2022 report: The UK tech ecosystem in review

Tech Nation, January 12, 2023 3 min read

Today we launch a new report, looking candidly back over 2022 to provide a year in review for the UK tech ecosystem. 

2022 has been a year of challenge and change for tech – both in the UK, and on a global stage. Annual venture capital investment into the UK has decreased for the first time in years, with a scaling back of megarounds (deals over $100m in size), and unicorn creation slowing down.

To truly understand these changes, we need to take a step back. 

2020 and 2021 heralded some of the highest levels of VC investment ever seen into UK tech firms, and also a profound sense of disruption. Investment into R&D intensive areas of tech (deep tech) rocketed, increasing by 33x since 2011 and reaching $8.5bn in 2021. Megarounds of over $250m contributed heavily to this total. 

An increasing focus on climate tech also showcased the appetite for positive disruption; companies addressing some of the world’s most pressing environmental challenges received $3.5bn in venture capital investment in 2021, nearly 43x that of 2011.

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; record investment was clocked in every quarter of the year – leading to investment levels 130% higher than 2020 – totalling $41bn.

The pandemic and post-pandemic landscape presented a series of high value opportunities for some tech subsectors. Not least amongst these was a burgeoning investor appetite for tech – in a time where digital communications was critical to almost all forms of interpersonal communication.

By the end of 2022 UK startups raised $30bn: a considerable drop from the heady heights of 2021’s global funding peaks but still 72% higher than the total from 2020.

The UK was not alone in experiencing an investment drop in 2022. In fact, relatively speaking, the UK startup and scaleup ecosystem has shown resilience during a challenging global pullback in venture capital. Between 2021 and 2022 UK venture capital investment declined from $41bn to $30bn, a reduction of 28%, while globally, the decline was 32% – from $312bn to $219bn.

Trends would suggest that there could be more challenging times ahead. The report shows that we are only just beginning to see the full impact of a slowing market in the second half of 2022. 

That said, we know that investment can be noisy, and volatile. The value of UK tech firms remained strong over 2022, and despite a reduction in rate of value growth, the combined value of UK tech companies reached over $1tn by the end of 2022. The UK is just the third country in the world to pass this milestone after the US and China.

UK startups are going public at their lowest rate in over a decade, with just ten companies exiting through SPAC or IPO in 2022, compared to 77 in 2021. 

Perhaps associated with this trend, the UK is entering a unicorn winter. With exit routes narrowing and a late-stage capital crunch, new unicorns are once again becoming rare beasts. While 34 new unicorns were created in 2021, only 15 companies reached a $1bn+ valuation in 2022.

This may be as a result of capital deployment towards the end of the year. UK-based VCs have raised over $20bn in dry powder in the last 24 months. However, challenging conditions may mean slower, more cautious deployment to startups. 

So, the review of tech in 2022 is balanced. The UK has shown VC investment resilience compared to the global picture, and startups and scaleups in the UK were valued more highly than ever. Investment dropped, though, and the number of new unicorns created was lower than in 2021. 

The global tech ecosystem, and firms in the UK will likely be subject to challenging conditions as we move through the first quarter of 2023; investment trends would suggest that we will see a continuation of the market slowdown experienced in the second half of 2022. But, through previous slowdowns, and responding to macro challenges, history tells us that tech startups and scaleups will continue to innovate; new businesses will be created, social challenges will be addressed, and entrepreneurs will be more important than ever in responding to the ever changing world in which we live.

Data & research