Forewords

Head of Google for Startups UK

Marta Krupinska

Close your eyes and imagine it’s early 2012. You’re a startup founder living on the sharp edge of technology: you’ve got an iPhone 4s in your pocket running on 3G with a local minicab number saved in it (because Uber is yet to launch), you run your team comms on Skype and you may have just bought a pizza and a beer for 2 bitcoins…     

I remember clearly the palpable sense of excitement when I went to Google’s Campus in London’s ‘Silicon Roundabout’ for the first time in 2012. My first startup, back in Krakow Poland, had shut down after three years of solid early traction, and I moved to London in pursuit of bigger opportunities, a community and capital to fuel growth. The UK became so much more than a business destination - it became home, the startup crowd became my dearest friends and it was an obvious yes when, two startups and 6 years later, Google offered me to lead Google for Startups in the UK.

Ask anyone and they’ll say that Campus played an important role in the London startup ecosystem. The vibrant community at TechHub, the speakers at ‘Campus presents’, the ‘Campus for Mums’, Seedcamp’s endless stream of new successful portfolio companies… When I joined in 2018, we decided to focus on some of the most pressing issues of the time: accelerating founders solving big problems with technology, supporting underrepresented founders and expanding our reach far beyond Campus to work with founders in the regions of the UK and across Europe, Middle East and Africa. We’ve been able to break new grounds, including spinning up the Black Founders Fund and investing in some of the most ambitious founders we’ve ever met. Campus hasn’t reopened after the covid-19 pandemic, but its impact is here to stay, and our work continues, perhaps bigger than ever: ‘it’s not about the building, it’s what we’re building’. 

The idea for this report in partnership with Tech Nation was to take stock, to look back to look ahead. Stories told by the people who came up with the idea of Campus point to a particular set of meetings, back in 2011, when founders, investors, policy makers and influential Londoners jointly concluded that what was most needed to jump start the burgeoning startup ecosystem was a convening space; somewhere to be the gravitational pull for the smartest, most ambitious, most collaborative people to build their ideas together. What’s most needed in 2022?

The world has changed a lot in the last 10 years, and so has the startup community. Perhaps today there shouldn’t be a single group, and a single meeting, to point to a solution for us all. This report welcomes everyone to start their own conversations and play a role in what comes next. To question current definitions of success. To embrace technology and businesses that help shape the society in which we live. To celebrate the founders and teams who blazed the trail so far and make sure we’re creating the right conditions for the ones only starting up.

It’s 2022. The smartphone in your pocket is the world’s most powerful supercomputer. A whole new generation has picked up coding from YouTube. Cloud computing is ubiquitous, AI is helping us find a cure for cancer, blockchain can aid in curbing climate change, innovative hardware brings about whole new data sets to work with. A million new challenges still to solve, but it’s a pretty good start. What do we want to see in 10 years' time when we look back?  

Founding Chief Executive, Tech Nation

Gerard Grech

Over a decade ago there was an ambition for the UK to be a top 5 global centre for digital technology. Many people scoffed at the idea. But as with everything, big ideas start with big visions. From senior policy makers in Government to altruistic investors and from eager educational institutions to passionate doers in the community, many people got involved and made things happen; from hackathons to entrepreneur breakfasts at No.10 Downing Street and from launching incubators to media campaigns. The drive and energy quickly spread across the country.   

Fast-forward to a decade later, and the UK has become a truly distributed national network of digital excellence with ambitious startups and scaleups across every region of the UK. 

Over the last decade, entrepreneurs from across the UK have innovated, created, and driven the next generation of tech businesses, whose positive effects we continue to feel in the UK and across the world. We have now reached a point where the UK is fourth in the world for global tech investment (receiving more than twenty times the VC investment this year than it did ten years ago), and the UK tech ecosystem is valued at just under $1 trillion (more than seventeen times its value ten years ago). On top of this, we have more tech ‘unicorns’ than any other country on the continent, and our tech sector employs nearly five million people across the UK.

But the value of UK tech doesn’t just lie in all of these staggering statistics. It lies in the impact our tech sector is having on the rest of the world. The UK’s tech startups and scaleups are solving the world’s most important challenges with agility, innovative technology, and determination - whether that be through using AI to improve healthcare systems, tackling financial exclusion as an innovative fintech company, or combatting the effects of climate change. 

As founding chief executive  of Tech Nation, I have had the privilege of seeing firsthand the impact that the UK’s tech scaleups are having on people and planet - across all of our growth programmes. At Tech Nation, 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. Our mission has always been to ensure that we live in a nation where anyone with vision and drive can access the skills and support needed to scale and succeed as a game-changing leader.

With UK tech creating more jobs, attracting more investment and solving more global challenges than ever before, we’ve come a long way in achieving this mission - and we have a lot to celebrate. But this is also the moment for us to continue adapting and staying agile. We must look back at the last decade and reflect on where we need to work harder over the next ten years. We must ensure that we are doing all we can to stay competitive on the global stage, level up even further across regions, create a truly diverse tech sector, and boost investment into impact tech companies across the UK. Because these are truly the companies that are shaping our future. What are your thoughts on UK’s tech future? 

Introduction

Over the last decade we have felt profound technological and economic change. The course the industry has taken, from community based roots around East London's Silicon Roundabout, to a truly distributed national network of ambitious startups and scaleups, has not been smooth, or easy. Nevertheless, in the face of adversity entrepreneurs have innovated, created, and pioneered the next generation of tech companies, who's effects we continue to feel in the UK and across the world.

In the next year alone we expect to see UK tech startups and scaleups cumulatively valued at over $1.3 trillion; up from $53.6 billion ten years ago, raising over $50 billion in venture capital investment; up from $1.9 billion in 2012, and employing over 5 million people in the UK from 2.18 million just a few years ago. 

Some things about tech, though, have not changed for the better. The distribution of venture capital invested has barely shifted, geographically, and by the characteristics of people and companies invested into. 

Fintech continues to lead the UK investment landscape, representing $12.8bn of new investment in 2021, nearly a third of all investment made into the ecosystem, and healthtech remains firmly in second place with $6.3bn. 

Deep tech sits at the heart of the UK’s tech future. Inherently, companies developing new, cutting edge technologies represent opportunities that exist outside of our current state of technology adoption, and in the UK, this development activity is being prioritised. 

On jobs, in 2021, for the first time this decade we saw the number of job adverts for UK tech roles exceed 3 million. Tech salaries have increased by 36% over the last ten years - far exceeding that of the labour market as a whole. In fact, from 2020 to 2021, advertised salaries outside of tech dropped. This calls into question the potential polarising nature of technology, as well as the clear economic benefits of those in tech jobs.

This report collates the latest data on the evolution of tech, and curates opinions of those at the cutting edge of UK tech who are thinking about its future. What’s clear is, the next decade of UK tech will be full of opportunity and change.

Data partners

Many thanks to our data partners, Adzuna, Beauhurst and Dealroom.

