BVCA 14 Jun 2023
UK tech received more venture capital and private equity funding last year than any other sector, according to new data from the private capital trade body, the BVCA.
- Nearly half of UK private equity and venture capital investment went into tech businesses in 2022
- Tech bucks trend as overall private capital investment slowed compared to record highs in the previous year
- BVCA calls for the creation of a government-backed £250m fund of funds as availability of capital for later stage outfits wanes
A new survey of BVCA members has found that tech attracted almost half (47 per cent) of the total invested by venture capital and private equity in 2022.
In total, almost 1,600 companies received a share of £27.5bn from investors last year – a 24 per cent drop compared to 2021.
Despite this, the tech sector bucked the trend with a 15 per cent increase in investment, from £11.2bn to £12.9bn, as its global appeal continued to grow.
Across IT, communications technology, fintech and biotech, 772 tech companies at all stages of their growth received investment. In venture capital specifically, £2.3bn supported nearly 570 businesses.
However, there was a clear gap in UK scale-up funding, with the greatest share of investment going to early-stage and start-ups outfits.
Commenting on the challenge faced by bigger firms seeking capital, Andrew Williamson, Chair of the BVCA’s Venture Capital Committee said:
“The UK faces a challenge when it comes to later stage and follow on venture capital funding. There are very few funds large enough in the UK to lead on £50m plus deals. This means the most innovative companies in tech, deep tech and AI are looking to overseas investors – primarily the US – for support to help them grow and develop.”
To ensure the UK can provide the investment capital and capability that its burgeoning tech sector needs, at all stages of growth, the BVCA is calling on the government to create a £250m fund of funds to help DC schemes to invest in the sector.
Relying on foreign investment to scale up UK companies exposes the UK to geopolitical risk and fluctuations in global capital allocations. It also prevents the UK from growing a generation of investment managers experienced in scaling knowledge-intensive businesses.
Closing the Funding Gap
To realise the government’s Science Superpower vision, the UK needs to become world-class at scaling up knowledge-intensive companies, as well as creating them.
As London Tech Week kicks off the BVCA is calling on government to ‘think big’ when it comes to pensions reform and supporting innovation in the UK.
The BVCA recommends
- The creation of a government-supported fund of funds, which will use the £250m set aside by the government as part of LIFTS to help catalyse investment in this area. The BVCA believes that a fund of funds structure will help DC schemes to invest by providing diversification, addressing operations challenges and allowing schemes to partner with expertise in illiquid fund management and VC manager selection.
- Ensuring the success of LIFTs by creating a programme to help UK pension schemes better understand this asset class and give them the confidence to invest in the near future (which complements ongoing government and industry discussions around “value for money” in the DC sector).
- Greater investment by UK pension funds in private capital funds which will help boost returns to UK pension savers in the long term. Private capital funds have a strong track record of returns which pension funds and other institutional investors from overseas have benefitted from. The government can take a leading role in bringing the different parts of the ecosystem together to help allow DC schemes in this asset class.