Investment in UK AI firms plummeted last year despite the hype surrounding generative AI

Rising chart and reflection business buildings
(Image credit: Getty Images)

While the hype around AI continues unabated, investment in UK firms operating in the space has plummeted.

A report on private equity funding from Beauhurst shows that a total of £1.4 billion was raised by British AI companies in 2023, roughly half of the £2.9 billion spent in the year previous. 

Across all sectors, London took the top spot, with 1,040 deals made during the year, equivalent to 48% of the total. The South East accounted for 9% of the year’s deals, followed by the East of England at 6.7%. 

Meanwhile, Scotland accounted for 6% of all AI deals across the UK, securing the largest national share behind England. 

The significant decrease in investment came in sharp contrast to the hype and excitement surrounding generative AI across 2023. 

2022 was a record year for investment in UK-based AI firms, who secured an unprecedented £2.9 billion. The exact cause of this dip, however, could be attributed to continued macroeconomic conditions, according to Beauhurst. 

"This might not be owing to less interest in AI, and is more likely a reflection of the current market conditions," the study said. 

"In fact, with the rise of generative AI, we’re likely to see more investment in artificial intelligence. Google’s SGE update is at the forefront of change - and other companies may follow suit and incorporate generative AI into their product, or service."

Despite concerns, the UK’s AI sector still accounted for 11.6% of the overall investment in 2023.

The biggest AI deal during 2023 was a £104 million raise by Quantexa, followed by a £72.4 million deal for Infogrid and £71.4 million for Synthesia.

Looking ahead, the future success of the UK's AI industry will depend very much on government policy. 

"How EU and UK regulation develops will have an enormous impact on the AI industry in this country, and how we carve out our seat at the table," Beauhurst said. 

"With a general election looming, the decisions made at Number 10 will undoubtedly impact AI’s ability to flounder or flourish in the UK."

The government is attempting to tread a fine line between an AI free-for-all and over-regulation that could stifle the industry. Earlier this month, it pledged £100 million in funding for new AI research centers and resources for regulators.

However, a recent report from the House of Lords Communications and Digital Committee warned that the UK could be about to miss out on the 'AI goldrush' thanks to a focus on the long-term existential threat from the technology, rather than the more immediate risks such as cyber attacks, child sexual exploitation material, terrorist content, and disinformation.

"Over-regulation could potentially hinder the development of AI. However, if we don’t attempt to regulate it, and create our own AI models and businesses in the UK and Europe, we risk defaulting to the American or Chinese view of things," said Alejandro Giacometti, head of machine learning at Beauhurst.

"It’s not just about access, but also about ensuring that the technology is built to our standards on privacy, intellectual property, and safety."

Emma Woollacott

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