Key statistics

(Source: Tech Nation, Dealroom, 2022)

(Source: Tech Nation, Dealroom, 2022)

(Source: Tech Nation, Dealroom, 2022)

(Source: Tech Nation, Dealroom, 2022)

(Source: Tech Nation, Dealroom, 2022)

(Source: Tech Nation, Dealroom, ONS, 2022)

(Source: Tech Nation, ONS, 2022)

(Source: Tech Nation, Adzuna, 2022)

Investment and valuations

Whilst investment into, and valuations of tech companies are strongly indicative of performance of the ecosystem as a whole, they are not the only measures that must be considered.

There has been significant noise in investment figures over the last decade and much change in the sectoral composition of UK tech VC investment, as shown below. It is likely that over the next ten years there will continue to be so.

(Source: Tech Nation, Dealroom, 2022)

The last two years have heralded some of the highest levels of investment seen into UK tech firms, and also a profound sense of disruption. The social and economic strains of the Covid-19 pandemic and the UK’s exit of the European Union created a backdrop of uncertainty in 2020, also reflected in the investment trends. Investment was considerably lower in the first half of the year than the second, where it picked up to record quarterly levels. This continued into 2021, where record investment was clocked in every quarter of the year - leading to investment levels 130% higher than 2020.

The UK is fourth in the world for tech investment at $40.8bn, having achieved a record year in 2021 and an increase of nearly 20x since 2011 in venture capital funding

(Source: Dealroom, Tech Nation, 2022)

Looking at the last decade of global investment, it is clear that venture capital funding is becoming an ever more important component of tech economies. 

Over the last decade, UK companies like Deliveroo, Monzo, Improbable and Depop have been started, funded and scaled by driven entrepreneurs and investors. The health and vitality of the tech ecosystem cannot be determined by a single factor, but venture capital investment certainly provides a lens through which both appetite and outcomes can be gauged.

Global competition is heating up, and the pool of investment is growing larger. India pulled ahead of the UK in 2021, knocking the United Kingdom out of the top three global tech nations. Nevertheless, with over 2.3x investment levels of 2020, it is clear that the UK tech ecosystem continues to develop rapidly, and remains attractive to domestic investors, as well as those from overseas. 

Investment into seed and pre-seed stage companies has dropped as a proportion of all funding from a high of 22% in 2013, to less than 4% in 2022 so far

As the UK tech economy matures, and more late stage capital is ploughed into firms reaching critical mass, it would follow that early stage investment would decrease as a proportion of the total pool of VC funding. However, the trend towards late stage investment, and a relative reduction in early stage seems to have reached potentially problematic levels.

(Source: Dealroom, Tech Nation, 2022)

Investment into early stage companies has not decreased in absolute terms, but despite a 130% increase in investment into the UK tech ecosystem as a whole from 2020 to 2021, investment into seed and pre-seed stage firms increased by only 14%.

Equally, the number of rounds raised by pre-seed and seed stage tech companies in the UK has remained relatively static over the last five years, dipping slightly from 2018 onwards.

Number of rounds raised by UK tech companies by round size (2010-2021)

(Source: Tech Nation, Dealroom, 2022)

In order to ensure a healthy, and a robust, populated pipeline of future tech stars, domestic investors must continue to support those companies in the earliest stages of their scaling journey.

International investment into UK tech firms has risen from 41% of all VC investment in 2011 to 71% in 2021 - this trend looks set to continue, with 74% investment made by non-UK funders in 2022 so far

Since 2010, investment from outside the UK has steadily increased - not without some fluctuation. International investment reached a peak in 2019, at 71% of total VC investment before dropping by 8% in 2020. Last year, these extra-domestic investment levels reached that level again 71% of the total VC funding pot.

(Source: Dealroom, Tech Nation, 2022)

The UK has long been at the nexus of global trade flows, and international financial transactions, yet in tech, the prevalence of international venture capital investment has been a more recent phenomenon. 2019 was an inflection point for UK tech; the proportion of non-UK investment into UK tech shifted gears; non-UK investment made up 71% of total VC funding - . For later-stage investments this is even more pronounced; 65% of the number of rounds between $100m and $250m, and 76% of rounds $250m+ included a non-European or non-UK investor in 2020. 

On the one hand, this could be seen as a sign of strength and burgeoning international reputation for investment returns in UK tech, but on the other, this may be seen as potentially problematic if UK tech firms with significant profit and influence are owned by non-UK actors.

Investment into tech scaleups has rocketed over the last decade reaching $21.2bn in 2021

Scaling tech companies are creating the future. This subset of the tech ecosystem, made up of high growth, disruptive companies is a bastion of change. This section of the report aims to draw attention to the impact scaleups have had over the last decade, and where they are likely to take the sector over the next ten years. 

Why are scaleups particularly important? Tech scaleups may have raised investment or bootstrapped their business to a point where they are ready to ramp up sales, expand into different markets and drastically increase their headcount. Regardless of how they got there, these companies are leading lights in the UK ecosystem, and understanding their trajectories gives us an acute sense of where the world may be heading.

(Source: Tech Nation, Beauhurst 2022)

The first three years of the decade remained low for investment with the total hovering between $0.9 and $1.2bn. 2014 marked the first change with increases in investment occurring across all round types (Pre-Seed to Series D +). The next shift occurred in 2017 where aggregate investment doubled the previous year. Over the next 4 years investment grew slightly with compound growth being hampered by the pandemic in 2019/2020. The sector bounced back quickly after this with record levels of investment in 2021 equalling $21.2bn.

The value of the scaleup ecosystem is 53x higher than a decade ago

(Source: Tech Nation, Beauhurst 2022)

The size scaleup sector is vastly greater than at the start of the decade where it was valued at $3.0bn. The sector is now cumulatively worth $160.9bn with 113 unicorns. These businesses drive the value of the ecosystem and stand as an example for other scaleups to aspire to. The most valuable ones of the decade are checkout.com, Revolut, & Wise (formerly TransferWise), and represent the latter stages and end of the scaleup growth stage. 

The UK tech ecosystem is valued just under $1tn in 2022, more than 17x the value ten years ago ($53.6bn), putting the tech economy third in the world for valuations

The value of tech scaleups has increased at an even greater rate than the ecosystem as a whole.  At the start of the decade they were cumulatively valued at £2.2bn, and are now worth £118.3bn - excluding unicorns and decacorns ($1bn+ and $10bn+ valued companies). If trends continue over the next ten years, we can expect to see the aggregate valuation of the UK tech ecosystem at $2.6tn. To maintain that momentum, though, conditions must be altered to enable further growth, and address entrenched challenges in the economy.

Cumulative value of the UK tech ecosystem (2000-2022)

(Source: Dealroom, Tech Nation, 2022)

There are now 123 tech unicorns in the UK, up from 12 in 2012

The herd of tech unicorns, those companies valued at over $1bn, has seen significant growth over the past decade from 12 companies in 2012, including ARM and WorldPay, to 118 companies in 2022 - the latest of which include Tripledot Studios, GoCardless and Wayve. The UK is only the third ecosystem in the world, alongside the US and `China to have spawned over 100 unicorn tech companies.

