Climate tech and AI set to drive rebound in UK venture capital investment
UK venture capital investment is set to recover in 2024, according to HSBC, after turning a corner in the second half of last year thanks to a boom in early-stage investing and the success of climate tech and AI.
HSBC’s Innovation Banking and Dealroom said in a report that, with more than $25bn raised in the last three years, firms have more dry powder than ever.
It also noted that the UK’s private unicorn stable is worth an estimated $137bn.
HSBC said climate tech was 2023’s “standout sector” as it raised a record $6.2bn, reflecting 40 per cent year-on-year growth.
AI came in second after raising $4.5bn, a 29 per cent increase from the previous year. This investment included significant rounds for generative AI firms.
Climate tech attracted 29 per cent of all UK venture capital investment last year, driven by the electric mobility and electric vehicle battery sectors raising $2.2bn and $1.2bn each.
Venture capital has languished since the second half of 2022, after Russia invaded Ukraine and central bankers began hiking interest rates to cool inflation.
Investors have also pulled back from high-growth, loss-making start-ups as borrowing costs shot up and increased the need for profit.
But as of the second half of 2023, investment is back above pre-pandemic levels and growing.
Overall growth was driven by early-stage investing, HSBC said, which has filled the startup pipeline and breakout stage investment.
However, the firm noted that late-stage investment had “meaningfully slowed.”
The UK remains the world’s third-biggest tech ecosystem and the largest in Europe. It raised more venture capital than France and Germany combined in 2023.
Erin Platts, chief executive of HSBC Innovation Banking UK, said: “This data demonstrates a significant positive trajectory for the UK’s innovation economy, despite what has been a challenging period globally. We should be proud of the resilience the UK innovation ecosystem has shown and should celebrate its commitment to solving some of our most intractable problems.
“We are hugely optimistic and excited about the ecosystem in 2024 and look forward to playing our part in fuelling this critical part of the UK’s economy.”
In a separate report published this morning, fintech trade body Innovate Finance said the UK sector received $5.1bn of investment in 2023, down 65 per cent from 2022, in line with other countries.