UK Tech Hubs for Venture Capital 2020

1. UK Tech Sector Growth outstrips US and China by 44% according to Tech Nation Report 2019

19 January 2020

The UK’s fast-tech ecosystem is growing exponentially.

The Tech Nation Report 2019 was released with awesome data; the sector soared to ￡10.1 billion ($13.2 billion) in 2019 a ￡3.1 billion increase on 2018 very strong figures and the highest in the UK's history.

Research prepared with Dealroom.com for the Digital Economy Council shows that between January and December UK Companies secured a third of the ￡30.4 billion raised in Europe during 2019, with UK based firms receiving more VC investment than Germany (5.4 billion) and France (￡3.4 billion combined)

Digital Secretary Nicky Morgan said "These brilliant new numbers demonstrate the strength of the UK Tech Industry and how it is a sweet spot of our economy. Its absolutely vital we maintain this impressive success and in Government we are working tirelessly to make sure the conditions are right".

On the Global scale the UK's Performance according to this report in 2019 means it now sits behind only the US and China in terms of total venture capital funding received in 2019 and on a city level joins the Bay Area, Beijing and New York at the top of the world most funded locations. Companies headquartered in London raised ￡7.4 billion during 2019.

Almost half of the UK Investments in 2019 came via US and Asian Investors and the UK tech sector recently overtook the US for foreign investment per capital.

Brexit is good for other cities in the UK to now continue to be a dominant players in the Tech Venture Capital Scene as VCs look for a value outside of London.

Sturgeon Ventures as a leading Venture Capital AIFM Venture Capital Manager for emerging managers is a great partner into this new decade.

2019 saw the number of early stage investment rounds grow by 20% year on year, according to the report.

2019 saw eight UK companies reach Unicorn status, Rapyd, CMR Surginal, Babylon Health, Sumup, Trainline, Acuris, Checkout.com and Ovo Energy - meaning the UK has now created 77 billion dollar businesses, double the total number in Germany (34) and almost four times as many as Israel (20)

Building teams and venture funds a focus for 2020.

Though London and the surrounding areas still hold the lead position in terms of digital tech turnover, digital tech is spreading throughout several other areas of the country. 

According to the Tech Nation several other major metropolises - and some unexpected smaller locations - are moving to the forefront of cutting-edge technology and investment. Here we take a look at five of the most successful tech hubs in the UK...

An illustration of UK Tech Meetups by location, indicating the interest in areas outside of the London market https://technation.io/news/2019-a-record-year-for-uk-tech/

1. Reading & The Thames Valley

What’s the lowdown?

Tech Nation’s 2019 report found that Reading’s tech company density is higher than the national average. Not for nothing has it long been known as ‘the UK’s Silicon Valley’.

Who’s here?

Current occupants include major league tech firms such as Microsoft, Oracle, Huawei, Cisco Systems and Symantec.

The influence of large tech firms from the US, such as Microsoft and Oracle, draws new businesses to Reading, BDO believe Reading will continue to improve their tech businesses strength over other parts of the country – it’s a self-fulfilling prophecy because similar organisations want to be established near these higher-profile businesses that push innovation so that they can share workforces and recruit from the same pool.

What’s the appeal?

Reading and the surrounding Thames Valley area have a particular advantage over rivals because of the strength of the location. Close to London, with easy access to airports such as Heathrow and prominent universities, the area is a magnet for talent and investment funding. 

What are the main challenges? 

The very cause of Reading’s position as a tech hotspot may also be its main issue. ‘The proximity to London is a double-edged sword. Being close means that it's very easy to get into the London tech scene, but it also means that our skilled workforce is drawn to London as well.’

What next?

At present, Thames Valley tech companies fall largely into sectors such as analytics, software and data-related business, but there is a growing contingent of life science companies, such as Seqirus, a biotech firm specialising in vaccines. 

What’s the lowdown?

Manchester boasts 5 Unicorns created, for a population of 510,000. Yes there are just 10 accelerators there versus London's 146, room for many more.

The northwest is the region with the most fast-growth tech company bases outside of London.

‘Who’s here?

The key players in Manchester are focused on IoT, security, data analytics and generally IT services, but there are also three $1 billion unicorns based in the Manchester region, namely The Hut, Boohoo and AO,.

