UK remains top for tech VC funding but loses ground to Europe

UK tech investment 2023 Image credit: Best Icon Studio / Shutterstock

UK tech businesses are projected to secure $12.7bn (£10bn) in venture capital this year, the highest in Europe once again despite losing ground to the rest of the continent.

Overall, European tech startups are on course to secure $45bn this year, a steep drop from the $82bn collectively raised in 2022.

France raised the second-most VC funding at $8bn, followed by Germany at $7.8bn.

VC funding in the UK fell by 54% year on year, down from $27.9bn in 2022. It is a steeper fall than the average across Europe, which stands at 45%. Globally, tech funding has fallen by 39%.

The data, published in Atomico’s ‘The State of European Tech 2023’ report, found that the UK has lost the largest share of VC funding invested by country over the last three years.

The Netherlands, Norway and Estonia saw the biggest gains by share of VC funding.

However, the UK continues to lead in startup creation, accounting for half of all new firms launched across Europe this year.

“This year’s report shows that founders and talent in Europe are taking risks and tackling the hardest problems, like AI, climate, and health,” said Tom Wehmeier, partner and head of intelligence at Atomico.

“We now need to spread the risk-taking and embrace more of the potential at our disposal. We need to build an investor landscape that truly matches the ambitions of our founders. Right now, companies are still 40% more likely to be funded in the US versus Europe and our public markets continue to hold back on tech.”

AI boom

Atomico’s previous report, an annual finger on the pulse of Europe’s tech sector, described UK tech investment as a “year of two halves” as rising interest rates and other economic headwinds brought an end to the era of free-flowing capital.

That trend has continued. This year’s report illustrates how macroeconomic challenges have extended the investor retreat, which was particularly notable from US investors in Europe at both early and late stages.

Despite the broader decline in VC funding in 2023, one area of tech bucked the trend: AI.

Across Europe, 11 AI-focused businesses raised so-called mega-rounds of $100m or more. At the seed stage, AI startups accounted for 11% of rounds.

It has also been a muted year for new unicorns – companies valued at $1bn or more – with generative AI firm Synthesia and data business Quantexa among the UK companies to achieve the milestone.

While megarounds across Europe fell dramatically from 163 last year to just 36 in 2023, the UK accounted for 11 of these, including Builder.AI.

“Europe is leading the way in purpose-driven tech investment, with sustainability and climate increasing their share of funding in the past decade,” said Erin Platts, CEO at HSBC Innovation Banking, which sponsored the report. “This is something we should be collectively proud of and continue to foster.”