More UK investors are planning to invest in venture capital offerings in 2023, according to research by Digital Horizon. It is important to note the survey polled LP types last month – iE home offices, asset managers, and other institutional money.
Digital Horizon states that 56% of UK investors who invest in VC intend to boost their allocation, with 1/5 planning to do so significantly.
As we all know, markets are stumbling along – including private markets – but as valuations decline, optimism for the future appears to be on the rise for startups and early-stage firms.
Three-in-five or 62% of those surveyed say they will increase their average VC investment cheque size next year, with 54% of respondents saying it would be mostly early-stage. A further 18% said it would be multi-stage.
35% of respondents plan to invest in the UK next year, second only to North America at 44%, which is described as a vote of confidence for the UK. Additionally, 30% are eyeing 2023 investment opportunities in the MENA region. Over a quarter (28%) intend to dedicate funds to Latin America and Europe stands at 27%. 23% say they will invest in Asia, and 14% plan to invest in Israel.
So what is stopping the VC investing market? Pretty much obvious.
- Rising interest rates and inflation (61%)
- Changes in tech companies’ valuations (58%)
- The Government’s economic and political approach (56%)
- Weak growth forecasts (45%)
- Geopolitical turmoil (47%)
The factor that has the greatest impact on venture investing is the lack of transparency in valuations chosen by 46% of respondents.
Low asset liquidity ranked second, at 45%, and fees and commissions ranked third, at 44%. Performance closely followed, at 43%.
Alan Vaskman, founder and Managing Partner at Digital Horizon, commented on the survey:
“Against the backdrop of tumbling tech valuations, political upheaval, and an impending recession, it’s incredibly encouraging to see that institutional investors retain a strong appetite for venture capital. As we enter 2023, there is a clear desire among LPs to increase VC allocations and a demonstrated preference for early-stage investments, with the majority stating they envisage their portfolio being mostly early-stage next year. Whilst the UK has faced an exceptionally challenging year, economically and politically, there’s a strong sense that optimism in the region remains. What’s clear is that LPs are adjusting their approach – eyeing new and emerging investment funds and managers, and considering more investments through SVPs, direct investments and secondaries. And it’s important that GPs adapt to these shifting preferences to stay ahead of the curve.”
Digital Horizon is a European VC firm that commissioned the survey of 250 UK-based investment decision-makers
Digital Horizon LP_Survey 2022