Even in the midst of a global pandemic and facing backlash over various political issues, the UK investment sector has not stopped developing. Increased liquidity, shares, and interest in areas that have adapted and profited from the pandemic underpin rising levels of VC investment.
2021 marks the year that the UK tech industry began to expand massively, with new megaloops and unicorns set to topple other European countries, such as France and Germany.
Last year, start-ups reached an all-time high of £29.4bn, a mark of 2.3 times more than in 2020 and the first growth since 2013-2014, when the increase was £1.5bn to £4.6 billion. The fintech sector is the one that gets the most funding with around £11.6 billion, an increase from 2020 by 217%.
The UK’s place on the global stage
This increase is not surprising, as David Kezerashvili, one of the investors behind InfinityVC, says; “Investing in tech startups is driving the production of more real value, creating beneficial technologies and products, creating high-quality employment opportunities, and increasing revenue across the board.”
Dr Martin Carkett of the Tony Blair Institute for Global Change adds more detail to the picture when he explains that the UK tech sector has grown 10-fold in the last decade. Venture capital (VC) investment in this sector has increased from £1.2bn in 2010 to £11.3bn in 2020.
Globally, the UK ($37.4bn) managed to rank fourth in VC investments just behind the US ($323.7bn), China ($59.5bn) and India ($44.6bn). By cities, London also ranked fourth ($25.5 billion) after the Bay Area ($100.9 billion), New York ($47.5 billion) and Greater Boston ($29.9 billion).
In closer range Europe, the UK doubled Germany’s share (£14.7bn) and tripled France’s (£9.7bn). The total cash flow on technology investments for Europe is £89.5bn, of which the UK takes a third. On the other hand, the dry powder in the UK tech system gave way to the creation of around 29 unicorns. This includes Depop, Motorway, Marshmallow, and Starling Bank. With 115 unicorns in total, the UK has more than France (31) and Germany (56) combined.
The US Capitol played a significant role in increasing funding in the UK – 37% of all investment. This even exceeded the national capital of 28%.
London: the heart of the United Kingdom
Interestingly, although all investments revolve around the country’s capital, London is not the only place that accumulates venture capital. The new top-tier tech cities occupying the top 3 spots are Cambridge, Manchester and Oxford. This has given rise to a variety of expert opinions.
David Foreman, managing director of Manchester-based venture capital firm Praetura Ventures, believes a fixation on London’s tech sector prevents investment in other areas of the UK. On the other hand, Saul Klein, co-founder of London-based venture capital firm LocalGlobe, stresses the importance of London in connecting tech groups like Cambridge, Oxford and Manchester with Paris, Amsterdam and beyond. The truth, as in most cases, is probably somewhere in between, but the truth is that 9 of the 29 unicorns created in 2021 have been stationed in cities other than London.
These include Interactive Investor in Glasgow, Vertical Aerospace in Bristol and Touchlight Genetics in Hampton. This represents 30% of the total number of unicorns in the UK.
However, London still has the title of “heart of the ecosystem”. The minted unicorns are just a sample of the 2021 mega-turn surge. There were 64 companies in 2021 valued at $100 million in London, including $900 million for clean energy provider Octopus Energy, $850 million for online events platform Hopin and $800 million to London fintech firm Revolut in Series E.
What is ready for 2023?
It is safe to assume that unless there are drastic changes to the overall investment system in the UK, VC funds will continue with the upward velocity they are at now. Many US venture funds have been steadily opening offices in London, and include companies such as General Catalyst, Sequoia Capital, Bessemer Venture Partners and Lightspeed Venture Partners.
London-based venture capital firms added $9.9 billion in new funding in 2021. Some of the investments that were announced last year include DNCapital ($250 million), White Star Capital ($360 million), 83North ($550 million), Balderton ($600 million), Anthemis ($700 million), and Index Ventures ($3.1 billion). According to David Kezerashvili, this is much-needed progress and development for the world. “There is a continuing need to improve speed, security, and adaptability.” New companies are springing up to fill the gaps left by the biggest players’ refusal to change.”
Future evolution of R&D
Another factor supporting growth in technology venture capital investment is the increase in UK government funding for Research and Development (R&D) to £20bn by 2024-25. The aim is to help British companies to be more innovative and productive.
Digital Minister Chris Philip believes that supporting start-ups across the country is an important part of his mission, and the ministry is assisting companies with pro-innovation policies and helping people gain the skills necessary to thrive in this dynamic industry.
LocalGlobe’s Saul Klein summed it up nicely when he said that the UK “has all the ingredients to become the world’s leading tech ecosystem, with record levels of R&D, funding and tech centers established across the country since New Palo Halt at Kings Cross, to Cambridge, Edinburgh and Manchester.”
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