(Source: Tech Nation, Dealroom, 2022)

Deep tech

UK deep tech investment has increased 33x since 2011, topping $8.5bn in 2021 where megarounds of over $250mn contributed heavily to the total

Deep tech is an umbrella term given to R&D intensive, cutting edge technologies, it includes quantum computing, VR and AR, and machine learning and artificial intelligence to name a few.

(Source: Dealroom, Tech Nation, 2022)

The UK has historically been a leader in supporting new technology development. In 2020 the UK was the global frontrunner for the deep tech investment growth rate, at 17%. However, VC investment is not the only factor that contributes to the growth of innovative tech companies.

Proportion of total VC investment made into deep tech companies by country (2015-2020)

R&D expenditure, which is a gauge of development activities in both the public and private sectors, is an indicator of the extent to which forward-facing investments in capability building are being conducted, and the UK is falling behind some global players.

Given the importance of new technology development for solving acute global challenges, such as carbon reduction and climate change, deep tech will be an ever more essential component of the tech ecosystem. 

Deep Tech scaleups accounted for $3.9bn investment in 2021; there has been rapid growth in investor appetite for deep tech, but growth remains nascent compared to opportunity.

“If the computational power delivers as promised, all encryption for fintech and e-commerce as we know, will become obsolete. At the very minimum, if quantum encryption is developed there will be a threat to these two biggest tech sectors.”

Saul Klein, LocalGlobe and Latitude

Deep Technology scaleups push the boundaries of research & science, and bring these highly technical endeavours to the forefront. They are often spun out of academic institutions and have complex patent portfolios to protect their intellectual property. A symptom of their nature is they take longer to commercialise, and with this in mind we must provide more support to help them continue disrupting markets. This decade Deep Tech scaleups have majored in but are not limited to artificial intelligence, quantum computing, blockchain, IoT, extended reality (Augmented Reality / Virtual Reality), aerospace, cyber, industry 4.0 and robotics.  

Graphene is the answer, but what is the question?

First discovered in 2004, Graphene was immediately recognised as the world’s material of the future. It is the thinnest, strongest and most conductive (in terms of electricity & heat) material ever seen, and scaleups are now thinking about ways to bring this technology to market. A prime example is Paragraf, the Cambridge University spinout who are the first company to scalably mass produce graphene for the semiconductor industry. Only now are companies like this able to attract serious levels of investment with Paragraf raising $60mn including participation from the UK Treasury & the CIA (The Financial Times, 2022). 

Similarly, blockchain technology was first described by cryptographers Stuart Haber and W. Scott Stornetta in their 1991 paper “How to time-stamp a digital document”, but the first use case, BitCoin, was only created in 2008 by Satoshi Nakamoto. They are both technologies of the future but one clear thing to bring out is the time it takes to think about how they can be used in society. 

This uncertainty and the unclear time to market is a frustrating trait of Deep Tech and makes it difficult for VC’s to invest. In the same way we see this uncertainty in the price of BitCoin we see this in total investment over the decade, large fluctuations. Fortunately despite the dips it always bounces back higher than before, and with larger amounts of money going into megarounds ($250mn+). This is testament to the importance of Deep Tech and the potential it can unlock. The staggering $3.9bn investment over 2021 supports this further. 

Investment into Deep Tech congregates around regions with world leading academic institutions

(Source: Tech Nation, Beauhurst 2022)

London is still the clear leader for Deep Tech investment, with the East of England and the South East taking the second and third positions. The common ground between the three being talent spilling out of and congregating near to top academic institutions including the likes of UCL, The University of Cambridge & The University of Oxford. Grouping like this is essential for Deep Tech, as broad ranging skills and often sophisticated testing facilities are required to continue innovating on their technology. 

Deep tech delivers 34 Unicorns and 56 futurecorns

(Source: Tech Nation, Beauhurst 2022)

Among the unicorns and futurecorns the technologies being applied and markets they are disrupting are broad ranging. For example, Beamery’s AI technology & HR applications couldn’t be more different to Arqit’s quantum resistant blockchain ecosystem. This difference is because leading deep tech companies, who drive the value of the deep tech scaleup sector, must focus their expertise in a distinct market. Thus, to be a successful Deep Tech founder you need more than a novel technology at the bleeding edge of innovation and a deep understanding of the needs of your target market. 

Deep tech will be a platform for impact driven growth into the future

Platform technologies are innovations that act as a base upon which other processes, applications or technologies can develop. Deep Tech has produced a number of platform technologies and two have recently reached the level of sophistication required for new businesses to innovate on top of exponentially. 

The first, Blockchain. Known for its cryptocurrency applications the technology can be applied to a range of applications due to its security, traceability and efficiency. IBM identify 5 key industries that can benefit from blockchain technology:

• Supply-chains (including food & pharmaceutical supply-chains): Provides end-to-end visibility to streamline processes and resolve issues faster.
• Financial institutions: In replacing old processes and paperwork, blockchain increase the operational efficiency by removing friction and delays. 
• Healthcare: Blockchain can improve the security of healthcare records making them easier to share across providers. 
• Governments: Using blockchain, governments can share citizens data with an immutable audit trail. 
• Insurance: Where underwriting and claims settlements costs can be reduced because of a more efficient blockchain solution. 

Moreover, it is set to be the building blocks for web 3.0 as the evolution of the internet focuses on connecting data in a decentralised way, rather than having it stored centrally, with computers able to interpret information as intelligently as humans. 

The second of the two platform technologies is Space Technology. Advances in satellite technology – where lightweight constellations of satellites are sent up – and reductions in launch costs have enabled a dramatic increase in the number of satellites in space. These satellites, often in low earth orbit (LEO) because of their weight, act as a great platform for the geospatial intelligence, navigation, weather and telecommunications sectors to explode. 

With the two technologies in different universes it is tough to see the similarities between the two. One is clear; the decentralisation of ownership and control. Satellites are no longer owned by governments & large corporations, and currencies are no longer controlled by central banks or established financial institutions. Thus, it will be interesting to understand how large incumbents and governments react to these changes and to see if any levels of control arise. 

Healthtech

2014 was likely an inflection point for healthtech, with a 270% increase in investment, and steady growth has been seen since

The NHS is the 5th biggest employer in the world and has been tested in inexplicable ways this decade. For a sector which carries such a high weight in society, technology was lacking for the Health sector in 2011. In 2014 however there was a noticeable change in the way in which health and the technology sector are intertwined, with a sizable 270% increase in investment that year. Now known as the digital health revolution the boom in Health Tech is epitomised by Cambridge based CMR Surgical. The company was founded in 2014 to develop robotics to be used in surgery. Over the past 7 years it has grown to be the most valuable British health tech company and employs over 500 people. 

