The UK Tech sector has brought in a record amount of funding in the first seven months of 2019, according to a recent report by Tech Nation and data company Dealroom. The staggering amount of capital flowing into British tech startups from the U.S. and Asia has surpassed levels reached during the entirety of 2018 and 2017. Experts cite the weaker pound and the U.S.-China trade war as part of the reason.
Big Ticket Deals
In the first seven months of the year, UK private tech companies attracted $6.7 billion in total funding, with more than half coming from the U.S. and Asia. The $3.7 billion from U.S. and Asian investors compares to $2.9 billion raised over the same period last year, and has been lifted by several big ticket deals.
During the second quarter of 2019, over $1.9 billion in funding came from deals worth more than $100 million. While rounds below $100 million are also growing, the surge in funding has been driven by higher-ticket deals. More high-ticket deals means more international investors, with the percentage of deals involving at least one foreign investor peaking at a $50 million or more round size, per Tech Nation.
For example, Amazon.com Inc. (AMZN) led a $575 million funding round in London-based Deliveroo. Japanese conglomerate Softbank Group has made several major investments, such as an $800 million bet on supply chain finance company Greensill and a $390 million investment in OakNorth.
One particular industry benefiting from the funding is the financial technology space, made up of companies such as Stripe-backed Monzo and GoCardless, in which Alphabet Inc. (GOOGL) and Salesforce.com Inc. (CRM) are investors.
UK Tech Sector on Track for Best Year to Date
Tech Nation estimates that total funding into UK tech startups for 2019 could amount to $11 billion, as the sector is now averaging $1 billion a month from both foreign and domestic investors.
The inflow of capital in the UK’s tech sector has supported the growth of high-paying, high-productivity jobs. According to Tech Nation, the top 30 startups alone added 5,000 new jobs since 2016 and now provide 15,000 jobs. In at least five UK cities, 10% of the workforce is involved in digital tech.
Since 2013, UK startups have raised more from U.S. and Asian investors than most of Europe combined. Yet although American and Asian investors has shown the strongest interest in the UK, the trend is constant across Europe. Between 2013 to 2019 year-to-date (YTD), the UK has seen an inflow of $14.6 billion in investment from the US and Asia, followed by Germany which received $6.5 billion and Switzerland at $4.2 billion.
Of the top three global tech hubs, the UK has brought in almost as much non-domestic capital as China. On a per capita basis, the UK surpasses the U.S. in terms of non-domestic capital raised.
This trend can be partially explained by the fact that UK tech firms provide Asian and U.S. investors a hedge against trade wars.
"Foreign investment into both the U.S. and Chinese tech sectors has gone down because of the trade war and because Europe has provided several attractive investment opportunities lately" said Yoram Wijngaarde, founder and chief executive of Dealroom, to the BBC. "The UK provides an attractive opportunity for funds looking to grow their investments."
Experts cited by the BBC say another reason foreign investors are likely piling into the UK tech sector is to take advantage of the weaker pound. The currency fell to its lowest level in two years at the end of last month as concerns about a chaotic Brexit grew.
That said, the UK tech sector can still attribute about 37% of its investments from domestic sources last-year, ahead of all other European countries excluding France and the Netherlands.
The looming threat of Brexit’s impact on the UK market has created uncertainty, yet many remain bullish.
“Entrepreneurs had problems before Brexit, and they'll just get about solving them. Brexit is too nebulous a thing for them to tackle as an entrepreneur,” said George Windsor, Tech Nation’s head of insights, in an interview with CNBC.
Nicky Morgan, Secretary of State for Digital, Culture, Media and Sport, echoed that sentiment. “These fantastic figures show the confident overseas investors have in UK tech with investment flows from the US and Asia at an all time high,” she said.
Others, including Tech London Advocates Russ Shaw, are worried that a no deal Brexit could lead to a talent outflow, or "brain drain," per the BBC.
Meanwhile, the increase in UK tech investments come alongside a decline in overall foreign direct investment (FDI) in the UK, which hit a six year-low in June, per the Department for International Trade.