Asian and Middle Eastern investors double down on UK tech

tech

Asian and Middle Eastern capital invested in UK tech startups during the first half of 2021 has almost surpassed the total amount raised during the whole of 2020.

By the end of June, Asian and Middle Eastern investors had poured more than £1.7bn (€2bn) into UK tech companies, equating to 13.2% of total investments made in the country.

New figures compiled by Dealroom.co for the Department of Digital, Culture, Media and Sport’s Digital Economy Council, released to coincide with the inaugural Asia Tech x Singapore (ATxSG) startup event, show that 2021 is on track to be an even better year than 2020 for investment flows from Asia to the UK. The strong flow of investment from East to West is complemented by similar flows the other way, with leading UK-based venture capital firms increasingly investing in startups in Southeast Asia in particular.

Record number of Asian investments in 2021

Last year, Asian investors took part in a record number of deals in the UK, totalling 106, according to figures from Dealroom.co. The running total for 2021 has already reached 95 and is expected to comfortably surpass last year’s total by the end of the year, as institutional and angel investors are attracted by the UK’s increasing expertise in tech.

Within Asia, the country investing most heavily in UK tech is Japan. Other active investors from the region include Singapore, Hong Kong, Malaysia and China. However, Japan’s dominance of Asian investment flows to the UK has become weaker in the last five years, as investors in other countries have backed investment opportunities here.

The increase in Asian investments matches wider investment trends across the country. Already, venture capital investment in the UK has reached £12.3bn in the first half of 2021, compared to £10.8bn for the whole of 2020.

Softbank leads the pack followed by GIC and DST Global 

The five biggest Asian investors in the UK in 2020 were SoftBank, GIC, DST Global, Temasek and Tencent. Japan’s SoftBank remains the leading Asian investor in UK tech, but is joined by GIC (Singapore), DST Global (Hong Kong), Temasek (Singapore), and Tencent (China).

Investors from the Middle East, also included in Asian investment data, have stepped up their investment in the UK, challenging the dominance of Japan in particular. Between 2016 and 2020, Japan’s investment in UK tech has shrunk from 72% to 24%, as other investors in the region have stepped up their backing for UK tech startups and scaleups.

Investors from this region include the Abu Dhabi Investment Authority, which invested in Cinch, and the Qatar Investment Authority, which were involved in UK mega rounds including Starling Bank and Tandem.

Most active Asian countries investing in the UK in 2016

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Most active Asian countries investing in the UK in 2020/21

Asian 2

At the time of writing, there are now 577 UK startups with Asian investors, including unicorns with a multi-billion dollar valuation like Checkout.com and listed tech companies like Farfetch.

Other notable fast-growing UK tech companies backed by Asian investment include eToro, Deliveroo, Cazoo, and Arrival. The three most attractive sectors for Eastern capital are fintech, software enterprise and health.

In 2020 alone, Asian investors were involved in 28 fintech deals, 18 software enterprise deals and in 17 healthtech deals, showing an appetite for the three sectors which are consistently the UK’s leading sectors across the board.

This strong flow of capital from East to West has contributed to Europe becoming the fastest growing major region by VC investment, faster than the US, China and Asia.  Across the continent, Europe has the most unicorn cities with 170 cities playing host to at least one billion-dollar firm.

The flow of UK capital into Asia

There is also a significant flow of money in the other direction, too and the trends follow suit.

Over the past 18 months VC firms headquartered in the UK have invested £1.45bn in Asian startups. In 2020, the total was £720m over the course of the year – a figure that has already been reached in the first half of 2021.

This is a trend being led by the UK’s most active investors in Asian startups including Baillie Gifford, Eight Roads Ventures, Index Ventures (US-UK), RTP Global, and LightRock.

Matt Warman,  Minister for Digital Infrastructure, said: “The UK tech sector is home to the most innovative, most exciting and most globally scalable startups in the world, so it’s no surprise Asian investors are recognising just what a wealth of talent we have here. It’s also a huge compliment to have a region that has been at the forefront of tech and innovation for decades to believe so strongly in what we’ve built here in the UK and to want to be a part of that.”

Minister for Investment, Department for International Trade, Gerry Grimstone said: “Investors around the world are taking advantage of the UK’s high skill, diverse economy, and it’s great to see investors in Asia have poured more than £1.7bn (€2bn) into UK tech companies.

“We are ramping up efforts to attract investment into all corners of the UK, with our Office for Investment, Investment Council and regional Trade and Investment Hubs making it easier for businesses to find the right projects and assets that meet our strategic priorities.”

Gerard Grech, CEO of Tech Nation said: “With the release of this data, it’s clear that the UK has well-and-truly established itself as the jewel in Europe’s crown for Asian investors. UK entrepreneurs are creating startups and scale-ups that are consistently, year-on-year, attracting investment from the likes of Softbank, GIC and DST Global. With such heavyweight investors, UK tech companies really can have global reach.”

Julia Hawkins, general partner at LocalGlobe said: “The UK’s tech sector is thriving like never before and attracting the attention of forward-thinking Asian investors, in particular those long-term investors of sovereign wealth funds and pension funds. If the benefits of the immense increase in value in tech are to be shared across UK society, our own long-term investors, pension funds and institutions need to wake up to the future economic power houses being built on their doorstep.”

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