UK Edition
British tech start-ups have spent the past year drowning in cash, following years of ministers lamenting a lack of investment in the sector.
Investors put £29.4bn into tech start-ups in the UK last year, more than double the amount raised the year before — and eight times as much as in 2014.
Last July, banking app Revolut was valued at $33bn (£26bn) - more than taxpayer-backed NatWest. It was then surpassed by Checkout.com in January, with the payments giant securing a $40bn valuation that made its chief executive Guillaume Pousaz one of Britain’s richest men.
It comes after investors including SoftBank’s giant Vision Fund started to plough funds into Britain, while a flood of high-profile tech flotations — such as Deliveroo, Darktrace and Wise — suggested not every start-up was destined to flee to the Nasdaq.
Since London’s “Silicon Roundabout” emerged in the years after the financial crisis, Britain’s start-ups have not had to deal with a falling market. They brushed off Brexit and Covid without breaking a sweat, hitting new funding records and solidifying London as a global hub.
Yet the combined impact of a slump in tech shares, rising inflation and economies reopening has sent a chill through tech investors, threatening a winter for Britain’s fledgling companies.
In April, investors put £1.3bn into UK tech start-ups, the lowest since last May and down from £4.6bn in January, according to data company Beauhurst. Some 171 deals were completed: the least for more than a year.
Meanwhile, the number of “gigadeals” — those worth £100m or more — have dropped. In January, there were eight, while in April there were none.
The tech-focused Nasdaq index has fallen by almost 30pc since the start of the year, with the more unprofitable and risky companies suffering the most, as rising interest rates push investors to safer assets.
“There’s a trickle-through effect from public markets to private valuations. It usually happens first at the late stage [most highly valued companies],” says Julian Rowe, a partner at venture capital fund Latitude. “Conversations between investors and companies are taking longer.”
Graphcore, the Bristol-based microchip company regarded as one of Britain’s top start-ups, is understood to be in talks over raising new funds, but may have to do so at a lower or similar valuation to the $2.8bn it was valued at 18 months ago.
Hopin, a virtual events company, was valued at $7.8bn last August when tech investors were certain that the pandemic had dented real-world meetups for good. In February, however, the company laid off 12pc of its staff as the number of events on its service slumped.
Hussein Kanji, a partner at venture capital firm Hoxton Ventures, says the clock is now ticking. Most of Britain’s biggest loss-making start-ups raised money recently enough to continue with business as usual, but may get nervous if the downturn continues for months, leaving them with the choice of losing staff, raising funds at a lower valuation and disappointing existing investors, or selling out.
“Those companies aren’t silly enough to go into the market and take the risk of a down round. But others don't have a choice, because they have to go out into the market, they need the money,” says Kanji.
“Some of those companies, even if they buy time, they can't buy infinite time. This time next year they might still have to then be forced to go out into the market, and go through it.”
Most of Britain’s tech unicorns have never seen anything but good times. They are about to find out what a downturn looks like.