The UK is now the third largest venture capital market in the world, particularly in the fintech, software, green tech, and deep tech sectors, new research shows.
According to figures from the British Business Bank, UK companies raised £72 billion in total venture capital investment between 2021 and 2023.
Its share of global VC investment has risen from 3.4% to 5.8% over the past decade - the largest increase of any of the top 12 global markets - with smaller business equity investment up by 182%.
"The UK has become the third largest venture capital market in the world, overtaking India, and is the largest market in Europe, accounting for more than a third of investment across the continent," said British Business Bank CEO Louis Taylor.
"This demonstrates that the UK is building on its position as a global leader in venture capital, and this presents a substantial opportunity for both domestic and international investors."
A main driver behind these figures is the success of the fintech sector. Here, the UK now accounts for 11.3% of global VC investment, behind only the US, and accruing 48.3% of all investment across Europe.
This, the bank said, is down to an innovation-enabling regulatory environment, and a strong financial services industry providing talent, networks, and a large domestic market for fintech startups.
The UK has also made significant progress in the software sector, with its global market share increasing from 2.7% to 6.2% over the past decade.
There are also improvements in market share in the green tech and deep tech sectors, which now account for 4.5% and 3.8% of global investment respectively.
After a market downturn in the middle of 2022, equity investment for smaller businesses has returned to 2019 levels, the study found. Investment fell by 48% to £8.8 billion in 2023 in the UK, in line with other equity markets, while the number of deals fell by 25% to 2,152.
Equity investment for smaller businesses has remained at more than £2 billion in each of the last five quarters.
"As has been the case globally, 2023 was a tough year for the UK equity finance market," Taylor said.
"However, despite the continued challenges of higher interest rates and fewer exit opportunities, it is encouraging that investment now looks to be stabilizing at over £2 billion per quarter for smaller businesses."
London remains the UK’s main VC hub, thanks to a strong fintech cluster, attracting 42.6% of European fintech investment over the past decade.
Meanwhile, Cambridge and Oxford are particularly competitive in life sciences, where they raised 7.0% and 5.0% of European investment respectively between 2014 and 2023.
While the US raised eight-times more investment than the UK between 2021 and 2023, that figure is down from the 14-times larger investment volume between 2014 to 2016.
When adjusting for the size of the economy, however, the UK now raises the same amount of investment as the US at 0.97% of GDP. However, the analysis suggests that this has largely resulted from cyclical fluctuations since the pandemic and not necessarily because the UK has closed the gap with the US on a structural basis.
Between 2021 and 2023, the British Business Bank said it supported 15% of UK equity deals and 18% of total investment through its equity programs. This was slightly up on the 2020-2022 period, when 13% of deals and 15% of investment was backed by the bank.
