AI UK Fintech Rebound – $1.4 Billion Raised But Crypto VC Investment Hits 3-Year Low

Key Takeaways

• UK tech startups raised $3.9 billion in Q1 2024, suggesting a stabilization of VC investment after a global downturn.
• Fintech reclaimed its top spot in funding with $1.4 billion across 73 rounds, including notable late-stage deals.
• However, VC funding for crypto businesses hit a 3-year low of $2.3 billion in the first three months of 2024.

Venture capital investment in the UK artificial intelligence (AI) sector experienced a resurgence in the first three months of 2024, as overall funding stabilized following a global downturn in late 2022 and 2023. Fintech took the lead with $1.4 billion raised, while innovative sectors like quantum computing witnessed increased support.

While AI raising increased, crypto funding hit a 3-year low. Despite its historical significance in driving the crypto industry, VC investment has significantly declined, raising concerns about sector sustainability.

AI UK Fintech Funding Jumps

In 2023, the energy sector took the lead in funding for the first time, albeit briefly, according to research  from HSBC/Dealroom. However, fintech swiftly reclaimed its top position in Q1 2024, securing $1.4 billion across 73 rounds. Notable late-stage rounds, including Monzo (£340 million), Flagstone (£108 million), and PPRO (£73 million), contributed significantly to this resurgence.

Cutting-edge technological sectors  like frontier technology, semiconductors, and quantum computing have also witnessed a surge in support, emerging as top funding recipients in the UK tech landscape during Q1 2024. These sectors, often concentrated in science hubs like Cambridge and Oxford, collectively raised $314.7 million and $300 million, respectively.

Overall, UK startups raised a total of $3.9 billion in Q1 2024. There are indications that VC investment levels in the UK have stabilized after a sharp global reset in the second half of 2022.

Early-stage investment during Q1 exceeded the levels of the previous two quarters, reaching $1 billion. Investment at the breakout stage of Series B and C remained steady, while late-stage funding rounds, although relatively low in number, amounted to $1.4 billion. This suggests a potential resurgence of mega-rounds ($100 million or more deals).

Crypto VC Investments Hit 3-Year Low

Venture capital funding has traditionally been a catalyst for the cryptocurrency industry, providing essential financial support alongside invaluable strategic advice, business connections, and mentorship from seasoned investors.

However, recent trends indicate a decline in backing, raising concerns about the sustainability of the cryptocurrency ecosystem.

VC funding for the crypto sector has markedly decreased, with VC rounds raising only $2.3 billion for crypto businesses. This is the lowest amount since Q4 2020.

While VC funding has historically fueled innovation, the recent downturn suggests a need for introspection and adaptation within the sector. Several factors contributed to the decline in crypto VC funding, notably regulatory uncertainties. Varying governmental attitudes towards cryptocurrencies and blockchain technology have clouded investor sentiment, leading to hesitancy and reevaluation of investment strategies.

Moreover, VC investment decisions are influenced by the inherent volatility of leading cryptocurrencies. Investors grapple with balancing short-term market fluctuations against the long-term potential of blockchain technology in an industry known for its volatile nature.

Geopolitical events such as the COVID-19 pandemic, the Ukraine conflict, inflation, rising interest rates, and economic uncertainty have exacerbated investor risk aversion.

But March Shows A Promising Rebound

March witnessed a promising resurgence in venture capital investment in the crypto sector, surging by over 50% compared to February, reaching $1.16 billion. This marks the highest monthly value since November 2023.

Though the total investment amount remains below the all-time high of $6.1 billion in November 2021, the number of funded companies is a positive sign. A total of 179 companies received funding, the highest since the 216 in March 2022.

Notably, projects focused on infrastructure secured the largest share of funds at $282 million, followed by Decentralized Finance (DeFi) and Centralized Finance (CeFi) at $228 million and $85 million, respectively.

Key investors such as Animoca Brands, Binance Labs, and NGC Ventures played pivotal roles, with Ethereum hosting the majority of funded projects, followed by Polygon and BNB Chain. Optimism stood out with an $89 million private token sale. While Zama, a cryptography startup, secured $73 million in its Series A funding round.

About the Author

Giuseppe Ciccomascolo

Giuseppe Ciccomascolo began his career as an investigative journalist in Italy, where he contributed to both local and national newspapers, focusing on various financial sectors. Upon relocating to London, he worked as an analyst for Fitch's CapitalStructure and later as a Senior Reporter for Alliance News. In 2017, Giuseppe transitioned to covering cryptocurrency-related news, producing documentaries and articles on Bitcoin and other emerging digital currencies. He also played a pivotal role in establishing the academy for a cryptocurrency exchange website. Crypto remained his primary area of interest throughout his tenure as a writer for ThirdFloor.

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