UK Tech Start-up Landscape - Autumn 2017

Not only has the decision to leave the European Union not dented London’s start-up scene, it seems to have actually widened its lead as Europe’s leading fundraising destination.

According to a report from CB Insights, U.K. start-ups attracted $3.02 billion in venture capital in the third quarter. That’s a bit below the peak reached in Q4 2016, when U.K. start-ups attracted $3.5 billion.  But it’s more than triple the amount raised one year ago, and the third straight quarter-over-quarter increase.  The positive results were driven by six companies that raised rounds larger than $100 million in the quarter. 

And Silicon Valley investors have more than doubled funding for UK technology companies this year, in a sign of strengthening links with the world’s biggest tech hub after the Brexit vote.  British start-ups received £884.8m from venture capital backers based in San Francisco and the Bay Area in the first nine months of this year compared to £342m in the whole of 2016, according to London & Partners, the London mayor’s promotional agency.

The figures suggest a deepening relationship between the tech industries on both sides of the Atlantic, at a time when British tech firms fear losing funding from the European Investment Fund after Brexit.

Major deals include the San Francisco venture fund Andreessen Horowitz backing Improbable, a virtual worlds company spun out from Cambridge University, and Union Square Ventures investing in the online peer-to-peer lender Funding Circle.

France remained the second largest in terms of fundraising, topping Germany for the second straight quarter. But lacking similarly big deals, the $586 million raised in France was down from the previous quarter and from one year ago.  German start-ups raised $442 million but followed a similar dip from the previous quarter and from a year ago.

The bottom line: the U.K. - long Europe’s start-up star - continues to pull further ahead.  It’s a surprising twist that poses some interesting and unexpected challenges as the U.K. renegotiates its relationship with the continent over the next two years.

The concern for many in London is that Brexit will limit access to talent as well as shifting fundraising dollars to countries that remain in the EU and can therefore guarantee access to that market. But for the moment at least, investors don’t seem too concerned.

Likewise, if VC dollars continue to concentrate in London, European start-ups may find themselves facing difficult choices about whether to relocate there, even if it means leaving the EU zone.