With deals in the U.K. and Ireland hitting a five-year low amid uncertainty surrounding Brexit, the amount of capital being invested in technology start-ups in the region has plummeted even though European venture capital funds (VC) raised a record amount of money in the first half of 2016

This was revealed in new data released on Thursday.

According to Pitchbook, a data and research firm that looks at the VC and private equity markets, a 63 percent year-on-year increase, and the highest amount in a six month period on record was noted as investors in Europe raised 6.6 billion euros ($7.28 billion) across 34 VC-focused funds.

Investors appeared cautious to put the money to work despite the surge in funds raised. Across 1,279 deals – the smallest amount in terms of euro size since the second half of 2011, the total capital invested in European start-ups plunged 27 percent year-on-year to 5.42 billion euros in the first-half of 2016.

“Across the continent, deal flow fell again … attributable to continued trepidation at economic growth and political turmoil, of which Brexit was a considerable part,” Garrett Black, senior analyst at Pitchbook told CNBC.

The pressure in particular is being felt by early-stage start-ups. Noting the lowest amount since the second half of 2008, there were just 346 first financings in the first half of the year. However with only 193 funding rounds for these companies in the six months to the end of June, late-stage European companies are also suffering. This figure is a decline of 35 percent year-over-year.

Behind the fall is the broader macroeconomic environment in Europe and much of the uncertainty around the U.K.’s vote to leave the European Union. Hence the deal choices for the venture capitalists have been based on careful choices.

“For many startups, financings that are in the works now will include planning for any potential fallout or at least building in flexibility depending on how certain negotiations of the U.K.’s exit go. Some deals simply may not get done, but the timeline for Brexit is protracted and its effects uncertain enough that VCs will still fund what they deem worthwhile opportunities,” Black said.

UK based companies got 2.1 billion euros or 39 percent of the 5.4 billion euros of funding for start-ups in the first half.

Compared to German start-ups, which received 765 million euros, this is around three times the amount of capital and nearly 4 times the level invested in France.

A number of British firms have secured funding this year particularly in the fintech or financial technology space as the U.K. has established itself as a leading technology start-up market in Europe.

However financings in the U.K. and Ireland in the second quarter fell to levels not seen since the middle of 2011 even while Britain remains the biggest receiver of European VC capital. Pitchbook said that the overall VC activity declined to the lowest level in five years in this region.

Meanwhile, between the first quarter and the second quarter, deals in Germany, Austria, Switzerland and the Nordic region grew. Continued investment in the U.K. in favor of more stable countries could be the trend for the rest of the year.

(Adapted from CNBC)

Categories: Economy & Finance, Uncategorized