Britain Urged to Boost Investment in Tech Innovation

The British tech economy faces significant challenges as industry leaders call for increased investment to fuel growth. During the City of London’s technology dinner held at the historic Mansion House, speakers emphasized the necessity of transforming the nation’s startup landscape into a more sustainable and globally competitive environment.

Peter Kyle, the former Secretary of State for Science, Innovation and Technology, who recently transitioned to Business Secretary, highlighted Britain’s position as the world’s third-largest hub for artificial intelligence (AI) behind the United States and China. “My message to you is simple: Britain is preparing for the challenge of the new technological revolution,” he stated. He urged attendees to “keep investing here, keep building here. List here. Scale here.” While his remarks were met with polite applause, they did not overshadow the underlying need for more robust scaling opportunities for British tech companies.

Alastair King, the Lord Mayor of London, expressed concern that the UK risks becoming an “incubator economy,” where promising startups either sell out or relocate abroad. He underscored the importance of keeping firms that start in the UK to remain and grow within its borders. “We need those firms which start here to stay here and to scale here,” he said. King called on institutional investors in the City to allocate more resources to growth capital, particularly within the AI sector, stating, “In this global technological arms race, we need to put our financial firepower behind that technology.”

A tangible commitment to investment is reflected in the Mansion House Accord, a voluntary agreement supported by King and various City institutions, pledging to allocate at least 5% of their funds to UK private markets by 2030. This agreement has garnered support from major fund management firms, including Aegon, Aviva, L&G, M&G, and Phoenix Group. Yet, according to Anne Glover, CEO of Amadeus Capital Partners, the City still has significant ground to cover.

She referenced research from the British Venture Capital Association (BVCA), which revealed that only 0.007% of pension assets in the UK and Ireland are invested in venture capital, compared to 0.5% to 2% in North America. If British funds were to increase their allocations to 0.5%, it would represent a staggering 70-fold increase in financing, potentially transforming the UK tech sector. “For the nation’s growth engine, it is rocket fuel,” Glover asserted.

British founders often prefer funding from US venture capitalists due to their speed and access to networks in the larger American tech market. As Saul Klein, founder of LocalGlobe, noted, this trend raises questions about the future of British innovation. He pointed out that only 20% of the capital directed at the UK’s most promising startups comes from domestic sources. “Who benefits?” he asked, citing examples of individuals across Europe and the world who reap the rewards of British innovation rather than local investors.

There have been discussions within political circles in London about mandating institutional investors to commit a specific portion of their funds to private markets. Glover warned against such measures, arguing that fund managers must retain the autonomy to seek the best returns for their clients. Instead, she advocated for a more persuasive approach to investment, referencing the French Tibi initiative, launched in 2020. This initiative aims to drive funds to channel private savings into tech innovation, with a current target of raising €10 billion by the end of next year.

As other countries in Europe, including Germany, Poland, and Greece, observe the Tibi initiative closely, it is crucial for Britain to accelerate its efforts in fostering a vibrant tech economy. By enhancing investment in growth capital, the UK can better support its innovative landscape and ensure that homegrown startups thrive and contribute to the national economy.