Tech Nation, the growth platform for tech scaleups, has published its final Tech Nation Report: How to build a scaleup, to shine 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.

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.

In this context, Tech Nation recommends the following actions to achieve the target. 

• Plug patient capital into all stages of company growth (not just at early stages) to ensure UK companies have the resources to live up to the promise of creating a global science superpower. 15x investment in deeptech, and climate tech must be made by the end of the decade to stimulate and sustain growth. Addressing current gaps in access to finance for UK startups and scaleups could contribute up to $450bn in additional value to the UK tech ecosystem over the next decade.

• Rethink talent gaps, and emphasise opening access to opportunities in tech for all people. Organisations like Colorintech are making huge strides to make tech accessible and fair, and more must be done to support them, and underrepresented people. Addressing current gaps in access to talent for UK startups and scaleups, and reducing inequalities in access to opportunity in tech for underrepresented people (as founders and employees) could contribute up to $400bn in additional value to the UK tech ecosystem over the next decade.

• Prioritise value realisation. Tech leaders in the UK must develop a Silicon Valley-like sense of exit intentionality, capital and talent must continue to be efficiently recycled through the ecosystem to create additional value, and knowledge must be deepened and shared around late stage growth. Enabling high value exits, and providing augmented support to founders to realise value created by their companies could contribute up to $550bn in value to the UK tech ecosystem over the next decade.

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.” 

Dr. George Windsor, Data and Research Director at Tech Nation comments: “The last decade of UK tech has been explosive; growth has been unprecedented, and the positive economic impact created by founders has been almost unimaginable. As UK tech continues to mature, we must take every opportunity we can to collectively re-imagine, and change ecosystem conditions for the better. In the Tech Nation Report 2023, we argue that this should take the form of addressing access to finance, boosting diversity, and prioritising value realisation. Tech is at an inflection point, with a profound opportunity for future growth, and a number of both headwinds and tailwinds to get there. Let us continue to build this Tech Nation together; thoughtfully, for everyone, and for our future.”

Elizabeth Scott MBE, Client Engagement Director at Tech Nation comments: “Diversity is critical to business performance and a fundamental part of UK tech ecosystem growth. We’ve just seen Marshmallow, a Tech Nation alumni company, only the second Black-founded unicorn in the UK, recognised by The Financial Times as Europe's 2nd fastest growing company. There is outsized growth to be achieved by backing under-represented founders who have identified and are best placed to execute on disruptive opportunities. While the data shows that some progress is being made, it’s slow and we all know that UK tech still has a lot of work to do. As well as doing more to support under-represented founders access the support and funding they need, as an ecosystem we still need better visibility and access to tech jobs. Achieving representation in the UK tech workforce would give everyone a seat at the table, enabling changes to the way businesses are run, new ideas and value creation.”

Stephen Kelly, Chairman at Tech Nation comments: "The Government needs to develop a plan that creates the environment and platform for UK tech to be the rocket fuel for growth in the economy and address some Achilles heels of the UK economy. The opportunity for UK Government with the impact of tech-enabled innovation, machine learning and automation has huge potential for all industries from Agriculture to Waste Management with a massive productivity boost where currently the UK languishes at the bottom of G7 productivity league. The opportunity is ours to take."