Examples of key players include UK Fast, one of the UK’s leading hosting and colocation providers; Godel Technologies, an agile software development expert; AccessPay, a fintech firm that recently secured ￡2 million in funding; and ANS Group, a rapid-growth managed and private cloud service provider, among many others.

What’s the appeal?

The transformation of Salford Quays into MediaCity, a 200-acre area of the docklands, offered a huge boon to tech firms looking to establish themselves in the city. Billed as ‘an international hub for technology, innovation and creativity’, the area has created a home for fast-growth tech in the area of broadcast media production, animation and gaming tech. 

Rye of BDO believes the connectivity of the people and the businesses in Manchester are the main draw for fast-growth tech. ‘The unique feature of the Northwest, and particularly Manchester, is the ability for everybody to connect. Howard Bernstein [former Chief executive of Manchester City Council at Manchester Town Hall] was greatly commended for his pulling together of all the major contributors to the city’s growth: the business community, the universities, and local and central government.’ In 2018, the tech companies in Manchester raised more than ￡200 million in funding.

What are the main challenges? 

‘Attracting funding, resourcing and training are the main issues that most tech companies are facing now, and it’s particularly true of Manchester,’ says Rye of BDO. ‘Though we have a vibrant community in Manchester, it’s difficult to entice traditional sources of finance to back the tech sector. 

‘Traditional UK financiers don’t necessarily wish to take the risk from a funding point of view. It seems to be easier in the US, where investors may take risks and be willing to accept two or three years of substantial losses and cash requirement before they actually see a return on their investment.’

What’s in store?

The city continues to generate interest as a tech hotspot, and to draw interest from large organisations to invest in the area. ‘Amazon has just opened a large office in Manchester, with Vodafone choosing MediaCity as its incubator base for testing 5G,’ noted Rye of BDO. 

‘Not only that, Cisco has just launched a new Innovation Hub, a science park called My Idea. The city also has Tech Manchester, a not-for-profit initiative dedicated to supporting the development of technology businesses and raising the profile of the city’s accelerating digital sector. It focuses on connecting technical mentors with early-stage technology businesses, as well as connecting talent with investors. 

‘The city is incredibly nurturing for start-ups and for technological innovation, and will continue to be in future.’ 

3. Liverpool

What’s the lowdown?

Tech Nation has predicted that Liverpool will be a significant hub for tech growth, giving it a 79% rating for Tech Sector Growth Potential. The city is making a particular name for itself in experimental technology in the gaming and virtual reality worlds, but is already an established base for fintech companies. 

The ICAEW Corporate Finance Faculty in October 2019 said that Liverpool was the UK Corporate Finance Best Kept Secret.

The Liverpool main hospital is reputed to be the most digitally advanced hospital in the NHS Trusts. They have a Digital Transformation Programme woking throughout the hospital.

Who’s here?

There’s been a significant uptick in the number of fintech firms, which is a particularly established sector in Liverpool,. ‘But there is also growing interest in edtech, which is exploring the provision of educational services via online platforms.’ The movement is garnering significant interest: education software company Collabco gained double-digital revenue growth for its 2017 financial year, and saw sales rise above ￡1 million.

In terms of newer, more cutting-edge offerings, there are companies such as vTime, a virtual reality tech firm; Swapbots, an AR-enabled gaming service; and Globall Coach, a world-leading animation service, all of which are pushing boundaries for futuristic tech. 

What’s the appeal?

Financial support from major backers, such as Santander through its Incubator, has helped the tech scene to flourish. Liverpool-based financial support has been given by the MSIF Fund, which has offered ￡158 million to local efforts so far. More broadly, a ￡556 million boost from Northern Powerhouse has also helped to make Liverpool a hotspot for innovation. 

Learning support, such as that provided by The Studio Liverpool, a digital technology educator, is also driving younger talent to become involved in the tech sector. 

Events are also key for the encouragement of new business development. Events such as Fintech North, a new tech convention for the UK as of 2018, and the Binary Festival, a celebration of all things tech, further underline the city’s commitment to tech innovation. 

The city’s inclusive attitude is positively impacting businesses outside of the tech sector too, according to local BDO team. Businesses outside of the tech scene are exploring how they can drive forward their services in terms of maintenance and innovation through technology such as the Internet of Things. This has created new opportunities for technology businesses in the area.

