VC ‘dry powder’ decreases for UK funds

The amount of capital raised by UK VC funds in the first quarter of 2024 dropped significantly below the year prior to cause a decrease in ‘dry powder’, new data has shown.

Venture capital funds raised £700m across 10 vehicles between January and March, according to a market snapshot report from Pitchbook.

That’s on track for VC funds to raise £2.8bn for the year, compared to £7.4bn in 2023.

“It is the absence of large closes that drives the downturn, in which we have seen smaller, emerging firms take share of LP capital,” the report notes. “Furthermore, unlike trends seen earlier in 2023, UK venture dry powder decreased, as deal activity has been robust but fundraising levels have come under pressure.”

However, a separate report from Dealroom, published in January, found that VC funds raised $25bn in the last three years – suggesting that there is still additional dry powder to be deployed in private markets despite the first quarter decrease.

VC dealmaking activity got off to a “weak start”, the Pitchbook report noted. The £2.3bn VC investments made into companies during the period is both a quarter-over-quarter and year-over-year decrease.

It comes amid a continued challenging macroeconomic backdrop, with the market consensus pointing to the Bank of England being slow to follow European counterparts in cutting interest rates.

Meanwhile, the capital raised by UK private equity funds in the first quarter already stands at half the amount secured across the whole of 2023. Notable private equity fund closes include Permira and Apax.

Between 2014 and 2024, London unsurprisingly attracted the lion’s share in VC investment at £87.7bn.

Outside the capital, Cambridge had the highest VC deal value at £6.8bn, followed by Oxford at £4.4bn.

Pitchbook found that the 10-year median VC valuations for Oxford and Cambridge surpassed London – but the gap between cities remains vast.