2021 investment levels in healthtech are 50x those of 2011

(Source: Tech Nation, Beauhurst 2022)

With the exception of 2020 HealthTech investment has grown year on year; moving from a total of $51mn in 2011 to an astonishing $2.6bn in 2021. This drive of investment into health tech startups sprung to life in 2014 where investment in the sector expanded by 270%, marking the start of the digital health revolution. The second step change took place in 2017, a $670mn rise with $400mn going into Series C investment rounds. The ability for companies to get to this stage is crucial to the roll out of their products, and proves the sector is coming into maturity. In the latter third of the decade the mega rounds ($250mn+) into Benevolent AI and CMR Surgical confirm this.   

The East of England is a UK leader for Health Tech investment 

(Source: Tech Nation, Beauhurst 2022)

Outside of London, the East of England was dominant for investment into HealthTech, with $3.1bn being pumped in over the decade. This Health Tech hub, where 56% of all investment into scaleups in the region went into Health Tech scaleups, also exhibited significantly higher median investment levels ($990k compared with $560k). This is likely a reflection of the confidence investors have in the talent in the area, a large number will have come from the University of Cambridge. 

Investors value Health Tech at $18.2bn in 2021

(Source: Tech Nation, Beauhurst 2022)

The value of the sector has seen considerable growth and it generated its first unicorn in 2011. Four years later the sector was up to 3 unicorns delivering it’s first AI health tech unicorn, Benevolent AI. The company’s mission is to power the rapid development of drug development with machine learning and AI, and they now generate over $9.4mn in revenue. 

Founders combining Health Tech and Deep Tech like with Benevolent is common, and 10 of the top 13 most valuable Health Tech scaleups in 2021 could also be classified as Deep Tech. When these two collide powerful outcomes in gene therapy, robotics for surgery & stem cell research arise. The impact is immeasurable. 

Gene Therapy to lead healthtech development over the next decade

The Ark Big Ideas 2022 Annual Report singled out genomic technologies as a vital Health Tech sector of the future, identifying a potential market capitalisation equal to $3tn by 2030. These findings are well founded and Venture Capitalists now have the relevant proof points to invest in these technologies with the first gene therapy being approved by the FDA in 2017 (The Financial Drug Authority, 2017). What’s more, the UK is already in the leading position with a large number of high value scaleups – notably, Orchard Therapeutics, Freeline Therapeutics, Gyroscope Therapeutics – tackling challenges in gene therapy. 

One could question this convoluted approach, where multiple companies are working on a breakthrough therapy in isolation, but that would be null. Firstly, gene therapy & genomic technologies are not a single technology. In reality, there are varying forms with the two umbrella therapies being germline therapies & somatic therapies. Germline therapies are typically therapies altering reproductive cells for hereditary diseases. Whereas, somatic gene therapy, are therapies trying to incorporate a new gene into a genome (an organisms’ complete set of genes) which aim to cure a disease only in the patient, not in the patient's descendants (Medical & Lifesciences News, March 2021). Secondly, the detail required to apply either approach to one disease safely requires dedication and as a result scaleups tend to focus on one disease rather than multiple. 

Finally, the nature of the Health Tech sector requires each company to be extremely specialised. The business challenges around working with drug authorities to get regulatory approval and the thinking of the best approach for manufacturing are staggering. Thus, there will be an eruption of entrepreneurs who are motivated by an illness curing mission, and who are armed with the business and scientific know-how to bring this therapy to mass market. 

Impact tech

Impact tech companies addressing UN Sustainable Development Goals received $3.4bn in venture capital investment in 2021, nearly 43x that of 2011

(Source: Tech Nation, Dealroom, 2022)

Just under half of that investment was made into Net Zero tech companies, addressing the global climate challenge. UK tech has a fundamental part to play in combating climate change, but support is needed to help tech companies accelerate their growth. Scaling challenges are more acute, and compounded for Impact tech firms. Not least, many of these companies are developing new, innovative technologies - a cross fertilisation of deep tech, and impact - two UK strengths over the last decade. 

Companies pivot to impact alongside profit to address key global challenges

According to Tech2Impact, Impact Tech refers to the use of technology to benefit people and the planet, ideally addressing a major social or environmental problem. Building on this principle we looked at any scaleup working towards a UN Sustainable Development Goal. In order to solve these challenges en mass we must leverage technology as much as possible. 

Total investment into impact tech scaleups was as low as $10.3mn in 2012 as ecosystem matures rapidly over the last decade

2012 saw the lowest levels of investment in impact tech, equating to $10.3mn. Thankfully, it didn’t stay at this level, jumping up to $121mn within 2 years in 2014 and peaking at $1.3bn in 2019. Towards the end of the decade in 2021 we saw an impressive $415mn going into Series C rounds. This demonstrates that larger investors, with deeper pockets, are gaining confidence in what can be delivered in the sector.  

28% of all investment in The East of Scotland goes to Impact Tech

(Source: Tech Nation, Beauhurst 2022)

Aside from London being the most popular location to receive investment, drastically out performing the next top region (East of England) by $3.0bn, two key metrics stood out. Firstly, the East of Scotland is receiving a high proportion of investment going into Impact Tech scaleups (28%). Secondly, Impact Tech saw the highest value of median investment across the decade at $816k with the second highest being FinTech at $680k. 

(Source: Tech Nation, Beauhurst 2021)

Scaleup valuations flourished last decade, peaking at $7.1bn and the sector produced a healthy amount of unicorns (12) and futurecorns (29). 58% of the unicorns in the industry fall under Net Zero technology, solving problems in sustainable transport, renewable energy production / provision and shaping new fashion systems. 

Hydrogen technologies will form a critical part of the UK’s energy infrastructure over the next decade

“40% of emission reductions rely on technologies not yet commercially deployed on a mass-market scale.” - The International Energy Agency, 2020 

As highlighted above, to tackle the climate crisis we need to think of new & innovative ways to solve issues related to climate change. 2 breakthrough technologies identified in McKinsey’s ​​Innovating to net zero: An executive’s guide to climate technology are hydrogen energy generation and carbon sequestration. 

Hydrogen energy is strategically important to 2 industries’ decarbonisation journey. Firstly, the iron & steel industry, which contributes to 9% of emissions globally (The potential of hydrogen for decarbonising steel production, European Parliamentary Research Service 2020) and cannot be decarbonised efficiently by electrification methods due to the high temperatures (2,000 °C) required to produce it. Secondly, the commercial aviation industry as battery technology is not suitable due to the enormous power to weight ratio required. For this reason alone it is perfect and the degree to which this is true is the difference in power to weight ratio where hydrogen produces 100 times more energy per unit of mass than lithium ion batteries. 

The world is starting to take this technology seriously and the Hydrogen Council noted a 37% increase in large scale hydrogen projects between February and July 2021. Startups and scaleups are starting to join the ranks too with companies like Riversimple, the hydrogen-electric car company. Moreover to overcome the hydrogen generation & storage challenges, and reduce costs, we must leverage founders’ expertise to drive efficiency.

