New Data Shows UK Tech Investment Fell 57% in 2023

Elizabeth Greenberg

08 June 2023, 10.13am

UK technology companies raised £5.9 billion during the first half of 2023 in the sharpest funding decline across Europe, according to a new report.

Data shows that UK tech investment fell by 57% year-over-year, while France decreased by 55% and Germany by 44%, according to analysis from investment firm Atomico.

In the State of European Tech – 2023 First Look report, investment overall has taken a dramatic hit from record highs in 2021, though it appears to show signs of stabilising.

Across Europe, total investment is set to reach about $50bn (£40.8bn) for 2023 as a whole, based on its current trajectory. That’s a massive 50% drop compared to the record highs of 2021, which saw $106bn (£85bn) of investment, and a 38% drop from 2022.

While this represents a changing market, 2023’s trajectory is still roughly 35-40% higher than 2020 and 2019 – with Europe on track to have its third largest funding year on record.

According to Atomico’s report, the trend is global, with decreases across the world – a 49% drop in both China and the US, and a 46% drop in the rest of the world when compared to the records of 2021.

In the UK, tech companies raised the most across Europe in 2022, securing $17.3bn (£13.87bn) in the first half of the year – which means the UK also had the most ground to lose.

Rising interest rates, surging inflation, and macroeconomic uncertainty stemming from Russia’s invasion of Ukraine have significantly slowed down investment levels from record levels in 2021.

Not to mention, since the start of 2021, the UK has seen three different Prime Ministers, and Scotland has just entered a new phase with First Minister Nicola Sturgeon stepping down. This only heightens uncertainty and unpredictability in the UK to foreign investors.

New regulatory measures that separate the UK from the EU have also confounded tech companies – an Activision spokesperson went so far as to say the UK was “closed for business” after the Competition and Markets Authority blocked the company’s deal with Microsoft.

While the UK is aiming to make itself a tech superpower, businesses are apprehensive about upcoming date regulation laws, and the Online Safety Bill which may threaten encryption.

Tech founders were already reacting to this downturn earlier this year, with major layoffs affecting the largest tech companies in the world.

Valuations have also taken a hit -the median enterprise value to revenue multiples for the largest SaaS companies have come down to 5x, well below the previous average of 7.8x.

Meanwhile, one in five global venture rounds during the first quarter of 2023 were downrounds – meaning companies sold equity at a lower price than in previous rounds – the Atomico report found. This was nearly four times higher than the same period in 2022.

Responding to the report, Steven Mooney, Founder and CEO of FundMyPitch said: “Getting access to funding is critical to enable ambitious businesses to hire fresh talent, expand, develop their product offering and grow. Entrepreneurs are already feeling the heat from stubborn interest rates and the cost-of-living crisis, all of which ultimately hits UK GDP. With forecasts suggesting a decrease in technology investment, the time has come to look again at how we support the next generation of business owners to achieve their full potential.

“Far too many new companies aren’t being taken seriously by the big investment houses and we need to create a level playing field where those with bright ideas get the support they need to thrive,” said Mooney.

According to Atomico’s report, the early stage pipeline for funding in Europe has remained relatively resilient. Early stage of sub $15m (£12m) funding rounds is down 21% in the first half of 2023 – which the report credits to later stage rounds taking precedent.

Despite this, fewer start-ups are forming, with about 15-20% fewer companies created year-on-year.

James Campanini, CEO, VeUP said: “Falling investment will put huge pressure on the next generation of technology entrepreneurs, forcing many businesses to cut costs and do more with less. Against the backdrop of sluggish economic growth, getting a grip on IT spending and infrastructure efficiency should be a top priority for companies looking to grow. Far too many businesses have moved to the cloud but have failed to optimise costs and get the most out of the benefits on offer, which ultimately hits the bottom line.

“Having a clear strategy in place to drive growth through the strategic IT investment should be a top priority for companies looking to move forward,” concluded Campanini.

“We should think about this period as a return to first principles,” said Tom Wehmeier, partner and head of insights at Atomico. “2021 was a clear outlier, with investment volumes and valuations now returning to long-term averages.” The report added that the “new market reality” first identified in the second half of 2022 is “here to stay”.

Further, exit values have remained stagnant this year. According to the report, Europe has seen $21bn (£17bn) of exit value in 2023 so far, mostly via M&A. Atomica has said that this decrease will create liquidity challenges down the line, playing stress on the ‘flywheel’ of capital and talent.

The report did track which technologies were flourishing in 2023 funding rounds, with generative artificial intelligence (AI) seeing a major uptick.

A European tech staple, AI and Machine Learning (ML) typically captured around 12-17% of funding in the last five years.

In the past year, generative AI companies have garnered 35% of all funding going to European AI and ML – increasing from 1% in 2019 and 5% in 2022.

However, Fintech and Financial services are still coming out on top in the European market, claiming 20% of all funding in 2023, though this has fallen from 29% the previous year. This points to the diversification of the European market.

Next, climate and purpose driven technology remains the third largest theme after software as a whole, and saw an increase in 2023 funding, at 18% from 15% in the first half of 2022. This is it’s highest recorded share of funding ever, showing how ESG technology has become a central focus to Europe.