UK tech investment is stagnating, but there are positive signs in regional fundraising

UK map concept art showing digitized UK landmass outline in blue.
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A host of regional startup ecosystems bucked global trends and increased investment rates last year, according to new research from Barclays Eagle Labs, highlighting positive gains in what was otherwise a challenging period for the industry. 

Tech investment for startups in Wales, as well as the Yorkshire and Humber regions, saw a notable increase in 2023, with Yorkshire-based firms increasing investment rates by 20%.

The increase means the region hit a new record high for investment, standing at £200 million.

Similarly, Welsh startups raised over £113 million across the year, marking an increase of 8.7% compared to the year prior.

Eagle Labs said the increase highlights improvements with regard to regional venture capital investment across the country, but warned challenges for the broader UK tech industry could continue across 2024 and beyond.

Venture capital investment levels have dropped significantly in the wake of COVID, and 2023 figures show funding also remains lower than before the pandemic.

The report from Eagle Labs aligns closely with similar research on venture capital investment from KPMG this week, which showed VC funding in London decreased by more than half last year.

Other regional ecosystems, including the Scottish tech sector, also saw investment nose dive.

KPMG also said it doesn't expect the situation to improve over the next 12 months, and that only businesses with strong business models and management teams are likely to succeed in raising funds.

Access to funding is holding back UK startups

A key issue highlighted by Eagle Labs’ report centered around access to investment opportunities for UK founders. 

More than half of founders across the country said the availability of funding is hindering growth.

Technology minister Saqib Bhatti said the research shows that although the country boasts a strong startup ecosystem, a concerted effort to improve funding opportunities should be a key focus moving forward.

"Whether it’s in AI, chips or bioscience, British science and tech start-ups are thriving all over the country, and many are ripe for investment," he said.

"We need investors to match the ambition of UK founders, and back British innovation before our best investment opportunities travel abroad for the funding they need to grow."

When looking at mergers and acquisitions, two-thirds of tech founders were optimistic about what the UK landscape meant for the next stage of their startup journey.

However, there could be problems later on. Founders suggested that selling their business to an international buyer would be their most preferred exit strategy, cited by 15.8%.

While this was closely followed by selling through private equity, preferred by 15.5%, or to a UK buyer, at 14.4%, Eagle Labs said it shows that many of Britain’s home-grown investment opportunities could move abroad.

Emma Woollacott

Emma Woollacott is a freelance journalist writing for publications including the BBC, Private Eye, Forbes, Raconteur and specialist technology titles.