The End of Tech Nation: What does it mean for startups?

Tech Nation – the startup growth network that has nurtured over a third of the UK’s tech unicorns – has announced it will cease operations on March 31, after the government pulled its funding last September.

Since launching in 2011, Tech Nation has been financed via the government’s Digital Growth Grant. This £12.09m pot of money was established to aid the UK’s existing digital tech firms, enable startups to scale-up, and grow regional support networks.

Now, the Department for Digital, Culture, Media and Sport (DCMS) has reallocated the grant to Eagle Labs, a tech incubator run by Barclays Bank, leaving entrepreneurs shocked and bemused by the decision.

Tech Nation was an inarguable success. While 80% of startups fail within their first 2-5 years, over 95% of startups on Tech Nation’s accelerator programs have gone on to scale. These include some of the UK’s most valuable businesses, like Startups 100 alumni Deliveroo, Monzo, and Revolut.

The organisation has also played a key role in bringing thousands of talented tech workers to the UK. The loss of the Global Talent visa scheme endorsement process could spell disaster for the country’s digital skills gap.

Simon Mellin is CEO of Modern Milkman, the sustainable quickcommerce startup that came fourth in this year’s Startups 100 Index.

In a press release, Mellin shared that “Tech Nation has been a huge enabler for Modern Milkman as we have scaled. It’s a real blow to the tech industry for this to no longer continue.”

“Tech Nation gave us the foundation of who we are today”

The Sunday Times first ran the story that Barclays Eagle Labs, the bank’s national incubator network, had successfully bidded for the funding in September 2022.

At the time, the reaction was largely negative. In an open letter, over 140 tech founders, executives and investors wrote to the government arguing that the investment should instead go to an organisation “grounded in the startup ecosystem”.

Unsurprisingly, the fallout from that decision has now led to significant backlash from the startup community. After extensive consultation, Tech Nation has been forced to close its doors, accepting that the programme could not continue without core government grant funding.

For the many businesses which benefited from being named a Tech Nation ‘Rising Star’, there is dismay. For those companies that make up the organisation’s current cohort, who had been promised support and coaching on their growth journey, the future is uncertain.

Max Buchan founded Worldr, which also featured in the Startups 100 Index 2023, four years ago. The cybersecurity startup was selected by Tech Nation as a Rising Star Finalist in 2020, an honour which helped it to build crucial early-stage brand exposure.

Buchan describes the news as bitter. He continues, “Aside from giving Worldr a platform to network with like-minded innovators, Tech Nation provided valuable mentorship opportunities from industry experts, helping us build a solid foundation of who we are today.”

The feeling now amongst startups is confusion. Without Tech Nation, what will emerge to fill the gap in the UK’s tech ecosystem?

‘Someone made a lot of money from that decision’

Following the announcement by the DCMS, much of the surrounding criticism is focused on the government’s choice to award Barclays the Digital Growth Grant.

Barclays, a FTSE 100 company, applied for the grant through its Eagle Labs incubator, a “growing network that already supports businesses from Aberdeen and Belfast to Cardiff and Cumbria”, according to the government.

Sanjay Lobo MBE, is the founder of onHand, a volunteer and climate impact platform that was announced as one of the Tech Nation North East Regional Rising Star in 2021. Lobo admits puzzlement over the entire episode.

“It feels like a really harsh decision on Tech Nation,” he tells Startups. “The outpouring of support for them is off the charts. They’ve been really supportive of us and have helped countless amounts of very large startups in the UK.”

Sanjay Lobo MBE, founder of onHand

Keeping an open mind, Lobo expresses hope that Barclays Eagle Labs simply wowed the government’s procurement panel with an incredible bid proposition. But having had no visibility on the bid process, he remains unclear about the motivations behind the pivot.

“What I think is needed is more transparency. The pessimist in me says it looks like someone made a lot of money from that switch,” Lobo admits.

Lobo also conveys astonishment that the judging panel did not involve more business leaders, to hear their thoughts on Tech Nation as the lifeblood of the UK entrepreneurial scene.

“A contract like that is worth so much money,” Lobo reiterates, “it’s literally put Tech Nation out of business. How do you not involve startup leaders that have been through the Tech Nation process?”

The role of tech startups in the UK’s economic recovery

Last week the International Monetary Fund (IMF) predicted the UK economy will shrink in 2023, performing worse than other advanced economies, including Russia, as a result of record-high inflation and post-Brexit supply chain calamity.

As a government-backed national asset, Tech Nation has recorded one of the best ROIs for the taxpayer. On average, it has delivered £15 return on every £1 funded by the UK Government.

Claire Trachet is CEO and founder of Trachet, a startup advisory firm. Acknowledging the impressive financial legacy of Tech Nation, Trachet alludes to the significance of incubators in accelerating the UK’s economic recovery.

“As the economy attempts to recover from inflationary pressures and high interest rates, the need to attract global investment to the UK tech sector should remain a priority,” Trachet submits.

Barclays Eagle Labs may yet prove to be a worthy replacement for Tech Nation. The DCMS has said that the Barclays grant will benefit more than 22,000 businesses.

But the more pressing issue for many entrepreneurs is why a thriving tech incubator that survived a global pandemic and produced many of the nation’s best businesses has been so quickly abandoned by the government.