British tech economy attracts record £5.5bn in foreign investment

Nicky Morgan, Secretary of State for Digital, Culture, Media and Sport said the figures were a sign of the ‘confidence’ investors have in the UK tech sector

Foreign investors are pouring capital into the UK tech sector at a record rate, new figures released by the Digital Economy Council have shown.

For the first seven months of this year, £5.5bn has been invested into British tech companies, up by 50 per cent on the same period last year.

The figures, prepared for the UK Governmnent’s Digital Economy Council by Tech Nation and Dealroom.co, suggest that by the end of 2019 the sector is on course to exceed £9bn in investment. By comparison, UK tech firms raised a total of £7.17bn from January to December 2018.

Of the total invested between January and July, 55% came from American and Asian investors thanks to a keen interest in companies such as energy supplier OVO Energy, which secured $220million (£180million) in growth equity from Japan’s Mitsubishi Corporation and food delivery startup Deliveroo, which raised £472million from Amazon, Greenoaks Capital Management, Fidelity, and T. Rowe Price. Deliveroo, one of Europe’s fastest-growing technology companies, announced that it had acquired Edinburgh-based software design and development firm Cultivate earlier this month.

Secretary of State for Digital, Culture, Media and Sport, Nicky Morgan, said: “These fantastic figures show the confidence overseas investors have in UK tech with investment flows from the US and Asia at an all time high.

“We have a longstanding reputation for innovation and the statistics endorse our reputation as one of the best places in the world to start and grow a digital business.

“Today we are also launching our Bright Tech Future Awards to recognise the strength and depth of our talent and I encourage bosses to nominate their staff for one of these prestigious prizes.”

Eileen Burbidge, Chair of Tech Nation, said: “Investment inthe UK tech sector has been steadily rising for years and as these latest figures demonstrate, the momentum is increasing. It is incredibly gratifying to see that in addition to domestic and European investors, British tech innovators are also attracting US and Asian investor attention and allocation. The fact that this is growing is a testament to the strength and depth of our entrepreneurial talent, coupled with the dynamic and deeply engaged ecosystem that has been established here in the UK.”

Although the majority of recent money has come from foreign investors, 37% of investments in UK tech have come from domestic sources since 2018. Only France and Netherlands exceed the amount of homegrown funding. 

The UK also attracts a much broader mix of investors than its neighbours. Over the past six years, at least a third (32%) of capital has come from either the US, Japan or the rest of the world, with the rest attributable to local or European sources. In comparison, France receives the least amount of foreign investment across the continent, followed by Germany. 

Having a steady mix of funding sources proves the market is not only attractive to a wide range of investors and investment types, it offers stability. This, coupled with the recent surge in global investment, paints a positive future for the sector as a whole, especially in light of the potentially disruptive effects of Brexit.

The surge is in part due to the rising number of high-value deals, the figures show. During the second quarter of 2019 more than $1.9 billion came via deals involving investments of $100 million or more.

Across the country, the number of global investors increases the higher the round size, with the data showing that the percentage of deals involving at least one foreign investor peaks when the value of an investment totals $50 million or more.

Ninety-two percent of deals of this round size in London involved a foreign investor. However high-value deals were also made outside of London, such as Bristol’s OVO Energy.

The rising interest in UK tech is also having a significant impact on the creation of jobs, particularly high-paying jobs, in the sector.

As an analysis of the data reveals, the top 30 companies that have received the most foreign investment in the past three years – including StarlingBank, Skyscanner, Darktrace, Checkout.com – have collectively created more than 5,000 new positions.

In 2016, a total of 10,100 people were employed by these leading UK tech firms. By 2018, this had risen to 13,600 and in 2019 to date, this figure sits at 14,900 and rising.

Other research from Tech Nation found recently that in at least five UK cities, one in ten of the workforce is now involved in digital tech and a total of 2.1 million people work in the industry across the UK.

Digital tech roles offer salaries on average 10% higher than in other industries, and it’s not just tech jobs that are opening. A total of 230,000 non-tech jobs, including roles in HR, marketing, communications and more, were advertised in the tech sector in 2018. The research showed also that Edinburgh is one of only two places in the UK that can command higher tech salaries than London, with the median salary for tech roles more than £40,000.