The opening quarter saw VC funding in the UK fall to £2.9 billion in 2023’s opening quarter through just 402 deals, falling from the £12.3bn raised in the first quarter of last year.

The findings are part of a quarterly review from KPMG, a professional services firm. It points out that investor sentiment is showing signs of turning slightly, as investors maintain a cautious positivity that the worst of the market turbulence might be over. 

Of the VC funding given in the first quarter this year, two thirds of it (£1.9bn) and over half of the deals completed (219) went into London-based businesses. VC investment is expected to remain soft in Q2 of 2023, but expected to see renewed activity in the second half of the year, says the report. 

The lapse in VC funding growth is not worrisome for the industry as a whole, according to Warren Middleton, lead partner of Emerging Giants Centre of Excellence for KPMG, who said 2021 and 2022 were outlier periods with an unusually “huge appetite” for VC investment as a result of the pandemic. 

“What we are starting to see now is VC investment starting to come back to more normal levels, albeit compounded by a challenging economic environment.  It is more of an adjustment than perhaps we would have seen if this had happened in isolation of the economic environment,” said Middleton.   

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The sector which attracted the most attention from VCs this quarter was business services and energy transition, while consumer retail and real estate faltered, according to the report. 

In Scotland, the renewable energy sector continues to be a strong suit, making up 11% of Scotland’s exports with the rest of the world, with an estimated wholesale market value of £4bn according to the Government.