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The future of the UK’s funding market for fast growing tech companies

Since the UK’s landmark vote to leave the European Union in June 2016, a degree of uncertainty has impacted businesses across the country.  Despite this, early-stage companies are enjoying the most fruitful year of investment ever reported.

In the first half of 2019, start-up and scale-up companies throughout the UK have benefitted from a record £5.5 billion of private investment, according to the industry network Tech Nation.  This all-time high was primarily driven by the financial backing from the US and Asia, amid economic turmoil across (and between) their domestic economies. Equally, young companies are eager to attract investors from these jurisdictions and unlock their networks and understanding of local American and Asian markets; a perfect match for the investors seeking to capitalise on certain gaps in their domestic markets.

This foreign appetite for investment is bolstered by the continuing vibrancy of the UK’s tech ecosystem (coupled with the current attractive inbound exchange rate), demonstrated by the emergence and success of multiple hubs of innovative expertise.  This year alone, London’s renowned place at the forefront of the global fintech scene has been exemplified by more than £300m raised in megadeals for payments companies including Checkout.com and Monzo. However, the UK’s capital is now also home to leading providers of insurtech, cyber security and, in particular, software-as-a-service companies, for which London is ranked as the third highest growth city in the world.  Meanwhile, regional outcrops of healthtech entrepreneurs and software developers are also garnering attention in Cambridge, Manchester and Bristol. As the future of work across all sectors shifts, it is anticipated that the robust levels of growth across the UK will continue in the months ahead.

This favourable funding environment has been further boosted by the Government’s commitments to encouraging entrepreneurial immigration, which have assuaged oft-cited fears in the longevity of the UK’s talent pool after the UK leaves the European Union. In particular, there is cause for optimism with the announcement of a new start-up visa, dedicated to early-stage entrepreneurs starting a business in the UK for the first time, with no requirement for existing investments, no cap on entrants and no educational thresholds. Due to be launched at the end of 2019, the viability of this migration route for tech entrepreneurs remains to be seen. Exactly how that will develop is one area of particular interest for the high-growth community.   

As the national market becomes increasingly attractive for private investment, confidence in public funding strategies has been subdued by the recent performances of mature big-ticket companies. In the US, public listings of technology flotations this year have suffered disappointing results, reflected in the declining value of shares in Lyft and Slack. While zeal to go public in the UK has continued with 16 IPOs in the first two quarters of 2019, this is a slowdown from the 39 listings in the same periods last year, indicating that some companies have also found success through alternative exit strategies.

It’s no secret that the current political and economic climate is somewhat challenging, but despite this,  investors and entrepreneurs alike can take assurance from the proven ability of UK scale-ups to attract, cultivate and reward wide pools of international capital.