The state of UK tech in 2022, what did we learn from London Tech Week?
London Tech Week 2022 ran from June 13 – 17 and saw thousands of people gathered in the UK capital to celebrate the tech sector. During the week the Government made a series of announcements such as the long-awaited UK Digital Strategy, the launch of a review of UK's advanced computing capabilities as well as the long-awaited proposals to reform the UK’s data protection regime.
Like last year, London Tech Week saw the release of key statistics on the state of investment in the tech sector by Dealroom and Tech Nation. This data shows that despite global economic uncertainty, so far investment in UK tech companies has remained resilient during 2022, with the UK outperforming most of their international competitors in a series of metrics:
- UK start-up investment saw the biggest annual opening on record in 2022, with $11.3B raised by UK start-ups in Q1, compared to $7.9b in Q1 2021. This was driven by a sizable increase in larger deals (those from €100M–€250M).
- With $15.6b, the UK ranks second globally for startup investment so far in 2022, after just the United States, ahead of both India and China for the first time and doubling the funding of any other European market.
- London is the biggest European hub for start-up investment so far in 2022 ($11.3b). But it's not just London, Bristol and Oxford also rank among the top 20 start-up European hubs.
- The UK is home to 122 unicorns, behind only the US and China for the creation of billion dollar tech companies, and first in Europe. The UK is also home to 248 potential future unicorns, valued over $250M.
- Demand for talent in UK tech is stronger than ever in 2022, with 8.5M open vacancies in the last year. London also ranks second globally for tech salaries vs. cost of living, with an average tech salary of £75,278. In the UK, tech vacancies now command an average salary premium of 65% on non-tech economy jobs, at £58,000 compared to £35,000
What this data means for UK tech?
The statistics presented at London Tech Week are undoubtedly positive, especially considering the wider economic challenges the UK and the world face.
However, with the UK economy forecasted to face a “technical recession” in the second half of this year and with an economic slowdown forecasted for 2023-2026, we cannot be complacent.
There is still enormous potential to be unlocked if the UK can continue to drive investment into the sector. DCMS estimations show that if the UK’s digital ecosystems are supported the sector’s contribution to annual GVA could grow by an additional £41.5 billion by 2025.
But to make these projections come true, we must address the barriers that are keeping investments from flowing into tech high-risk, high-reward companies. For example, raising capital is still a major difficulty for most businesses, particularly for women and founders from BAME backgrounds, and while we have seen an increase in investment outside the capital, investment remains concentrated in a few urban hubs.
Gaps remain in domestic investment in venture capital, with most capital flowing into UK tech coming from the United States, 37 percent of total funding. While domestic funding accounts for only 28 percent of UK venture capital funding. Funding from UK institutional investors such as DC pension schemes and insurance firms remains low providing an opportunity to unlock more capital with the right reforms and cultural change.
Other countries have taken active action to better use its pension funds. In the United States, 9% of pension assets are directed into private equity, funding companies all over the world. Australia's pension system has 4% of its assets invested in private equity, compared to 0.3% in the UK, and Japan announced that is looking at ways to utilise its pension funds to create more start-ups.
UK markets are complex and fast-paced system, and that there is no silver bullet to encourage investors such as DC pension schemes to invest more illiquid assets, such as private equity and VC. However, techUK has been supportive of proposals to remove performance fees from the pension funds charge cap, as this has the potential to incentivise DC pension schemes to diversify their portfolios including more illiquid assets and boosting investment into UK tech companies.
In addition, techUK has developed a set of proposals for the UK to seize the opportunity for tech-led growth in 2022, including expanding the coverage of the Help to Grow: Digital scheme, helping SMEs in investing in digital reskilling through the tax system, continuing to reform the Apprenticeship Levy, and increasing support for R&D and innovation through the expansion of R&D tax credits, among other proposals.
techUK believes that incentives should come in combination with regulatory reforms and Government using its convening power with key stakeholders to encourage cultural shifts and upskilling by various market players.
Countries around the world are eager to attract tech talent and as economic conditions worsen, investors and companies will become even more sensitive about where they place their investments.
The UK therefore cannot afford to rest on its laurels and techUK urges government to move faster with reforms in order to stay globally competitive.
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Neil Ross
As Associate Director for Policy Neil leads on techUK's public policy work in the UK. In this role he regularly engages with UK and Devolved Government Ministers, senior civil servants and members of the UK’s Parliaments aiming to make the UK the best place to start, scale and develop a tech business.