2024 could be the year of recovery after UK venture capital turned a corner in H2 2023 according to new analysis from HSBC Innovation Banking and Dealroom.
After a sharp global pullback in venture capital from the second half of 2022, venture capital is now back above pre-pandemic levels in the UK and is distinctly growing again as of the second half of 2023 (nearly $22B in 2023). Growth was driven by early-stage investing which has remained active, filling the startup pipeline and breakout stage (series B and C) investment which is at 110% of pre-pandemic level. Late-stage investment has meaningfully slowed.
Climate tech leading the way
Climate tech was the standout sector in 2023, raising an all-time high of $6.2B (representing 40% growth year on year) and accounting for 29% of all UK venture capital investment. Electric mobility and EV battery were the top funded UK climate tech startup segments, raising $2.2B and $1.2B respectively.
This was followed by AI, which raised $4.5B in investment in 2023 (a year-on-year increase of 29%), including significant rounds for Generative AI companies.
A strong position across the UK
The UK remains the #3 tech ecosystem in the world and the #1 tech ecosystem in Europe. In 2023 it raised more venture capital than France and Germany combined. The UK is the centre of the European venture market, home to 40% of the continent’s venture capital, and London is the European base of choice for top international funds.
It’s evident that UK entrepreneurship is distributed throughout the country with investment growing fastest in Birmingham (+1183%), Liverpool (+657%) and Sheffield (595%). The sector continues to provide broader benefits for the UK jobs market. UK startups employ 1.8M people, representing 300% job growth since 2018.
Looking ahead
UK VCs have more dry powder than ever before with over $25bn raised in the last three years and leading UK funds are freshly equipped to deploy in 2024. The UK is the home of European venture capital, 40% of new European venture capital raised in the last five years is based in the UK.
There’s also a growing exit pipeline with more than 63 non-acquired, private unicorn potential exists from the UK. The UK’s private unicorn stable is worth an estimated $137B.
The founder flywheel is in full effect in the UK with unicorns spawning dozens of new startups via staff alumni turned founders. Leading the way are Revolut (34), Wise (27), Deliveroo (27), King (19) and Babylon (17).
Erin Platts, CEO of HSBC Innovation Banking UK said: “This data demonstrates a significant positive trajectory for the UK’s innovation economy, despite what has been a challenging period globally. We should be proud of the resilience the UK innovation ecosystem has shown and should celebrate its commitment to solving some of our most intractable problems.
“We are hugely optimistic and excited about the ecosystem in 2024 and look forward to playing our part in fuelling this critical part of the UK’s economy.”