VC/PE Funding collapses in Q3

What has spooked the VC/PE community?

The quarterly funding data from Pitchbook has now been released, and for people in the IT community, it makes grim reading. The deal count in Q3 is down 43% compared to Q2 and deal values have shrunk by an even greater amount. Whilst the VC/PE backed start up community is a small fragment of the UK labour market, funding data is indicative of the wider prevailing economic trends. So the first question is, is the downward trend unique to the UK, or is this happening everywhere? Looking at the US specifically therefore, there has been a 30% drop between Q3 2024 and Q2, equally given the approaching presidential election, this is a factor, and the fact that the UK has had an even greater dip, after the new Government has been appointed should act as warning for the Rachel Reeves. It is worth remembering that VC/PE Firms are able to invest anywhere, and a big factor in what they look for is the local political environment and whether it is conducive for investment. With that in mind, whilst we are still waiting on the final details of the upcoming budget, as things stand, the forecast is that the UK will:

  • Increase Employer NI
  • Increase CGT & Tighten Non Dom clauses
  • Cut entrepreneurs relief

Looking at the impact of these three policies, increasing employer NI will mean that it is more expensive to have employees. Inevitably this will result in companies scaling back hiring plans and/or reducing the size of their UK workforce. Increasing capital gains tax will act to make the UK a more expensive place to live if you are planning on investing within the UK. This therefore has damaging implications for the Angel community in the UK. This combined with the changes to Non Dom tax breaks, and the UK has already become the leading country in the world for millionaires leaving. Finally, if entrepreneurs relief is removed this also has several potential consequences. Whilst British people living in the UK are unlikely to change their behaviour, the UK entrepreneurial network is more than just British people. As an example, Wise and Revolut, the two big success stories of Fintech over the last decade, have non British founders. And what has happened over the last decade in the UK, is that it has been made harder for people to move here, now it is being made more expensive for people if they want to invest here, or create businesses here.

The UK already suffers from what Australians call, the ‘British disease’ with 18-24 NEETs now at record levels whilst productivity is stuck, and now the Labour party is organising major pay rises for the public sector, with no changes to productivity. Equally as Thatcher once said, the problem with socialism is eventually you run out of other people’s money. What will the Labour plan B be, when their proposed tax rises fail to generate what they planned on? They had said they won’t increase taxes on working people, so at that point, what next? Corporation Tax? In the meantime, we await the budget.


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The data referenced above has been sourced from Vacancy Analytics, a cutting-edge Business Intelligence tool that tracks recruitment industry trends and identifies emerging hotspots. With 17 years of experience, we have a deep understanding of market activities in the UK and globally.

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