Venture capital investment into British technology companies hit a new record last year, with $15bn being ploughed into UK tech – $200m higher than 2019.
Investment gathered momentum throughout 2020, reaching a peak last December at $1.9bn, despite the pandemic.
This means that the UK, once again, led Europe for venture capital investment in tech, with Germany and France ranking fifth and sixth for total VC tech investment globally, according to the latest Tech Nation report.
The US ($144.3bn) and China ($44.6bn) lead the world when it comes to VC tech investment.
>See also: Britain more attractive for foreign investment post-Brexit, say CEOs
However, the headline figure masked a worrying trend.
Nearly two thirds of the $15bn (63 per cent) invested in UK tech came from overseas investors, with foreign investment rising to 84 per cent of investment at the $250m plus level larger funding rounds.
Although a vote of confidence in a Britain that has taken a battering from the combined punches of Covid and Brexit, it does show a dearth of investors when it comes to later funding rounds.
And, in contrast with the government’s “levelling-up” agenda – rebalancing the economies of the South East, Midlands and the North – London tightened its stranglehold on UK tech investment. The percentage of total UK VC investment made into London has increased from 73 per cent to 88 per cent between 2018 and 2021.
Iain Butler, director at Buzzacott, said: “If the government is serious about ‘levelling up’, we have to get serious about addressing some of these structural issues that prevent other areas of the country from becoming leading tech hubs.”
Butler said that the government needs to think about decentralisation of state funding, as is the case in Germany.
Butler added: “To really deliver on ‘levelling up’, and support innovation beyond London, a decision will need to be made between slightly slower growth in London vs. further support for regions such as Wales and the East Midlands, which historically have achieved the lowest levels of funding.”
>See also: 6 mistakes to avoid once you’ve closed your first VC round
Top 10 scale-ups 2020
Just 10 scale-ups secured 20 per cent of last year’s total UK tech VC investment, at $3.5bn.
Octopus Energy, Arrival, Cazoo, Gymshark, infobip, Gousto and Hopin all gained unicorn status – valuations of $1bn – bringing the UK’s total unicorn count in 2020 to 80.
So far this year, another six unicorns have been created: Blockchain, Kymab, PPRO, Touchlight Genetics, Starling Bank and Zego.
Fintech challenger Revolut and insurance platform Ki helped to cement the UK’s position globally for fintech and insurtech.
Revolut raised $580m over the course of 2020, while Ki raised $500m for its commercial insurance platform.
Arrival, the London-based electric vehicle start-up, and green energy provider Octopus Energy, secured the biggest rounds for UK impact start-ups in 2020 – at $400m and $577m respectively.
Top 10 scale-ups 2020
| Company | HQ city | 2020 funding ($) | Sector |
|---|---|---|---|
| Revolut | London | 580 | fintech |
| Octopus Energy | London | 577 | energy |
| Arrival | London | 400 | transport |
| Karma Kitchen | London | 333 | property, food |
| Cazoo | London | 310 | transport |
| Gymshark | Solihull | 264 | fashion, ecommerce |
| Graphcore | Bristol | 222 | semiconductors |
| Infobip | London | 200 | marketing, SaaS |
| Zenobe Energy | London | 198 | energy, transport |
Tech IPOs gather pace in London
Eight of the UK’s tech companies floated on the London Stock Exchange last year, raising a total of £3.1bn. Compared with 2018 ($1.6bn), 2020 had double the amount of capital raised through initial public offerings (IPOs).
Manchester-based The Hut Group became Europe’s largest-ever ecommerce IPO, raising £1.9bn for a market capitalisation of £5.5bn.
Indeed, tech and consumer internet firms increased their share of capital raised through IPOs on the London Stock Exchange, accounting for 40 per cent of cash raised.
Rise of transport tech
Transport tech enjoyed the biggest bump in VC investment in 2020, rising 160 per cent from $650m to $1.7bn. This was driven by companies such as Arrival, which raised $400m in equity, and investments in other scaling transport tech companies such as Marshmallow, Cazoo, Freeflow Technologies, and Elmtronics.
VC investment in deeptech was also strong, increasing by 17 per cent to just under $4bn. This was the highest rate of growth globally, as the US, China and Israel all saw decreases in deeptech investment.
Gerard Grech, chief executive of Tech Nation, said: “This year has highlighted the UK tech sector’s enormous resilience and world-beating innovative spirit. In the face of a major global crisis, it has not only survived; in many areas, it has boomed. From EdTech to HealthTech, tech scale-ups are at the centre of rebuilding the British economy and setting new standards worldwide.”
Oliver Dowden, the government digital secretary, added: “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.”
In his forward to this year’s annual Tech Nation report, Prime Minister Boris Johnson said that the government would continue to invest in UK “while the real credit lies, as ever, with the engineers and designers toiling away at laptops across the country”.
Further reading
The venture capitalists (VCs) that founders need to know about
