In 2018 the UK tech sector saw more VC investment last year than anywhere else in Europe. £6.3 billion worth of funding from investors. 2018 was also a great year for tech exits. Sales, IPOs and mergers were worth over £30 billion.
London was Europe’s top destination.
Its nearest rival Berlin only reached half the amount of that being ploughed into companies in the capital.
The UK is already the global hub for AI, and is ranked third in the world for producing the most globally disruptive tech companies.
Commenting on the figures, Patrick Imbach, Head of KPMG’s Innovative startup practice said:
“Hot on the heels of a blockbuster 2017, the UK is still seeing very healthy sums of VC invested as investors continue to feel under pressure to deploy funds, which in turn is driving a higher investment volume and higher valuations.”
“The continued uncertainty in the macropolitical and macroeconomic environment does not appear to be substantially hampering appetite for investment in UK startups. Despite a trend in the number of deals continuing to drop, not only in the UK but also in Europe as a whole, we can see that investors are still focused on later stage investments in businesses with a proven track record and market traction.”
“We are seeing new groups of companies emerging, in particular, AI first and blockchain businesses. These have kicked off new VC life cycles with increasing venture rounds to come over the next few quarters and years. Already now, AI businesses are raising solid early- and mid-stage funding rounds. Subject to successful R&D and commercialisation, they will surely attract even more funding going forward.”
Artificial intelligence leads the way
Artificial intelligence continued to be a hot area of investment in all regions of the world in Q2’18, while fintech, autotech, cybersecurity and biotech were also seen as key priorities. Investment in these areas is also expected to gain significant momentum.
During Q2’18, the UK announced a massive $1 billion deal to put the UK firmly on the map in terms of AI innovation. The deal included both new government funding for AI research and private sector investments. Under the deal, for instance, Japanese VC firm Global Brain and Canada-based VC firm Chrysalix will both locate their European headquarters in the UK and will invest a total of £145 million in UK-based AI and robotics startups.
Patrick Imbach observed: “AI is absolutely critical to the future success of the UK economy, particularly around the Government’s Industrial Strategy. The UK has a track record in creating some of the most innovative AI businesses in the world; however, we are seeing too many of these businesses exit too early. For the UK to be a world leader in AI, it is imperative to get more funding and infrastructure in place to help these businesses stay independent longer in order to grow further. It is also important to ensure that the UK remains an attractive destination for AI talent from across the world.”
Against this backdrop, it is not surprising that there is no shortfall of capital in the UK ready to be committed to the tech sector. Given investors’ unrelenting enthusiasm for innovative, fast-growth, entrepreneurial tech companies, a large part of this is being driven by the FinTech sector. This is indeed fostered to a great extent by the UK’s world leading financial services industry. But there is also rapidly increasing demand amongst corporates of all sizes for less glamorous but increasingly business critical behind-the-scenes technology.