What’s next in UK tech?

In 2014, there were just under 6,000 high-growth tech companies in the UK. Fast forward to today and there are over 14,000. If that growth rate continues, there could be over 20,000 UK scaleups before the end of the decade. There are tailwinds promising good support for these tech companies, particularly around funding. The Enterprise Investment Scheme (EIS) is one of the best incentives globally to encourage investment in startups. Beauhurst has tracked £150b of equity investment into UK companies (many of them tech firms) from 2013 to 2022. Increases to SEIS and the potential of the Mansion House compact promise further improvements to the funding landscape. The grants provided by Innovate UK have supported 20k innovative firms to date. The UK’s R&D tax credit scheme goes further, supporting nearly 90k firms in the last year alone.¹

Against this backdrop, it seems natural to expect international interest in the UK’s tech companies. Andreessen Horowitz celebrated the launch of its London office with a party in early November. Sequoia has been in London since 2021. A Japanese investment firm called NordicNinja recently announced that it would open a London office. International companies, especially those related to finance, tend to pick London. 40% of the high-growth companies acquired in 2022 were acquired by non-UK firms (the US was the most common foreign acquirer).

These stories have to be contrasted with their opposites: Tom Blomfield, part of the founding team of Monzo, left London for San Francisco, citing a lack of ambition in the UK. Instagram and Microsoft have moved and cancelled London office plans, respectively. Despite their strengths, London capital markets have often lost out on high-profile listings, usually to American markets, with ARM being just the most recent example. Commentators had the same feeling when Scotland’s Skyscanner sold to a Chinese company - seven years ago. With reforms to the UK listing regime by the Financial Conduct Authority on the horizon, there is optimism that London’s capital markets could change for the better. The successful direct listing of FinTech Wise in London in summer 2021 provides a blueprint for how UK technology companies can use public markets to access liquidity.

So there are mixed views of London and the UK as a home for tech companies. Nonetheless, the tech population is growing. The UK’s International Technology Strategy outlined AI, quantum technologies, engineering biology, semiconductors, telecommunications, and big data as sectors where the UK has world-beating potential.² There are material events and developments that will help that be the case. The AI Safety Conference in November 2023 is organised by investors and operators with a respected reputation on the national stage.³ Qatar is planning to invest £4b into UK GreenTech. NordicNinja cited the UK’s strength in climate finance as a reason for opening their office in London. Rejoining Horizon Europe means more (and serious) support for the research and development that underpins these sectors. In many of these sectors, the UK has produced internationally important companies: BenevolentAI, Angoka, Cambridge Quantum Computing, Riverlane, and many more.

Despite these important companies, the UK is criticised for losing them to foreign acquirers or capital markets. The US has deeper pools of capital, investors who will pay higher valuations, and access to a market that is many times larger than the UK—all things acknowledged by the Hill Review. So where does the opportunity for the UK lie? The UK has great tech underpinned by world-leading research and a highly-skilled talent pool.

The UK’s finance sector has benefitted from its timezone. Could this hold the key to the future? Is the UK, with its financial and legal services that are the best in the world, able to position itself as an integral part of any internationalisation strategy?

It seems clear that there is potential for the UK to capitalise on the “new normal”, even as it continues to evolve. But to do so, the UK needs to be open to business, talent, and success. Both of the major political parties in the UK have pro-business policies in the pipeline or in their manifesto. They both want to see more pension money invested into UK private companies, for example. But both main political parties hint at changes in tax. In differing guises, both parties have also suggested increasing the tax paid by entrepreneurs when they exit their businesses. Such threats deter new entrepreneurs and put a cap on the ambitions of existing entrepreneurs.

The growth champions who make up the Fast 50 have thrived in the current environment, but we need them to continue to thrive. Politicians should pick up on these companies not as darlings to be championed but as representative of what more companies could achieve with the right support and policies.

FOOTNOTES
¹ Corporate tax: Research and Development Tax Credits, 2023
² The UK’s International Technology Strategy, 2023
³ Experts to lead AI Safety Summit preparations as new funding announced to modernise healthcare, 2023, 2023