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London-based technology startups received $10.5bn of venture capital (VC) investment in 2020, accounting for a quarter of all European tech funding, new research has revealed.
The research, conducted by market intelligence firm Dealroom and investment agency London & Partners, shows that a significant chunk of the investment, $4.3bn, went to London’s financial technology (fintech) firms, while $1.9bn went to firms developing enterprise software technologies – an 82% increase on the previous year.
The figures mark a significant increase from the capital raised by London firms in 2017 and 2018 – $7bn and $5.9bn, respectively – and come close to eclipsing the record $10.7bn raised in 2019.
UK tech firms outside of London raised a further $4.5bn, bringing the country’s total tech investments to $15bn – a significant proportion of the $43.1bn raised by European companies throughout 2020.
The research also noted that London itself is now home to 1,252 VC firms, which collectively raised $7.8bn in new funds in 2020, on top of the $4bn raised in 2019. However, it also found that over the past two years, the majority of funding (57%) has come from non-European investors, with 36% coming from VC firms based in the US and Canada.
However, most of the international investor interest was focused on later-stage firms, while only 25% of all VC investment into London came from domestic sources.
“International investors have shown real confidence in London, with new venture capital funds setting up here to invest in high-growth companies in sectors like fintech, cyber security and health tech,” said Laura Citron, CEO of London & Partners. “This is because London continues to be the gateway to the European market and a fantastic place to set up and scale a tech company.”
Responding to the figures, Russ Shaw, founder of Tech London Advocates and Global Tech Advocates, said that although the high investment levels are a major vote of confidence in the UK tech sector, now is not the time for complacency.
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“Despite the enormous economic burden brought by the pandemic, and the four years of uncertainty that our ecosystem had to navigate as we secured a deal with the EU, time and time again, tech companies have shown resilience and adaptability,” said Shaw.
“However, we must be cautious of the challenges that lie ahead as the pandemic situation evolves and the true impact of Brexit is revealed. While these figures demonstrate the enormous potential of our tech scene, addressing the issues of digital skills shortages, diversity and inclusion, and our pivot to a net-zero economy, remain critical.”
Separate research from Dealroom, released in October 2020 in partnership with UK entrepreneurial network Tech Nation, found that UK “impact startups” (those using technology to address one or more of the United Nations’ Sustainable Development Goals) raised a total of €1.4bn (about $1.7bn) in 2020.
However, despite the upward investment trajectory of both impact startups and tech firms generally, most of the investments made during the pandemic have gone to already established firms.
For example, an analysis conducted by co-working and innovation space company Plexal and database firm Beauhurst found that, between March and September 2020, just £458m of the £5.37bn raised in VC went to first-time fundraisers, representing a 55% year-on-year decrease.
This trend has been present since the start of the pandemic, with previous research by the two firms from May showing that only £52m of just over £1bn raised at that point was going to early-stage startups and entrepreneurs who had never raised money before.