With 38% of power being generated by coal and 20% being generated from gas it will prove difficult to meet the Paris agreement emission targets by reducing fossil fuels usage alone (IEA (2020), The role of CCUS in low-carbon power systems, IEA, Paris). Moreover power grids need flexibility to meet surges in energy demand, making it difficult to eliminate carbon-based energy generation in the long-term. The answer is carbon sequestration. This is the process of capturing, securing and storing carbon to stop it from causing the atmosphere to warm. Two of the biggest entrepreneurs of our generation, Elon Musk & Bill Gates, understand the importance of this and view scaleups as the answer. Musk showed this by supporting the XPrize Carbon Removal competition with $100mn and Gates’ contribution was investing into carbon capture company Carbon Engineering (PitchBook, 2021). 

For both hydrogen energy and carbon sequestration, innovation has been slow and costs remain relatively high over the past decade. Why would we expect the next 10 years be different? For one, the magnitude of the problem and the societal motivation to tackle it will attract the best of breed entrepreneurs to start businesses in the climate action space. For two, established entrepreneurs, corporates and institutions, are now taking responsibility for their environmental impact, and this requires technologies like hydrogen energy and carbon sequestration to flourish.  

Fintech

Fintech is the UK's biggest investment sector contributing 34% of investment in 2021

(Source: Tech Nation, Dealroom, 2022)

The core of this is driven by the UK’s position as a world leading financial hub, attracting a wealth of talent into banking, finance and insurance. Individuals employed in these activities will often find areas that can be improved by technology and innovation, and redirect their efforts into Fintech, WealthTech, InsurTech and RegTech. 

$7.3bn was pumped into later stage scaling Fintech rounds in 2021

(Source: Tech Nation, Beauhurst 2022)

The appetite for UK FinTech is well known but 2021 was truly exceptional. Investment totalled $11.2bn - over double the previous year - and was largely driven by the larger Series D ($100mn - $250mn) & Series D + (greater than $250mn) rounds, equalling $2.6bn & $4.7bn respectively. Other rounds’ aggregate investment remained fairly constant (Series B decreasing from $1.0bn to $0.97bn and Series C increasing from $1.4bn to $1.8bn). It is likely that investors postponed the larger sized rounds until there was a clearer outlook of the future. 

London accounted for around 87% of all UK Fintech investment over the last decade 

(Source: Tech Nation, Beauhurst 2022)

Accounting for 87% of all investment into UK Fintech, London dominates all other regions over the ten year period. For the other 13%, the North of England is well represented with $1.2bn being invested into the North West and $766mn being invested into the North East. Fintech also saw the highest proportion of investment in the North East, making up 72%. If the North East is to become a Fintech hub it should double down on the support it provides to continue attracting the best in class Fintech scaleups. 

Fintech carries 41% of the value of the scaleup ecosystem as a whole

The core of this is driven by the UK’s position as a world leading financial hub, attracting a wealth of talent into banking, finance and insurance. Individuals employed in these activities will often find areas that can be improved by technology and innovation, and redirect their efforts into Fintech, WealthTech, InsurTech and RegTech. 

(Source: Tech Nation, Beauhurst 2022)

61 Fintech companies are in the pipeline to join the ever growing list of British Fintech unicorns

Throughout the decade Fintech has always had a prominent position in the sector and it is now worth $65.8bn. It is not short of Unicorns either with some of the most valuable and well known unicorns in the world – Revolut, Monzo, Starling Bank and Wise. The market is also seeing less traditional Fintech companies enter the market and gain serious value. In particular Bought By Many (worth $2.4bn) who provide a range of pet insurance solutions. This broad reach of Fintech adoption is exciting to see and bodes well for the next generation of Fintech companies. 

At the nexus of LawTech and Fintech, RegTech is set to be important player in Fintech over the next decade

According to the Financial Conduct Authority (FCA) , March 2020 saw 1,300 regulatory changes and rule updates (RegTech – A Watershed Moment, June 2020). This complex barrage of ever changing regulations is extremely costly to financial firms as they must adhere to these regulations. Accelerating the need to digitise financial compliance is remote working, although this does open up new opportunities for cyber attacks. Following this trend, it is understood that RegTech companies, who manage regulatory processes within the financial industry through technology, will be at the forefront of Fintech over the next decade. 

Despite this clear need the City of London 2021 Report titled “A Critical Year For RegTech” identified a clear lack of adoption for RegTech. Their survey explained approximately 50% of RegTech vendors viewed adoption by financial institutions as ‘moderate’ and a third classed the level as ‘low’. The FCA’s 2021 research in their The Future of RegTech – what do firms really want? Report supports this. They found it was largely due to a lack of interoperability and integration with the complex legacy systems incumbent firms are reliant on. With leading stakeholders like the City of London and the Financial Conduct Authority calling for more action in the RegTech space it is time for firms to overcome these challenges and build technologies which are more easily incorporated into existing financial systems.

Talent and diversity

There are now just under 5mn people working in UK tech startups and scaleups, an increase from just under 3mn in 2019, and more than double the 2.18mn working in the tech economy in 2011

During the uncertain times faced by most people over the last 18 months, technology has been an enabler for individuals, companies and communities. It has facilitated new ways of working, and kept the economy buoyant. Tech has also been an important source of job creation as we return to a sense of normality. Nevertheless, we are not returning to the economy, or the labour market that we left in 2019. 

(Source: Tech Nation, ONS, Dealroom, 2022)

With this significant increase in people employed in the digital economy, more so than ever, tech has the opportunity to enable for broad based economic growth - through jobs. However, there remains significant disparities in levels of diversity in tech jobs, and outcomes for tech founders on the basis of their backgrounds.

Over 36% of jobs in the digital tech economy are in non tech occupations, like Product Management, User Experience, People, and Sales

Tech jobs are more than development roles. Occupations that support the commercialisation, dissemination, and growth of tech products and services are essential for the future of the sector. 

These roles complement and drive forward the performance of tech firms, and sit alongside technical roles in tech companies, which make up just over 30% of jobs. 33% of jobs in the digital tech economy are tech roles that sit outside of the tech sector, for example, a software developer working at a bank, or design studio.

Together, these groups of jobs for the digital tech economy, and engine for growth in the UK economy which inherently relies on the intermeshing of tech and non-tech roles.

(Source: Tech Nation, ONS, Dealroom, 2022)

In 2020, 50% of workers in the labour market as a whole were women; in tech, it was half that, at 26%. 

When it comes to ethnicity, tech has a marginally higher proportion of Black, Asian and other under-represented groups than the labour market as a whole, 11.8% for all occupations, and 15.2% for tech. However, this does not represent the UK population, where, according to the 2011 Census, 20% of people living in the UK are Black, Asian or another under-represented group.

The geographical picture in the UK is similarly varied. London (30.1%) and the West Midlands (17.4%) are leading for representation of Black, Asian and other under-represented groups in digital jobs, and the capital also has the highest proportion of females working in tech, at 28.4%, just over half the proportion of the workforce more broadly. London is followed by the South East of England in this respect, with 27.7%.

