start-ups raised $1.3 billion across 105 deals between January and March 2016, a new report from analytics company CB Insights and advisory firm KPMG Enterprise reveals, which accounts for around 36 per cent of VC funding across Europe ($3.5 billion across 338 deals) during the period a rise of 8 per cent.

Globally, 77 per cent of VC investment went to tech companies, compared to 79 per cent in the previous quarter.

"While disconcerting to the VC community, the decline in VC activity is likely to be a short-term trend given the amount of liquidity in the market around the globe," the report said, noting that the US saw one of the highest quarters for VC capital since the dot-com boom of 2000.

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"These funds will likely be deployed over the coming quarters as VC investors renew their focus on finding disruptive or innovative companies in which to invest."

The drop in VC activity can be attributed to a number of factors including an economic slowdown in China, rising interest rates and the approaching election in the US and June's Brexit referendum in the UK.

"Future VC investments are poised to become even more targeted," the report continues. "Given ongoing market uncertainties, investors are likely to focus on companies with strong balance sheets or business models that show a strong plan to achieve profitability."

VC-backed companies that managed to enter the 'Unicorn Club' during Q1 2016 hit a five-quarter low, at only five companies, down from 25 in Q2 and Q3 2015.

Arik Speier, co-leader of KPMG Enterprise innovative start-ups network and head of technology for KPMG in Israel, said: "Given the tougher environment for raising funds, we anticipate many of the Unicorns will tighten their belts by pulling back on spending driving operational improvements and being more cautious with the money they already have because it will be more expensive for them to raise capital in the near future."

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