UK Tech sector retains third global standing despite investment downturn

The UK tech sector has been valued at £820bn, despite facing a 57% decrease in tech investment in the first half of 2023, compared to the same period in 2022.

Thus far, UK tech startups have raised£10.2bn, indicating a slower funding speed than last year’s total of £24bn.

Investors have been rocked by economic uncertainty and rising inflation, complicating investments in the sector. Despite this headwind, the UK continues to host the third most valuable tech sector globally, behind China and the United States.

The data, released by HSBC Innovation Banking and Dealroom, also points out that despite lowered investment volumes, the UK continues to be an international hub for startups and venture capital.

Ranking third for global VC investment, the UK is home to over 150 unicorns and 20k+ funded startups. The sectors that were recipients of the highest amount of VC last year were Fintech, Health and Energy.

Lowered investments across Europe

Decreases in investment volumes are not unique to the UK, but rather a symptom of macroeconomic conditions that have also handicapped European investors. Tech investment in France fell by 55% and 44% in Germany.

According to research by Atomico, investment volumes in Europe are set to reach around $50bn in 2023 based on recent activity. This represents a 50% drop compared to the record highs of 2021 and around 38% decrease from 2022.

Lowered investment, however, is not a sign of chronic ailment of Europe’s investment environment as even in the current market downturn, the continent is still on track to have its largest year in terms of funding raised.

The future of UK tech

Despite the investment headwinds, the UK tech sector is still showcasing signs of innovation that will continue to position it as a global leader. Just last year, the UK tech sector reached a record valuation of $1tn.

“The FinTech industry in particular is leveraging exciting developments in AI and blockchain for a host of use cases, including the development of digital assets that can lower the cost of foreign exchange and fuel overseas trade,” points out Sheeraz Saleem, CTO at DKK Partners.

The FinTech sector is currently valued at $11bn, followed by the Health and Energy sectors which are valued at $3bn respectively.

A key area for driving growth in the tech sector will be AI, as the UK prepares to host the AI Safety Summit and pave the way for the UK to become a tech environment akin to Silicon Valley.

According to Startups 100 unique data, average funding for AI startups in the UK increased by 66%. This represents an increase in average funding of £5,340,750 in 2021 to £8,587,727 in 2023.

“These innovations can play a key role in the growth of businesses, so it is important that the UK continues to cement itself as a leading tech hub and prime investment centre in order to attract funding and continue to fuel R&D in order to give businesses access to the technology they need to thrive across different markets,” stresses Saleem.

A survey by lobby group Coadec showed that 84% of tech startups were concerned they would have to look at offshoring more tech development due to the changes made to the R&D tax relief scheme.

What startup founders and those in the UK tech sector will want to see is a political will to set mechanisms and regulations in place that will foster growth and drive innovation.