UK tech investment has bounced back from Covid-19 in the first half of 2021, setting the scene for a record-breaking year. Startups and scaleups raised £13.5bn during the six-month period, almost three times what was invested in the first six months of 2020, creating 20 new tech ‘unicorns’ (companies worth more than $1bn) in the process.
The UK is now home to more than 100 tech unicorns and 153 ‘futurecorns’ – high growth companies with the potential to become unicorns. Also grazing in the UK’s metaphorical tech paddock are 12 ‘decacorns’ (companies worth more than $10bn), of which seven have been created in 2021.
For Tech Nation’s Head of Insights George Windsor, who compiled the figures with Dealroom and LocalGlobe for the UK’s Digital Economy Council ahead of London Tech Week 2021, the UK’s admirable VC haul wasn’t entirely unexpected.
“We are in the midst of the most astonishingly high growth ever seen in UK tech.”
Exogenous shocks in recent history suggest that the UK would enjoy a strong first half of 2021 as it began to recover from the Covid-19 pandemic. The 2008 Financial Crisis and double-dip recession of 2012 (later resurfacing in 2017) all led to temporary increases in VC investment, but the recoveries that followed paled in comparison to H1 2021’s boom, explains George.
“We are in the midst of the fastest and most astonishingly high growth we’ve ever seen in the UK tech ecosystem,” he says, adding, “so much so that when it comes to the size of VC investment rounds, we are going to have to re-evaluate what we think of as being significant.”
VC investment in UK startups soared during H1 2021 to £13.5bn (around $18bn)
Enter the ‘mega round’
Investment into UK tech in H1 has almost exclusively been made into later stage companies in the form of ‘mega rounds’ valued at £72m ($100m) or more. London has attracted the bulk of the investment overall, followed by Bristol, Birmingham and Cambridge. Tech companies in Scotland have raised £53.3m so far this year, and those in Northern Ireland have attracted £18.8m.
Notable mega-rounds in the half year period included neobank (and Tech Nation Future Fifty 8.0 alumnus) Revolut (£577m); cybersecurity platform Synk (£289m) and online events platform Hopin (£289m). However, the largest belonged to Manchester-based car sales platform Cinch, which raised a £1bn round in May. For George, the “unprecedented and astronomical” achievement indicates that UK VC is pulling away from Europe and edging closer towards the US when it comes to deal size.
‘Mega rounds’ are changing the face of the UK’s tech sector
“We are starting to see a step change in how the UK is being viewed on the global stage,” George says. “The UK is a mature ecosystem that’s growing like an extremely nascent one, which is incredibly interesting.”
What’s more, UK VCs have raised record amounts (around $7.1m) of dry powder (unallocated capital available to spend) investment, so the boom could continue into the second half of the year. “We may see VC investment fall back, but it doesn’t seem like that in terms of the broader ecosystem conditions,” George says.
“We are starting to see a step change in how the UK is being viewed on the global stage.”
Impact on tech ecosystems
Whatever happens in the next six months, the £13.5bn pledged in H1 will take some time to have a tangible impact on scaling the UK tech ecosystem and won’t materialise immediately. The investment will be spent in areas conducive to growth – such as R&D and international expansion – leading to positive outcomes over a period of time.
It will also create new jobs and encourage the development of skills, contributing to the growth of companies while opening the door for people to work in the tech sector. Data shows that back-end development, sales and marketing will prove the most in-demand roles as companies recruit to develop their products and services.
The investment pledged in H1 will translate into new job roles in time
Clearly, VC-backed companies have a duty to generate a return for their investors, but George believes that those participating in mega-rounds should also reconsider what areas they want to make an impact in the tech ecosystem.
Individual employees that benefit from new wealth creation have the option of reinvesting back into local seed-stage ecosystems or even form new impact tech companies that lean towards purpose and having a more favourable impact for a greater number of people.
“Companies now have an individual responsibility to think about where they want to make an impact.”
“A company’s individual responsibility is to return a fund or pay out dividends to their shareholders,” says George. “After that, it’s to think about where they want to make an impact in terms of their purpose, as well as wealth creation and achieving the sort of exit that they want to achieve.”
With seed-stage investment falling as a proportion of all investment in recent years, UK tech would benefit from more money being re-invested into building local-seed stage systems (versus something else), but George is keen to see a balance. “The UK is still fairly embryonic and we still have a long way to go in understanding what sort of a balance we want,” he says.
Stuck in the middle
If mega-rounds are fuelling late-stage tech companies all the way up to decacorns, and their employees redistribute wealth at the opposite end of the scale, George suggests that the sector could switch its focus on helping the “misunderstood, poorly-assessed middle ground that gets the least attention.” He defines this as scaling companies with between 50 – 100 employees that are raising Series A rounds.
“These mid-stage scaleups have firm foundations in place, so they aren’t starting from the lowest of bases but have lots of growth to go,” says George. “That growth is going to be potentially painful because they’re doing it so fast, and that’s where we need to take a deeper look.”
UK VC investment is anything but dull as we head into the second half of 2021. With potential new mega-rounds on the horizon and the real-world effects of H1’s deals yet to materialise, it could usher in a fascinating period for UK tech that leads to an unprecedented opportunity for people to join the burgeoning sector.
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