Over the past years, the employer demand for tech roles have been increasing, with a “Software Developer” consistently the number one sought after role

The demand has been increasing slightly, with a slight dip in the years 2018 - 2020. However, 2021 has shown the need for digital talent is becoming more important, and in H1 2021, the number of advertised tech roles was 42% higher than H1 2019.

(Source: Tech Nation, Adzuna, 2021)

There has been a 36% increase in tech salaries since 2015, while salaries for all jobs have increased by just over 10%, dropping from December 2020 to June 2021 by 4% in the first half of 2021

(Source: Tech Nation, Adzuna, 2021)

Product roles are on the rise in tech, representing nearly 40,000 vacant positions in 2021

(Source: Tech Nation, Adzuna, 2021)

Over the past 6 years, there has been a general rise in the demand for 'product' roles. As expected there was a dip in 2020 - which is reflective of the labour market as a whole during the peak times of the pandemic.

[About UK deep tech] I think we're very good at raw innovation, and poor at productisation. I think, because of poor productisation, we rarely get to scale. That's where the challenge often lies, funding is part of that challenge ... Product management is a key role in any young business, and quite often it is done by the CEO, without consciously thinking that they are doing it. I think that experience [of product management for scaling growth] is missing actually - for a product oriented senior leader. There is often a gap.

Michael Dimelow, CCO, Bloc Ventures

Although there has been a decline in the demand for marketing roles overall, the proportion of ‘digital marketing’ roles in demand have increased from 36% to 45%, from 2016 to 2021.  

The salary offerings for C-suites in tech firms have seen an increase over the past 10 years, but not as fast as tech workers overall 

Although there has been a broader range of salary offered in 2021 for a CEO, there is a general upward trend in terms of the minimum, median and upper quartile salaries offered.

Salary distribution of CEO roles in UK tech from 2015-2020

(Source: Tech Nation, Adzuna, 2021)

The demand for a Chief Technology Officer (CTO) has grown by approximately 138% from 2015

As technology has evolved over the past decade, there has been a shift in the demand for talent and the type of skills that are required from employees. 

By way of example, the role and requirements of a CTO has changed over the past 10 years, with an obvious change within the last 5. The emergence of new technologies is a suggested direct cause for this change, with business models shifting to adapt to the more digitally savvy customer and tech-centric organisation. 

Despite changes in the demands made of CTOs from a skills perspective, there remains a chronic underrepresentation of women in these roles. As of 2021, only 3% of Chief Technology Officers (CTO’s) or Technical Director roles were held by female staff.

That figure drops even lower for Chief Operating (0.6%) and Chief Financial Officer (0.4%) roles held by women.

We’ve also seen an increase in the range of salaries since 2018 for a CTO, with a peak in 2020, where £125K was the 75% percentile compared to £120K in 2018 and 2019. The median salaries have remained the same in 2020 and 2021 at £100K.

Salary distribution of CTO roles in UK tech from 2015-2020

(Source: Tech Nation, Adzuna, 2022)

Future talent

The skills needed to be successful in today's workforce differ from those of the past.  According to Future Learn, the top 7 skills employers will be looking for in the future are:

1. Data 
2. Artificial intelligence
3. Blockchain
4. Sales and Marketing
5. Healthcare and Nursing
6. Emotional intelligence
7. Creativity

Research from Accenture indicates about 74% of employees feel uncomfortable working with data. At present, about 17% of the UK workforce are classed as “data literate”. 

A lack of data skills has a knock on effect on productivity, with about 43 hours of productivity loss per employee.

The top twenty tech skills in demand by employers within the UK, as of 2021 are shown in the table, with ‘data’ as the top skill in demand. Over time, we see there have been notable shifts such as Amazon AWS, in 2015 this was a top 360 skill, but is now a top 15 skill. 

Top 10 skills demanded by employers and change in rank from 2015-2021

(Source: Adzuna, 2022)

Head of Google for Startups UK

Marta Krupinska

A big challenge when doing something for the first time, not to mention something that’s never been done before, is that there is no playbook and no obvious answers. Two of the most trending questions related to startups in the past 5 years on Google are ‘how to get venture capital funding for your startup’ and ‘how to do market research for a startup’. At the very top of the list is ‘what percentage of startups fail’. The answer is quite daunting: around 90%. 

Maybe that’s why we’re so passionate about making startups succeed. The ambition and courage it takes to create something out of nothing, bring people together to solve problems, break new grounds. At Google for Startups we like to say that ‘access is everything’: when you ask most founders what they need to build a great business, many will say it’s access to talent, funding, markets and friendly regulation.  So as we explore what is needed for continued future success of startups in the UK, it’s important to focus on some of these areas.

On the talent front, we know that 60% of startups fail for ‘people reasons’, spanning from co-founder fallouts to lack of specialised workforce. How do we support founders to navigate their relationships, do we help reach some of the best talent leaving UK universities, how do facilitate upskilling of those who learn on the job or whom widely available online courses, how about being able to hire talent from abroad? And finally, what makes for a successful company culture, in which people thrive and learn and want to stay?  

As far as funding is concerned, let’s celebrate the ever increasing amounts of capital, but consider in which industries it’s being deployed (are we fuelling the most critical innovations for the challenges of our time), at what stages (is there enough risk and early stage capital to kick start the future unicorns), who receives the funding (if we want technology to work for everyone, it has to be built by everyone, and women, founders of colour and other underrepresented founders still receive low single digits amounts of funding) and where it is going (regionally).

These are just some of our questions. What are yours?

Internationalisation

Firms of all stages, sectors and sizes must take a global mindset from launch to stay competitive. Investors must continue to provide support for internationalisation

At later stages of growth, UK tech companies must expand internationally to maintain the strong growth trajectories required to scale market share and competitiveness.  

The UK is punching above its weight for digital service exports, but has a way to go to catch global leaders like the US and India.

UK exports of services to Europe increased by 17.6% in 2018, from £80.9 billion in 2017 to £95.2 billion. This was driven by increases in UK service exports to the EU, which increased by £10.1 billion to £72.6 billion, largely because of increased exports to Ireland, Sweden, the Netherlands, and Austria.

Looking at all service exports (excluding travel, transport and banking) made by UK companies, we see that Europe has traditionally been a major destination. This trend continued in 2018, with UK services exports to Europe accounting for 51.4% of the total.

By geographical region, the Americas continued to be the second-largest destination for UK services exports in 2018, accounting for 27.8% of the overall total. Exports to the Americas increased by 12.3% in 2018, from £45.9 billion in 2017 to £51.5 billion. The United States (US) was the largest contributor to this increase, rising by £5.2 billion to £43.4 billion.

In 2019 the UK was the 5th greatest digital tech services exporter in the world behind India, the USA, China and Germany.

