London’s Silicon Roundabout, the epicenter of the U.K.’s tech industry.
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Investment into the U.K.’s tech sector grew to a record £10 billion ($13 billion) in 2019, as venture capital into U.S. and Chinese tech companies plummeted by 20% and 65% respectively.
The amount of money invested in British tech firms jumped by 44% (£3.1 billion, $4 billion), as funds flowed in from around the world last year, research from the U.K. Government’s Digital Economy Council found.
Almost half of this funding (£4.6 billion, $5.9 billion) came from U.S. and Asian investors, according to research prepared for the Digital Economy Council by Tech Nation and Dealroom.co, a British network for tech entrepreneurs and Dutch information company respectively.
Twinned with falling venture capital investment in the U.S. and China, this research shows that many investors are turning away from the world’s two largest tech markets, and instead looking to the U.K. for future growth.
Saul Klein, co-founder of LocalGlobe, a London-based venture capital fund, says he has seen this trend grow over the last three to five years. “I think it’s only really in 2019 the penny has dropped in a big way for a lot of people and its not just U.S. capital, its Asian capital as well”.
Saul Klein of Localglobe has been seeing an increasing number of U.S. and Asian investors pile into … [+]
The U.K. tech sector appeals to investors for different reasons. Digital Minister Matt Warman credits the U.K.’s “business friendly environment, talented workforce and longstanding reputation for innovation”. Science Minister Chris Skidmore says that, “by ensuring our regulations foster, rather than hinder innovation, we are helping to build a technology sector that can rival global powerhouses like the U.S. and China”.
However, it is the politics between the U.S. and China that are really playing into Britain’s hands, believes Klein. China nor the U.S is likely to sell strategic technology to one another and “so there is a massive trade arbitrage opportunity for the U.K. and European deep tech companies to sell both into the U.S. and China in the next 20 years”.
Within Europe, it is the U.K. that is attracting the lion’s share of investment. A third of all European tech investment takes place in the U.K. and when compared to Germany and France, the U.K. has the widest overall mix of foreign versus domestic investors, according to Tech Nation and DealRoom.co.
Fertile Ground For Unicorns
The increased investment into U.K. saw eight new unicorns created last year: Rapyd, CMR Surgical, Babylon Health, Sumup, Trainline, Acuris, Checkout.com and OVO Energy.
There are now 77 unlisted tech companies valued at over $1 billion in the U.K. (the definition of a unicorn), twice the number of any other country in Europe and second only to the U.S. and China.
SumUp, a mobile transactions provider that became one of eight U.K. tech companies to earn “unicorn” … [+]
SumUp Ltd., one of seven U.K. tech companies that earned “unicorn” status in 2019.
But look into the sectors of these new unicorns and you get some idea of where the U.K. tech sector is heading says Klein. “For the last five to 10 years the internet has been moving from discretionary to non-discretionary”. Consumers, he believes, are now using the internet more for essential services rather than the Facebook or Netflix-styled entertainment that gave rise to some of the largest tech companies in the world.
“Therefore the sectors that are being impacted by the internet now are non-discretionary sectors, like clothing, food, finance, healthcare, energy, transportation, etc”, says Klein. Of the eight new unicorns, three are fintechs, two are healthtechs and the others span travel, energy and information.
This specialisation is also evident in last year’s major venture capital deals. Fintech firms Checkout.com, World Remit, Monzo, Starling Bank and others attracted £4.1 billion ($5.3 billion) in fintech funding to the U.K. in 2019.
Other areas that saw significant venture investment include AI, deep tech and clean energy. “We think particular sectors will continue to outperform in terms of attracting capital including fintech and AI”, says Suranga Chandratillake, general partner at Balderton Capital, a London based venture capital investor.
Although many innovations in technology have been British, including the World Wide Web, the U.K. has never produced any blue-chip behemoths to rival the likes of Apple, Facebook or Google. But with increasing investment, many believe this could change.
“Our mission at Babylon is to put accessible and affordable healthcare into the hands of everyone on earth”, says Ali Parsa, CEO of Babylon, one of Britain’s latest unicorns.