Investors being drawn to industries of the future
LAST Thursday I was privileged to be at the brilliant Tramshed Tech accelerator in Cardiff for the launch of the latest “State of the Nation” report from Tech Nation, the UK’s network for ambitious tech-based entrepreneurs.
Yet again, there were some fascinating statistics, including about the situation here in Wales, with the report showing that there are currently 3,605 Welsh digital tech firms employing 45,000 people and having a total turnover of over £1bn.
However, the emphasis this year was not to look inward but to examine the performance of the UK tech economy on the global stage and how our innovative companies, entrepreneurial communities and groundbreaking technologies are making an impact across the world.
And rather focusing on start-up firms that usually are at the core of most research studies into the tech sector, the report focuses on those high-growth scale-up firms which currently account for 80% of the £6.3bn of tech investment into UK firms in 2018.
Currently, the UK is fourth in the world for scale-up investment (after the USA, China and India), having raised 5.2% of the global total of £245bn between 2015-18. Not surprisingly, nearly half of the global funding was attracted to American tech scale-ups (£121bn) over this period.
In 2018, investment in scale-up
firms in the digital sector increased to just under £5bn (a growth of 61% on the previous year), although certain key parts seem to be growing at a far higher rate.
For example, venture capital investment into artificial intelligence (AI) firms increased by almost six times from 2014-18, with the total amount of venture capital raised by UK AI companies reaching a record level of just over £1bn, more than double that of France and Germany and even surpassing Israel, which is seen as a global hub for this technology.
Not surprisingly, the geography of tech investment in the UK remains uneven, with London getting over 70% (or £9bn) of all funding between 2015-18. Cardiff – which is within the top 20 cities in the UK for tech investment – attracted £120m over the same period.
While there is very little the UK Government and other bodies can do to stop this investment into London, bodies such as Innovate UK and the British Business Bank can certainly use their status to encourage greater innovation and investment outside of the capital city.
If we examine investment by sector, scale-up firms in the software as a service (SaaS) market remain the most popular source of investment globally, followed by e-commerce and big data.
However, it is worth noting that emerging areas such as AI, cyber security and fintech are becoming attractive to investors, which is good news for Wales, given that these are the leading tech sectors in our economy.
The latter is interesting because insurtech (ie technology in insurance services) has 24% of all the employees in scale-up tech firms in the UK and is home to firms such as Admiral PLC, GoCompare and MoneySupermarket.com that are among the global leaders in this field.
This growth in venture capital investment into high-growth tech firms should not be surprising, as it is certainly a trend we have seen within the Wales Fast Growth 50 over the past few years.
Indeed, companies such as Vizolution and DevOps Group, which have only been created in the past decade, are making a real impact on their sectors not only in Wales but internationally and I expect to see this trend growing on the 2019 list.
But why is this the case? According to Tech Nation, this is down to a number of key factors including the rapid evolution of new technologies and markets, which means that digital tech companies are becoming increasingly viable investment propositions.
From the investors’ point of view, they are becoming more aware of new companies in emerging areas and are targeting early-stage growth firms in order to get a better share of equity. There is also a lot of capital available seeking returns on investment in new areas since the last recession.
And from the firms’ point of view, there now seems to be a far greater propensity by founders to actively seek funding from external investors rather than being reluctant, as they were in the past, to give up equity in their businesses in order to obtain the capital to grow.
Therefore, the UK is making progress in developing those tech sectors that will have an impact on all our lives.
Certainly, in the uncertain postBrexit world that our economy will be facing in the near future, there needs to be a continuing focus by the UK Government on developing more high-growth companies within those industries of the future, especially in the nations and regions outside of the powerhouse that is London.