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Tech Nation delivers its $4tn final report

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Tech Nation, the growth platform for tech scaleups, has today published its final Tech Nation Report: How to Build a Scaleup.

The report, which says that the UK tech sector could quadruple in value by 2032 with the right conditions, shines a light on the state of UK tech and to provide a critical resource to an ecosystem facing a turbulent global economy, uncertainty and change.

The report explores conditions for growth created over the last decade, what tech companies can do to react to these conditions, and what needs to happen in order to accelerate the future growth of UK tech and maintain strength on a global stage.

Key points include:
 

Another golden decade for UK tech?

Scaleups in the UK have returned just over $583bn in value over the last ten years (2014-2023) – achieved by an exit of some form, whether an acquisition, SPAC or a public listing. Over the next decade, to return around the same rate of value to the ecosystem (just over 3.7x investment) UK tech firms should target exits of $2tn.

Taking into account peaks and troughs in UK tech’s growth rate over the last decade, the UK tech ecosystem will reach $2.6tn by 2032 (up from $1tn in 2022) if the momentum gathered is maintained. However, if better conditions for scaling can be created, a $4tn ecosystem value by 2032 is within reach and should be the target we collectively aim for in order to maintain the strength of UK tech on the global stage.

 

Headwinds & tailwinds

There are tailwinds and the inevitable headwinds in reaching ‘target $4tn’ ecosystem value. Investment in 2022 receded by 32% globally, and 28% in the UK. UK startups raised $30bn in 2022, which though 72% higher than the 2020 total, is down from the heights of 2021 when funding peaked globally.

In 2022, the UK tech ecosystem saw the lowest number of rounds in the past 5 years, over 1,200 less than 2021 levels. High value rounds equalling $250mn+ and low value rounds equalling less than $1mn (pre-seed) encountered the largest percentage falls (with pre-seed rounds falling by 41%).

 

UK tech on global stage

The UK took back its position as the third largest tech ecosystem in the world for VC investment in 2022 (after falling behind India), though is likely to see increasing pressure from India, and emerging ecosystems like Indonesia and Mexico over the next five years. Against its European neighbours, the UK remains the dominant player with investment into startups and scaleups remaining greater than investment into France and Germany combined.

However, without the right conditions and support mechanisms in place, there is evidence to show that the UK risks being caught up. France, Italy and Sweden are the only countries to see positive investment growth after the record covid bounce back year of 2021 (compared to the UK which experienced its highest decrease in 5 years at 24.7%). France is the only country to have experienced positive growth in every year over the past decade.

 

Unicorn winter?

2022 saw a decline in the rate of unicorn creation ($1bn+ valuation companies) at 4% (10x slower than 2020-2021 at 41%) underpinned by a reduction in the number of new unicorn companies being founded year on year for the last 18 months.

On the other hand, future unicorn ($250mn – 800mn valued companies) numbers have risen with 45% growth from 2021 to 202, suggesting that either the UK is effective at supporting companies to scale, but not to the high end of the value spectrum, or that there is a glut of unicorns to come, on the basis of many companies being well poised to gain value and breach the billion dollar mark.

 

Spotlight on diversity

Some ethnic groups and women are still heavily underrepresented in UK tech. No European country achieves a proportion of 30% of women in the tech workforce and tech roles for women in the UK are paid nearly 2.5% on average less than their male counterparts. Edinburgh is the city with the most women in tech, followed by Newcastle and Cambridge. All three are above 30% vs UK’s average of around 25% of the workforce.

The proportion of people from underrepresented ethnic groups working in tech has increased over the last five years, but by less than +2%, highlighting continued inequality of access to tech roles.

 

What needs to be done to reach a $4tn ecosystem value

For the ‘target $4tn’ ecosystem value to become reality, it is vital that Government rhetoric for the UK to be a ‘forward facing technological and scientific superpower’ is now paired with policies and support mechanisms to match and for all ecosystem stakeholders to fuel conditions for growth.

The report goes on to make a number of recommendations, including around capital, talent and value, which can be read in full here.

Gerard Grech, chief executive at Tech Nation comments: “The last decade of UK tech has been an incredible success story. One in which the UK is now third in the world for tech investment, after the US and China. But there is much more we can do and value to be unlocked if we create the right conditions for future growth over the coming years, as this report shows. We urge ecosystem stakeholders, investors and government to continue optimising the business environment for tech businesses, from opening up new pathways for talent to increasing sources of funding. Despite the challenging headwinds at present, I’m optimistic about the next decade and the UK’s ambition to become a science and technology powerhouse.”

Tech Nation will cease trading at the end of this month after losing its core government funding. During its decade in operation, Tech Nation delivered an ROI for the taxpayer of £15 on every £1 funded by the UK Government.

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