Ten technology scaleups received one-fifth of all UK venture capital (VC) investment during 2020 in a record-setting year for VC investment generally, according to the seventh annual Tech Nation report.
Investment into the UK tech sector hit $15bn in 2020 – $200m higher than the previous record set in 2019. This puts the UK in third place globally behind only the US and China, which raised $144.3bn and $44.6bn, respectively.
According to the report by entrepreneurial network Tech Nation, which looks at the state of the UK tech sector each year, startups’ and scaleups’ collective value has increased by 120% since 2017, and they are now worth $585bn.
Of the $15bn raised in 2020, about 20% ($3.5bn) went to just 10 scaleups, eight of which are London-based. Only e-commerce business Gymshark and semiconductor manufacturer Graphcore are located outside the capital, in Solihull and Bristol, respectively.
Seven of these firms – Octopus Energy, Arrival, Cazoo, Gymshark, infobip, Gousto and Hopin – reached unicorn status in 2020, which means they are now each valued at more than $1bn.
In terms of which subsectors saw the highest growth, the report said transport technology firms enjoyed a 160% boom in VC investment in 2020, while impact startups – those addressing one or more of the United Nations’ Sustainable Development Goals – have seen a 160% increase since 2018.
The report further noted that deep-tech investments into research and development (R&D)-intensive companies rose by 17%, the highest growth rate globally.
The report also showed that nearly two-thirds (63%) of the investment ($9.4bn) into UK tech came from overseas.
“With record levels of investment secured and UK listings gaining momentum, this report shows Britain’s tech sector continues to go from strength to strength, solidifying our position as one of the world’s top tech hubs,” said digital secretary Oliver Dowden.
“We want to bring about a golden age of UK tech through a raft of supportive measures and funding to help businesses thrive. This will help fuel a booming tech sector – creating jobs and improving services so that we can build back better from the pandemic.”
But despite the UK tech sector’s success in 2020, the report identified a number of significant challenges ahead, including capital flows and R&D shortfalls.
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- New figures on UK business creation show surge in entrepreneurs setting up technology businesses during 2020, while the sector’s hiring efforts climb back to pre-pandemic levels.
- British technology startups are concerned about proposed changes to widen the UK’s capital gains tax, with just over four in five saying they would consider moving their enterprise abroad.
“VC investment continues to be gravitated towards London, with the gap growing over the past three years,” said Tech Nation. “The percentage of total UK VC investment made into London has increased from 73% to 88% between 2018 and 2021.
“The UK is a world-leading tech centre because of the collective strength of its regional tech clusters, so they must be supported in their growth journey by the development of more targeted regional investment funds with the firepower and risk attitude to level the funding playing field for companies outside London.”
It said the country would also have to find ways to ramp up its R&D intensive capabilities to capitalise on the growth in deep-tech investments.
“Data from the Office for National Statistics finds that UK R&D expenditure (public and private spending) was just under £30bn in 2018, while in the same year, the combined R&D expenditure of Amazon and Alphabet (on their own R&D activities) was £33bn,” it said. “Comparing this on the global stage, total US R&D expenditure in 2018 reached $551bn, while China’s R&D expenditure reached $463bn.”
Tech Nation CEO Gerard Grech said developing the UK’s deep-tech sector was especially critical, because much of the future economy will be built on new artificial intelligence (AI)-powered technologies that leverage machine learning for faster innovation.
“Bold investment is needed in R&D to boost Britain’s new deep-tech companies and ensure our global competitiveness,” he said. “The successes of the past decade have shown what the UK is capable of when policy foresight, investment and a diverse and ambitious pool of talent come together. By continuing to set our sights high, the next decade promises to be the most innovative yet.”
Russ Shaw, founder of Tech London Advocates and Global Tech Advocates, welcomed the report’s findings, claiming that tech “is turning the tide on the country’s current economic predicament”.
He added: “These scaleup businesses not only create growth and employment, but many of these companies are pushing our transition to net zero, the future of mobility and a new era for AI and machine learning.
“Moving forward, the tech sector can be a source of local prosperity across the country and can define our role in the global economy. But now is not the time for complacency – the coming months will be hard fought for many digital businesses and significant progress is still needed to ensure that growth is inclusive and that tech benefits society at large through greater representation.”