UK start-ups attract record $8bn in dash for growth

The UK tech sector attracted record investment of close to $8bn in the first three months of 2021 as investors scrambled to seize stakes in the most promising start-ups in the country. 

Investments made in fast-growing companies such as Touchlight Genetics, Starling Bank and insurance provider Zego were more than twice the amount raised in the same quarter last year, according to Tech Nation, the government-backed entrepreneur network. Five companies have raced to a valuation of more than $1bn so far in 2021 — almost as many as in 2020 as a whole.

This fundraising activity comes after a record-breaking 2020, according to the annual Tech Nation report into the health of the industry. Tech investment reached $15bn last year in the UK, pulling away from rival European tech hubs Germany and France despite challenges from the pandemic and Brexit.

Activity from venture capital firms ground to a halt in the first weeks of the pandemic last year, but they have since rushed to invest heavily in promising tech groups, sending valuations soaring.

Last year, the UK was the third-biggest destination for investment behind US and China, according to Tech Nation, leaving the British high-growth company sector valued at $585bn. This has more than doubled since 2017. Ten tech companies secured a fifth of total venture capital investment last year — including Cazoo and Revolut. 

Gerard Grech, chief executive of Tech Nation, said that in the face of a global crisis, the tech sector “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”. 

But the annual Tech Nation report said that there were still “major challenges” as the UK looked to emerge from the worst of Covid-19. It said Britain was trailing on R&D spending, with some private companies investing more than the whole of the UK as a nation.

With the British government also keen to use its future policymaking to help “level up” regions of the UK, the report also showed how much London has come to dominate the tech sector.

The percentage of total UK VC investment made into London has increased from 73 per cent to 88 per cent between 2018 and 2021 — setting up a potential clash as ministers’ desire to bolster the UK’s tech sector could clash with the need to push industries out of the south-east.

The report also flags concerns about future national security. In 2020, non-UK investment represented 63 per cent of total VC funding in UK tech. Tech Nation warned on the potential “for national security concerns, with UK tech firms to become increasingly majority-owned by non-UK actors in the future, while also signifying a shortfall of late-stage domestic investors”.

Three-quarters of funding rounds of more than $250m included a non-European or UK investor in 2020, signalling the problem is more acute among the larger and more established firms.

Tech Nation highlighted several sectors of particular growth, including companies that were producing net zero and transport tech.