Bure Valley Group is an investment introducer platform which links successful investors with exciting, innovative UK startups seeking funding. This content is for information purposes only and should not be taken as financial or investment advice.
Why is the UK’s technology investment landscape unique? What opportunities lie for investors, and which pitfalls should they try to avoid? Below, our investment team at Bure Valley Group identifies six key features of UK tech investing, especially in the startup space.
We also highlight come ideas to help investors maximise the opportunities whilst mitigating risks. We hope these insights are helpful. To learn more about our EIS projects and other early-stage opportunities, visit our portfolio page. For enquiries regarding our latest projects and funding, you can reach us via:
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#1 Tech leads the way for new businesses
Research shows that technology was the most popular sector for startup founders in 2023, comprising 56.5% of the total businesses created that year. Lifestyle came second at 18.8%, followed by retail/hospitality at 7.1%.
This is partly the legacy of COVID-19 in 2020, when lockdown led to more workers (stuck in their homes) to start new online businesses. Such firms may be less vulnerable to risks associated with quarantine – e.g. supply chain disruptions – and can reach global audiences.
#2 Fintech faces challenges
The UK’s financial sector is arguably the most important part of the economy. It accounts for 8% of GDP, £100bn in tax and 2.3 million jobs. This specialisation has provided fertile ground for the UK to become a world leader in financial technology (fintech), but challenges lie ahead.
In 2023, there was a slight slowdown in the number of new UK fintechs, accompanied by a 37% decrease in funding compared to Q3 and Q4 in 2022. This is partly due to established financial players making more aggressive acquisitions, due to fear of revenue loss.
#3 Tailwinds and timing
Technology has been a popular sector for investors for a long time. However, between 2021 and 2023, interest surged due to huge innovations like generative AI (artificial intelligence), blockchain and machine learning.
2022 is a notable year. Tech startups in the UK raised £21.2bn in equity deals compared to £11.4bn in 2020 – a near doubling in investment in just two years. The three aforementioned technologies open up huge possibilities for innovation and applications.
In the UK, the AI market alone is now worth £16.8 billion in 2024. 37% of people in the UK have now used AI at work (the figure is over 50% for the 16-24 age bracket).
The Bank of England (BoE) even believes that generative AI could help to solve the UK’s longstanding productivity problem. In short, there is lots of interest and positivity right now, despite concerns that AI could threaten people’s jobs.
#4 Evolving regulation
In 2024, perhaps the biggest constraint on the evolution of AI in the UK will be government intervention. Understandably, authorities want to harness AI’s innovation and productive potential without it causing mass unemployment, security breaches, or data issues.
The government is still running a consultation to strike this balance. If successful, the UK could achieve a domestic AI market worth $1 trillion (USD) by 2035. The UK certainly appears keen to lead the way globally, following its hosting of the world’s first AI Safety Summit last year.
An “AI and Digital Hub” has been launched to collaborate with key regulators such as Ofcom, the CMA, the FCA, and the ICO. A £10 million package has also been assigned to boost regulators’ AI capabilities.
#5 Leading Europe
The UK is now widely regarded as the leading tech ecosystem in Europe. Our primary sub-sector is SaaS (software-as-a-service), followed by AI and fintech. They comprise a large number of the 64 unicorns originally founded in the UK.
3m people work in tech in the UK. The country captures as much as a third of total European tech investment within a year. Workers are increasingly recognising the employment opportunities in the sector, with applications for computing degrees up by 10%.
The UK is emerging as a world leader in “impact tech” (companies focused on helping to acheive the UN Sustainable Development Goals). Nearly 1,200 UK companies operating in this space and raised £3.12bn in funding in 2022.
#6 The potential for scaling
Economies of scale (EoS) are vital for any growing business to achieve over the long run. As average costs fall with rising output, lower prices can be passed on to consumers – giving the firm (and its investors) a competitive advantage, both domestically and overseas.
Tech has huge scaling potential here. With high fixed costs and low-to-zero marginal costs, these startups can achieve EoS sooner than many other industries. However, this also can create a zero-sum game within tech markets.
Once a firm becomes the leader, it is very difficult (if not impossible) to displace due to factors such as strong user brands, cross-market network effects and habitual usage. Investors should take note when doing their due diligence on potential tech startups for their portfolios.
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