From 2018 to 2019 however, there was a slight dip in the export figures, from £23.9bn to £23.3bn. In 2019 UK tech companies achieved record VC investment, at £10.1bn, and a rise in high value tech scaleups (those companies valued between $250mn and $800mn) - the emphasis for these companies is likely to be initially on achieving domestic scale, and driving international expansion - which may not have yet been captured in export statistics.

The UK is second in the world for high growth scaling and established tech businesses, primed for international trade, with nearly 9,000 firms that have the potential to export their digital products and services globally. These companies likely have an early growth focus on domestic and European markets, yet there is a significant international trade opportunity that they could capitalise on. The UK is therefore well positioned to be able to expand exports of digital products and services over the next five years, using record levels of venture capital and world leading support resources to grow global market share.

The export figure is therefore well positioned to rise over the next decade, but support from partners will be needed to open doors and expand scaling horizons.

Investment

In order to accelerate the growth of all world leading UK founders over the next decade, the funding gap must be addressed - both in terms of early stage firms, and critically, for underrepresented founders

According to a report by Extend Ventures, within the past decade (2009 - 2019) female entrepreneurs faced barriers accessing VC investment, as shown below. Only 3% of VC funding (seed, early- and late-stage) went to all female teams. On the other hand, all male teams received 68% of VC funding. 

Entrepreneurs from Black, South Asian, East Asian and Middle Eastern backgrounds received in total 1.7% of VC investment. Given that ethnic minorities make up 14% of the UK population, this shows the disproportionate underinvestment in these communities. On the other hand, 76% of VC investment went to all white founding teams.

Only 0.24% of the 1.7% invested in ethnic minority founders went to black entrepreneurs. Black female entrepreneurs are at an even greater disadvantage, receiving the lowest amount of funding this decade, at 0.02%.

Overall, 43% of VC funding went to teams where at least one founding member was from an elite university, defined as the University of Cambridge, the University of Oxford, Harvard University or Stanford University including their business schools. This also shows a skew towards those with educational and economic privileges.

It is estimated that only 3% of VC’s in the UK are black, with only a few at partner level or in the position to make investment decisions. Higher representation of black people within VC firms could help alleviate investment gaps. There are initiatives created to ensure fundings goes to diverse founders and to make VC more representative of society, such as Diversity VC, Included VC, the Newton Venture Program and the Google for Startups Black Founders Fund in Europe.

Acceleration, incubation and spinouts

Early stage scaling deep tech and impact tech companies require the augmented support of organisational partners to accelerate their growth

Companies spun out of academic institutions have significantly higher levels of total investment than ones who have not. In fact, the difference between a company who has been spun out of a university and received no other support compared with a company who has received no support equals $2.26mn. The key factor is academic institutions act as a blast furnace for technology to be explored and iterated on; producing interesting outcomes. When ready they spin out with the relevant milestones of a technology to be scaled and VC’s trust the technology. At this point investment floods in improving the technology whilst finding ways to commercialise the product. 

Median Total Investment Into Companies by type of Support Received

(Source: Tech Nation, Beauhurst, 2022)

Grant funding is also designed to advance a company’s technology and a large number use a match funding mode (if a scaleup receives private investment the organisation providing the grant will match the level of investment). Getting double the resource for the same level of investment feels attractive however receiving a grant and no other form of support is the lowest performing type of support using this metric. Clearly we must do more to align these organisations as both have a key part to play in supporting the growth of scaleups. 

Median Latest Post Money Valuation Into Companies Depending On The Type Of Support Received

(Source: Tech Nation, Beauhurst, 2022)

The most valuable companies tend to be those that have attended an accelerator or spun out of an academic institution with median valuation equating to $6.7mn and $6.5mn respectively. 

In contrast, scaleups not receiving these kinds of support are valued much lower at $4.0mn. Understanding causation is crucial here as it would be void to ignore that accelerators pick companies with the greatest potential. 

On the other hand the difference in companies with and without this support is stark. We must recognise that accelerators do pack the punch for businesses to grow and academic institutions are the perfect birthplace for technology to develop. Thus, we must do more to level up scaleups who are not currently supported to ensure they all reach their full potential. 

Future talent

Talent disruption is needed to ensure that everyone has the opportunity to participate in the tech economy, reducing inequality and fuelling the growth of game changing tech companies

A key question we ask companies to answer when applying to join one of Tech Nation’s growth programmes is what are your top 3 scaling challenges. Looking at over 6,000 responses to questions where the word “challenge” was mentioned it is obvious that the challenges scaleups face are incredibly diverse. 

As the context around these keywords isn’t captured, it is difficult to conclude a single area in which all scaleups need support. Looking at it through a thematic lense however, there are some key challenges to pull out. Firstly, with 5 of the top 30 relating to a company’s team - ‘team’, ‘talent’, ‘hiring’, ‘culture’ and ‘people’ - it is important to recognise that we can support future growth in this area.  Secondly, teams need support to grow sales and expand into different markets, with  ‘[The] US’, ‘market’, ‘sale’, ‘marketing’, ‘partnership’, ‘partner’, ‘customer’ and ‘client’ all being highlighted. Finally, the fact that scaleups are consistently mentioning ‘product’, ‘data’, ‘build’, ‘technology’, ‘development’ and ‘AI’, suggests product development is another key challenge they face. 

These cross-disciplinary challenges are also revealed in the top 5 tech skills in demand for employers in 2021: ‘data’, ‘engineering’ and ‘security’ relating to product development; ‘clients’ relating to sales and expanding into different markets; and ‘management’ relating to a company’s team. Scaleup teams are consistently pulled in multiple directions and expected to overcome these challenges on the fly and with limited resources. Thus it is vital that we support these businesses to improve sales, expand into new markets, further technical developments and enhance team performance. 

Conclusions

Director of Data and Research, Tech Nation

Dr. George Windsor

The last decade of UK tech has been explosive; growth has been unprecedented, and the positive economic impact created by founders has been almost unimaginable.

A decade of UK tech has given us a sense of the aspects of UK tech we should celebrate from the last ten years, and those we need to learn from to improve conditions for growth for the near future of tech growth.

Whilst the UK has performed incredibly strongly over recent years, we must not take our eye from the white heat of global tech competition. The UK has sat at third in the charts for tech investment for the last couple of years, vying for that position with India, a country with 20x the population of the UK. India pushed the UK from that third position in 2021, despite the $40.8bn raised by UK tech companies, a 130% increase from 2020. 

This does not take away from the fact that the UK is one of only three countries in the world where the tech economy is valued at over $1tn, and home to over 100 billion dollar plus valued companies - the other two are the US and China Performance might not be entirely determined these expansive, sometimes noisy metrics, but perception matters, and investment is of course speculative, determined by confidence. So, these market signs do count; for the current, as well as future vitality of UK tech.

If we take trends from the last decade and project valuations across the next ten years, we’d expect to see UK tech valued at $2.6tn by 2032.

As markets and ecosystems mature, both in the case of tech as detached from geography, and the UK as a location for tech firms to start and rapidly scale, we would hope to see what colleagues at Atomico have previously termed a ‘flywheel effect’.