What are the main challenges? 

The main issue for Liverpool-based tech innovators is funding, an issue that is common to the Northwest in general,

The majority of angel investment is in the southeast of England. The reality is, that whilst venture capital will flow around the UK, the VCs themselves are predominantly located in London, making it difficult for Northern businesses to access funding. 

The challenge is that there is a lack of funding for the wider northwest in the under ￡2 million bracket, which is the goal for many tech businesses’ first round of funding.

What’s in store?

London businesses do not flinch at the idea that they may need ￡1.5 million in funding to get to the next stage of development, whereas businesses in this region are more likely to bootstrap and work with a lower level of funding, The goal is to create an environment where ambitious companies have access to funding that will boost growth. 

4. Cambridge

What’s the lowdown?

As one third of the so-called Golden Triangle, Cambridge, alongside Oxford and London, forms the backbone of the life science sector in the UK. With ￡2 billion of funding from the government dedicated to this triangle alone, Cambridge has successfully manifested a burgeoning life science tech scene. According to Tech Nation’s 2018 report, Cambridge saw twice the level of digital tech turnover per staff (￡152,000 per member) than the UK average (￡99,000), indicating its strength as a tech hotspot. 

Who’s here?

The city is almost unparalleled in the life science sector, due to its strong financial backing. Ieso Digital Health offers online cognitive behaviour therapy, and has been listed in the top 10 of the 2017 Sunday Times’ Fast Track ‘Disruptors to Watch’. Another notable firm is Kymab, an early-stage bioscience enterprise with a goal of improving antibody technology. 

The University of Cambridge has also fuelled the city’s strong reputation as a dependable location for AI and machine learning start-up endeavours. Global leaders Apple, Microsoft and Amazon are already leading the trend in the city, with others sure to follow. Also worth noting is the exponential growth of AI-based cyber defence firm Darktrace, which is worth over $1.65bn (2018). Founded a mere six years ago and already listed on the Tech 100 lists of 2017 and 2018, it is emblematic of the fast-growth tech sector in Cambridge. 

What’s the appeal?

Access to talent from the University of Cambridge is undoubtedly a key selling point for tech businesses seeking to establish themselves in the city. 

The city’s supportive networks also help its status as a tech hub. ‘A plethora of established networking organisations such as Cambridge Network, Cambridge Wireless and Agri-Tech East also provide help and support for growing firms. A strong and supportive network of investors also exists in the region, meaning capital is readily available,’ says Linn Clabburn, Programme Director of the Cambridge Norwich Tech Corridor, a partnership delivering high-value, tech-led economic growth in the Eastern region of the UK. 

The city’s history has also led to its current leadership in the UK’s tech sector. ‘The growth of the original Cambridge Phenomenon in the 1980s means there is now a network of experienced, successful entrepreneurs willing to invest time and money in companies which could become the next Arm, CSR or Deepmind,’ says Clabburn. 

The support network around Cambridge is phenomenal, and access to funding has not held back any suitable enterprise. The recession of 2008 and subsequent years barely dented business across all sectors.

What are the main challenges? 

Cambridge’s small size and strong business interest has enabled swift growth over the decades, but the influx of corporate interest has led to certain challenges. The existing transport infrastructure is overburdened, and the operational costs of office rental and the expensive housing market take their toll on businesses seeking to be near to industry leaders. 

The uncertainty around Brexit also means strong local supply chains are likely to be increasingly important in future, which is why we are working hard to showcase the opportunities for partnerships and collaborations within the Tech Corridor.

What’s in store?

Cambridge companies are among many in the Tech Corridor tackling the big challenges facing society around the future of food, medicine and mobility,’ says Clabburn. The city’s world-leading life science cluster, home to companies such as AstraZeneca, Illumina and Abcam, coupled with brain power of researchers at Cambridge University, mean biotech and medtech companies are always likely to thrive in the city.

