Why London tech unicorns are becoming much harder to spot
The UK has minted only one new billion-dollar ‘unicorn’ firm so far this year in a sign of the sharp funding drop-off that has hit start-up valuations globally, data compiled for City A.M. reveals
Venture capital cash has dried up over the past 12 months as rising interest rates turned off the taps of free money that fuelled a decade-long boom in investment and a record breaking 2021.
Fresh figures from investment analysis firm Pitchbook show that the number of unicorns created in the UK – private companies worth more than $1bn – has plunged from an all time peak of ten last year to just one in the first six months of 2023.
London-based AI outfit Quantexa is the only firm to fetch new unicorn status after raising $129m in April.
Record unicorn heights were reached in 2022, after steady growth since 2017, when the UK only gave birth to one new unicorn. Following this, the nation minted five unicorns in 2018, six in 2019, four in 2020 and seven in 2021.
Despite analysts betting on a stronger second half to the year for VC funding, analysts at Pitchbook said “tepid growth” of unicorns looked set to continue in the UK and Europe.
“We would expect such a decrease in the number of minted unicorns to continue given the pressures felt in the venture-growth stage following the exodus of investment this year after the influx of investment in 2021 and 2022,” Navina Rajan, senior EMEA private capital analyst at Pitchbook, added.
A shuttered IPO market has also depressed the amount of billion-dollar price tags garnered as investors shun lofty rounds with little hope of a bumper public market exit on the horizon.
The total number of active unicorns in the UK is currently 26 – one fewer than in 2022.
The downturn strikes a blow to Rishi Sunak’s ambition to turn the UK into a so-called tech hub and “Unicorn Kingdom”. Ministers have attached weight to the valuations that firms are able to gain in funding rounds but tech figures have cast doubt on the use of it as a metric.
Christian Faes, founder of listed fintech LendInvest told City A.M. recently the focus on valuations was “f*cking nonsense”.
Henry Whorwood, head of research at investment data firm Beahurst, said as the government focuses its narrative and policy on turning the UK as a science superpower, unicorns were not always a good gauge of success.
“Creation of unicorns is the wrong metric for measuring the effective commercialisation of science,” he told City A.M.
“The example I always use is pharma: a pharma spinout would in many cases only become a unicorn if it directly commercialised its drug, but if can be more valuable to (and better for patients) to sell sooner to a large pharma company.”
A spokesperson for the government said the “UK remains the best place to invest in tech in Europe”.
“Our tech ecosystem attracts more venture capital investment than any other nation in the continent, with start-ups raising over $30bn last year, and we have created more unicorns than France, Germany and Sweden combined,” they added.