Funding in UK start-ups has fallen to a post-pandemic low, main fledgling expertise teams to think about shifting their headquarters to the US within the seek for capital.
Figures from analysis firm Dealroom confirmed that British start-ups raised simply £16.2bn in 2024, the bottom haul since 2020. Against this, Silicon Valley friends raised greater than £65bn over the identical interval, up 71 per cent from 2023.
The chief executives of a number of UK start-ups instructed the Monetary Instances that the will to draw American buyers had already pushed them to include within the US, regardless of being primarily based in London.
“Recognising that the majority enterprise funding comes from the US, we arrange as a Delaware company — the popular and acquainted construction for US buyers,” stated Mati Staniszewski, co-founder of AI group ElevenLabs, which was valued at $3.3bn in January this 12 months.
Of the 70 UK-founded, venture-backed tech start-ups now headquartered within the US, nearly a fifth have been integrated after 2020.
The pattern comes as Sir Keir Starmer’s authorities factors to the burgeoning AI sector as a possible path to financial development, with start-up founders and buyers saying the standard of British engineers and tech employees are a match for his or her American contemporaries.
However fledgling firms warned that issue in accessing capital was holding UK companies again from competing with international friends. Up to now, main British tech teams, from DeepMind to Arm, have additionally been acquired by a lot larger worldwide buyers.
Barney Hussey-Yeo, whose London-based AI start-up Cleo has raised $140mn since founding in 2016, stated he was contemplating shifting away from the UK. He stated the draw to maneuver to the US was getting “stronger and stronger yearly”, pointing to a greater investor mindset and the British authorities’s latest resolution to extend capital positive aspects tax.
Hussey-Yeo, who already spends 4 months of the 12 months in San Francisco, stated: “You get to a sure dimension the place there isn’t any capital within the UK — and the issue is getting worse,” he added. “Actually, the UK is kinda f***** if it doesn’t tackle [the problem].”
Alex Macdonald, who not too long ago launched his second start-up, Sequel, selected Miami as its headquarters with a UK subsidiary in a construction designed to keep away from relocation later down the road.
“I’m an investor as effectively. My recommendation to founders proper now’s to include within the US with a UK subsidiary as you get higher entry to capital, whereas getting advantages of UK expertise at a a lot decrease [hiring] price,” he added.
Macdonald, who employed most of his operations crew in London, stated that expertise within the UK is on par, if not superior to the US, in addition to being in a much smaller geographic space.
“The UK is a good place to start out a enterprise, however we have to see adjustments, resembling encouraging pension funds to put money into enterprise capital, to encourage additional start-up development,” he added.
The UK’s pension trade has traditionally been reluctant to put money into personal markets in contrast with counterparts overseas. A examine by New Monetary, a think-tank, final 12 months discovered that UK pension schemes invested simply 5 per cent in personal fairness — decrease than US equivalents.
Final month, UK pensions minister Torsten Bell instructed the FT he was pushing retirement funds to speculate extra in personal markets as a part of wider authorities plans to enhance efficiency and consolidate £1.3tn of UK pension property.
Two UK-educated founders of their early 20s, Timon Gregg and Kylin Shaw, stated they integrated their firms within the US due to higher investor and buyer perspective.
“US clients and buyers are faster and extra keen to strive issues — the extent of ambition is simply totally different,” stated Gregg, who integrated his AI insurance coverage enterprise Strala in San Francisco final 12 months.
Shaw, whose health-tech firm, Hippos Exoskeleton, additionally moved to San Francisco, stated: “The mentality is totally different — individuals are keen to take dangers.”
Dealroom’s analysis confirmed that final 12 months, 57 per cent of world enterprise capital went into US start-ups, above 50 per cent for the primary time in a decade, with funding rising 30 per cent since 2023.
Against this, UK start-ups obtained simply 4.8 per cent of world funding, with complete funding down 11 per cent over the identical interval.
Antony Walker, deputy chief government at TechUK, stated the nation was “prone to shedding its brightest firms to worldwide markets” if extra was not achieved to repair the widening “funding hole” with the US.
“With out motion, many high-potential SMEs will take into account relocating abroad, costing the UK jobs, tax income, and financial development,” he added.
Dom Hallas, who based the StartUp Coalition, an trade group, stated the UK was a sufferer of its personal “partial success”.
“We’ve constructed a tech ecosystem that’s value it for American and different worldwide buyers to scour for founders,” he stated. “We want an actual plan to incentivise them to remain.”