Cambridge is a magnet for every area of business, and the professional advisers and banks create a particularly well-networked and connected community. It complements the serial entrepreneurs, angels, family offices and spinouts from the University and the alumni of the Judge business school. Outstanding individuals, such as Goncalo de Vasconcelos and Tom Britton at Syndicate Room; Jonathan Reynolds and Ben Medlock at Swiftkey; and many others have seen their ideas evolve and accelerate. This will continue as we all reinvest in our businesses and share knowledge, skills and experience,

5. Birmingham

What’s the lowdown?

An average of over 500 tech start-ups are founded annually in Birmingham, according to Tech Nation, with the rise showing no sign of stopping. The Centre of Entrepreneurs records that 12,108 businesses were launched in the city in 2017, with Birmingham frequently named as the location with the highest number of new UK start-ups outside of London.

Digital tech businesses in the city hit a remarkable turnover of ￡2.2bn in the same year, making Birmingham a force to be reckoned with in the UK tech sector. 

With high property prices and rising staff costs in London and the South East, Birmingham and the wider Midlands are a very attractive prospect for tech start-ups, drawing more people from London than anywhere else in the UK, With its central location, 18 universities within easy reach, and good transport links via motorway, rail and airports, many see Birmingham and the wider Midlands as great places to establish tech businesses.’

The tech ecosystem across the Midlands is flourishing and continues to grow. 

Birmingham alone has more than 41,500 digital tech jobs according to Tech Nation’s recent figures. ‘There are a significant amount of tech incubators and accelerators across the region, giving excellent access to like-minded individuals in an environment where they can flourish with the right support.

Who’s there?

Health tech companies are surging in the area, with leading examples including Eyoto, (formerly Aston EyeTech), a developer of proprietary AI-based, Cloud-connected hardware and software products for ocular health, and Kaido, a health insights platform that uses artificial intelligence to inform best practice healthcare. Fintech is also well-represented, with companies such as Oxygen Finance, an early payment provider, offering innovation in digital financial processes. 

What’s the appeal?

With three universities offering fresh talent, innovation is poised to thrive. Birmingham is the second most populous city in the UK, and has a surplus pool of talent, however, it still has an undersupplied start-up scene, allowing start-ups to benefit by hiring the best.

The city’s networks and ‘enterprise zones’ allow for the fertilisation of new tech. Silicon Canal, which aims to create a ‘world-class tech ecosystem’ in the city, as well as digital campus Innovation Birmingham, are two examples of tech hubs in the city.

Monetary support for start-up funding and private equity from local organisations such as Finance Birmingham have helped to foster ingenuity in tech. 

Birmingham was once an industrial beacon of England; however, now it has become a predominantly service-based centre, supporting the back offices of numerous blue-chip companies.

The area offers a cosmopolitan environment, strategically located in the middle of England, with the ability to attract Northerners and Southerners to a somewhat middle ground, making it appealing for new businesses.

What are the main challenges? 

Much like Manchester and Liverpool, the lack of venture capital backing and private equity investment in areas outside of London has hampered progress. 

Recently there have been a number of funds launched in the Midlands. For example, the ￡250 million Midlands Engine Investment Fund launched in March 2018. This should help with funding but Tech businesses are still finding it challenging to know what funding is available for them, and how they can go about accessing it whilst still driving their business forward.

The challenge is keeping up with the pace of growth, Tech companies are constantly looking for resource across all areas, and even though Birmingham is a big city with a big catchment area, it means that tech companies are under resourced.’

What’s in store?

As London-based banks seek new locations for their back offices, the fintech scene in Birmingham will thrive. The surge of highly qualified financial and fintech talent will foster and attract innovation and opportunities that will manifest in the start-up scene.

HSBC and Deutsche Bank relocated to Birmingham from London with teams, and this investment and relocation into the wider region is expected to continue demonstrating the significant advantages there are for tech businesses in the region.

Additionally, there are serious contenders in the artificial intelligence and IoT spaces that do not need to be based in the capital to thrive. They can take advantage of the lower costs of business in the area as they develop heavily research-based products. Birmingham will benefit from the growth of start-ups that don’t feel the need to be in the capital, such as SaaS, science-based, and research start-ups.

Birmingham will soon attract the attention of more VCs and angel investors looking to snap up innovative and scalable start-ups, with the lower costs of business and lower costs of living for employees attracting local, national and international talent to the area. 

This information came from Tech Nation 2018 and 2019 and some from BDO pieces