But, this is where it might appear the flywheel effect has not quite kicked in yet. There are a multitude of factors that contribute to the economic success of a part of a countries’ economy. Investment alone isn’t enough, it’s too volatile. Social and cultural factors associated with working conditions, public perception and talent and skills development should be seen alongside these measures.

In the UK, what we have seen from this research is that there is a long way to go before we can say, from a societal and labour market position, that tech is primed to benefit from ever growing momentum.

The number of jobs in the digital tech economy is growing, in response not only to the tech sector’s growth, but of course, the increasing permeation of tech through the economy. This is something we’ve long discussed, but only over the last two years have we truly seen this accelerate.

This, on the one hand, is a good thing from an economic, and labour market perspective, but when we just superficially dig into the data on tech jobs, we can see that there is a gulf starting to open up between tech, and non tech salaries. In its own right, this is a fairly natural thing, but consider that levels of gender, geographical, age and in some cases ethnic diversity remain entrenched in tech, with little movement over the last five years, and we start to see that a polarisation problem may be emerging. 

This isn’t something that will inevitably happen if we choose to intervene. We know that the tech economy is home to a variety of technical and non technical roles, offering a wide range of opportunities, and creating many new forms of work, and jobs. The message of opportunity for all must be something we collectively emphasise so that no one is left behind.

Turning our attention to sectors, it will come as no surprise to many that fintech has, and continues to be an investment pioneer in the UK. 41% of company value, and 34% of investment in 2021 gives the sense that we may be on track for a more balanced decade to come - where health tech, climate tech, energy tech, and deep tech investment comes to the fore.

It's clear from this report that a renewed emphasis must be placed on access to finance for early stage companies, this is especially true for those start-ups demanding periods of intensive innovation at the outset of their scaling journey - characteristic of deep tech firms.

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 in 2021 where mega rounds of over $250mn contributed heavily to the total. But although investor appetite for deep tech is soaring, its growth is only just beginning to develop when compared to opportunity.

And in fact, we need not just a deep tech focus, but the rocket fuel combination that is purpose driven, innovative tech development. Not just from a global environmental perspective, but from the position that the UK must maintain its sense of identity as an innovative, mindful and purpose driven tech player. 

We saw that funding for purpose-driven startups has soared to $3.5bn in the past decade. However, the UK impact tech sector has reached a tipping point where more support is needed to sustain and accelerate growth.

Funding into impact tech start-ups represented 9% of all venture capital funding in the sector in 2021, and investments into the sector outweigh those even for the more widely known FinTech sector (at a median deal size of $816k versus $680k for FinTech). 

Over half (60%) of total investment made into impact tech companies in 2021 was made into 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.

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.

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. 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.

Why does this matter from a global perspective? If the UK pipeline of innovative tech companies is curtailed then the UK risks losing that sense of identity, and renown that it has achieved over recent years, and is likely to find itself in limbo, between fast moving smaller economies like Sweden, Switzerland and Estonia, and the might of India, China and the US.

Hopefully this report has given you a sense of celebration, but seen firmly through the lens of what we can do better. I’m a staunch believer in championing UK tech in all its richness and strength - it does have clear benefits. But, we are now at the point where maintaining competitiveness is about taking a critical view of our evolution to date, and where we want to be at the end of the next decade - this is the moment for critical reflection.

Let us continue to build this Tech Nation together; thoughtfully, for everyone, and for our future.

Methodology

Tech sector trends

Data on tech sector trends was sourced from Dealroom.

Dealroom data deals with venture capital investment and excludes debt, lending capital, grants, ICOs and other non-equity. Secondary rounds, buyouts, M&A and IPOs are also excluded. The data excludes biotech. Including biotech the UK and European investment data would make it much higher. Dealroom’s proprietary database and software aggregate data from multiple sources, including news flow aggregation and processing, web scraping and manual research. Data is verified and curated with an extensive manual process, augmented by data processing.

Scaling tech trends

Data on scaling tech companies was sourced from Beauhurst.

Beauhurst identify a range of criteria that characterise high-growth companies. Each of these are a sign of external validation that a business is either actively growing or creating ambitious growth plans. If a business meets one or more of these triggers, Beauhurst begin collecting information to build a detailed profile of it on their platform.

Using the Beauhurst platform, data was collected for all companies that fall under the high growth definition established by the OECD 'a firm of 10 or more employees that grows either its employees or turnover by an average of more than 20 per cent per year for two consecutive years. This allows companies operating across the tech economy, in a diverse range of sectors, to be identified. This data was then manually checked to ensure validity.

Jobs, skills and vacancies

Data on jobs, skills and vacancies was sourced from the Office for National Statistics and Adzuna.

To measure the total number of tech and tech-enabled jobs across the economy, we used data from the Office for National Statistics (ONS) Annual Population Survey (APS). This is a survey-based sample of the UK population – on individual people rather than businesses. To get UK-wide data on people working in tech jobs from the survey, we have to make sure that the sample of people reflects the broader UK population – so we have to use multipliers from the ONS.

But this kind of analysis does not measure the number of direct jobs created by digital tech companies. To understand the impact and benefits of digital tech we need to have reliable data not only on the number of tech jobs across the economy but also performance and productivity indicators for the sector itself.

To do this, we use official data from the ONS Business Structure Database (BSD), which we also use to look at the performance of tech companies. This methodology allows us to have refined data that can be relied upon as the most accurate count of direct jobs created by the digital tech companies across the country.

The numbers are quite different in some cases. This is because one analysis looks exclusively at people working for digital tech companies, while the other looks at people working in tech jobs across the economy.

This report presents two different sets of stats on employment. This means that the economy-wide numbers should not be compared to the sector-wide ones. But we have used this year’s method to look back over time.  If you want to compare employment in your local area, all the data you need is in the 2018 Tech Nation report.

The new 2019 analysis is based on a comprehensive look at all UK businesses that are PAYE or VAT registered.This means that using BDS data will provide us not only with the number of direct jobs created by tech companies but also helps us understand the performance of these companies. Viewed together, the two sets of data will help us understand all people working in digital tech.

The data on digital tech companies also contains financial information, as well as employment. This means that we can have reliable data on productivity. To get a true picture of jobs in digital tech, we need to look at performance, as well as quantity of jobs – this cannot be obtained from the APS alone.

Digital tech jobs – includes all people working in digital tech occupations, irrespective of the industry. For example, a software developer working in a retail company. (Source: ONS Annual Population Survey, Sept-Sept 2018-2019)

Digital tech jobs in digital tech – includes only people working in digital tech occupations in the digital tech industries. For example, a software developer working in a web development firm. (Source: ONS Annual Population Survey, Sept-Sept 2018-2019)

Jobs in digital tech – includes all people working in digital tech industries, including non-digital jobs. For example, an accountant working in a web development firm. (Source: ONS Business Structure Database Sept-Sept 2018-2019)