New report: A decade of UK tech from Tech Nation & Google for Startups
New research from Tech Nation and Google for Startups reveals funding for purpose-driven startups has soared to $3.5bn (approx £2.8bn) in the past decade.
The first-of-its-kind analysis shows that between 2011 and 2021, funding for impact tech companies addressing UN Sustainable Development Goals rose from just $74m (or £59m) to $3.5bn (£2.8bn). And in 2021, despite the effects of the pandemic, funding increased by $1.4bn (£1.1bn) compared to 2019 alone.
Funding for impact tech start-ups represented 9% of all venture capital funding in the sector in 2021, and the sector’s average investment outweighs the average deal size reported for FinTech, the UK’s biggest scaleup sector (at a median deal size of $816k / £651k for impact tech versus $680k / £543k for fintech).
Over half (60%) of 2021’s total impact tech investment contributed to the growth of Net Zero tech companies, founded to address global climate challenges. Other key investment areas include education, health, food, and sanitation – responding directly to acute global issues.
Graph 1: Investment into impact tech scaleups (2011-2021)
(Source: Tech Nation, Dealroom, 2022)
Insufficient early stage funding threatens future impact tech sector growth
But the impact sector’s future growth and success is being threatened by dwindling funding for early stage start-ups. This issue particularly affects UK tech businesses when compared to their US and European counterparts because of ecosystem maturity, valuation boosts from large scale US investment, and greater levels of retail investor certainty in later stage, venture capital backed firms.
The UK is fourth in the world for tech investment at $40.8bn (£32.6bn), having achieved a record year in 2021.
However, while in 2011 seed and pre-seed VC investment made up over 15% of the total investment mix in UK tech, by 2021 that proportion had dropped to 4.8%. This downward trend has been seen over the last four years. In absolute terms, investment into seed and pre-seed companies has not decreased, but growth has been low. From 2020-2021 investment into UK tech increased by 130%, whilst investment into early stage companies increased by just over 14%.
If seed and pre-seed tech firms are to grow into the scaling engines of the UK economy, the supply of capital that sustains their early growth must be prioritised, or the UK runs the risk of stifling future stars of the global tech stage.
Graph 2: Funding for tech start-ups and scaleups by size of round (2010-2022)
(Source: Tech Nation, Dealroom, 2022)
Tom Wilson, partner at early stage venture capital fund Seedcamp, says: “The funding landscape has really matured and blossomed into a vibrant ecosystem over the past 10 years. At Seedcamp, we’ve been privileged to have a front-row seat to this evolution by backing the likes of Wise, Hopin, UI Path and Sorare. While there’s been huge amounts of progress, we still want to see more investment and opportunity for companies building solutions that require more patient capital and deep tech to truly redefine the future of our health, consumption and the world we live in.”
Deep tech funding must be prioritised to fuel impact sector growth
Across the entire startup ecosystem, renewed emphasis must be placed on access to early stage funding. But this need is especially true for deep tech startups – working on cutting edge technologies like AI and quantum computing, the rocket fuel of impact tech – which can require longer periods of intensive innovation at the outset of their scaling journey.
The report highlights that the UK is a global frontrunner in deep tech investment: funding in the sector has increased 33x since 2011, topping $8.5bn (£6.8bn) in 2021 where megarounds of over $250m (£200m) contributed heavily to the total. Even though investor appetite for deep tech is soaring, the sector’s growth is in its infancy compared to its future potential.
Graph 3: Deep tech investment in the UK in $bn (2010-2022)
(Source: Dealroom, Tech Nation, 2022)
|The Google for Startups and Tech Nation Manifesto for accelerating the impact tech sector
These five manifesto points are the result of trend analysis on data spanning the last decade of UK tech (including investment, employment, sectoral performance, diversity and inclusion, and support mechanisms), as well as interviews with founders, investors and support organisations on their priorities when considering the creation of conditions conducive to future growth in UK tech.
The Decade of UK Tech report launch marks Google for Startups’s UK 10 year anniversary. Over the past decade, Google for Startups has worked with UK-based founders to help create over 24,000 jobs and raise over £350m in funding.
Marta Krupinska, head of Google for Startups, comments: “The UK’s startups today have a more important role than ever before, helping to solve some of our biggest challenges and drive economic growth. A decade ago, we launched Google for Startups with a mission to support thriving, diverse, and inclusive startup communities. Today we’re kicking off a conversation about how the startup community, investors, industry and Government should work together over the next 10 years to create the right conditions for entrepreneurs to use technology to help to drive meaningful change – and we’re committed to playing our part.”
Gerard Grech, founding CEO of Tech Nation, comments: “Since Tech Nation’s inception, the UK has become a global powerhouse for science, technology and innovation. As our report with Google for Startups makes clear, UK tech is working to solve some of the world’s most pressing challenges, including helping the UK reach its goal of zero carbon emissions, and tackling social issues such as financial exclusion. At Tech Nation, we’re privileged to have supported over 4,000 tech businesses to scale and succeed, including 37 of the UK’s 116 tech ‘unicorns’ (companies with valuations of $1bn+) and 5 of the UK’s tech 13 ‘decacorns’ (companies with valuations of $10bn+). We are on a mission to enable the UK’s most innovative companies not just to grow and become more profitable, but to change the world for the better.”
To help support a diverse and representative startup ecosystem, Google for Startups has worked alongside Tech Nation to offer female founder office hours, which help to connect female founders to investors, increasing access to funding and collaboration. Google for Startups is also working to tackle racial inequality in VC funding by inviting black-led startups to apply for this year’s $4m Black Founders Fund, created to help address the fact that 0.25% of VC funding goes to black-led startups.