Record levels of investment into UK tech sector despite impact of COVID-19

tech

For this feature, Business Leader wanted to assess how the UK tech sector is holding up after the last 12 months, compare its standing globally, and look at what verticals will grow in the future. To do this we spoke to some of the nation’s leading figures within the sector.

A great yardstick for measuring the success of any sector is how much investment it soaks up, and the money that went into the UK tech sector in the last year, was a whopping £11.2bn, which is up on the previous year by just over £1bn.

Part of the reason for this increase in investment has been the sector’s emergence as a force for good during the pandemic and it has provided many of the solutions to the problems we have faced.

Technology has, in short, allowed many businesses to not just survive but thrive.

Nathan Guest, who is Head of Technology at UK law firm VWV, delves a little deeper into what is driving growth in the sector.

He says: “The current levels of investment going into the UK tech sector should provide us with confidence as we’re seeing it all stages in the business journey and valuations have held up pretty well too.

“In terms of what is driving growth, it’s not rocket science. We act for many emerging life science businesses that have been doing very well; and any business that is involved in technology that creates less human interaction is the place to be too. We are also seeing more investment in AI/Robotics and machine learning. The digitisation of healthcare is also a vertical that is growing rapidly, and it is also no surprise to know that technology around virtual appointments is also growing fast.”

Roland Emmans, who is Head of Technology at HSBC, also agrees that tech has been the answer to many of the questions we have faced recently.

He comments: “We have seen change bottled into three months that would usually take businesses three years and much of that has been around digital transformation, which is about going from rigid legacy systems to something that is cloud native and often mobile first and agile. This transformation is not just happening at the top of the public of private sector either, it is coming all the way down to smaller businesses too. Businesses are realising that what has got you here now, will not make you successful in the future as there has been a shift in how the economy functions and people are unlikely to go to back to how they worked and consumed, prior to the pandemic.

“We’re also moving to a non-contact society as it is illogical to think that you will walk into a building a press buttons now as Covid-19 is 80 times more likely to spread by people touching surfaces. We’re looking at facial recognition now, which links back to smart buildings and the Internet of Things (IoT).”

Brexit – do issues still linger?

It seems that the future looks positive for the UK tech sector and we will be counting on the innovation of our tech leaders to help us continue to navigate these challenging times.

But Russ Shaw – who is the CEO of Tech London Advocates – does see unfinished business with the EU as one of the challenges we need to be aware of.

He explains: “Brexit has been completed yes, but it has been done so with a very thin trade agreement and one of the parts that was punted down the line was data. After the US and China, the UK has the highest amount of cross border data flows, 75% of which comes from the EU. Post the deal being done, personal data from the UK can go to the EU but we have been told that we have six months to create a data adequacy agreement that will see us through in the future. Both sides want to make this happen but there are a few potential landmines from the EU that could get in the way. This is an issue because if we don’t get this in place, businesses will struggle to get investment.”

In regard to the challenges facing the sector, Felicity Burch – Head of Innovation at the CBI – agrees that data transfer is one that stands out, but she also says that growth capital remains a challenge despite the record levels of investment.

She says: “Cash and capacity are two major challenges we see tech businesses facing and lots of companies in the sector are hitting barriers that are stopping them from investing and keeping going. Turning data into decisions is also a big challenge for businesses and understanding how they can get real value out of software and technology platforms they are investing in. It’s one thing investing in shiny new kit and having lots of data – but many businesses don’t know what to do with it.”

Has Covid pushed the diversity agenda backwards?

Russ also says that skills is a burning issue as there has been a 36% increase in vacancies in the tech sector since the first Lockdown back in March 2020. Access to talent is a challenge for many tech businesses; coupled with ensuring they are encouraging diversity when making appointments.

Looking deeper into skills and increasing diversity in the tech sector, Business Leader also spoke to Debbie Forster, who is CEO of the Tech Talent Charter.

She said she had fears that diversity would be pushed to the back of the queue because of Covid-19.

Debbie says: “I had a fear going into this pandemic that the debate would be driven backwards but we’ve seen the opposite. The sector seems to have woken up and realised that expanding your talent pool and encouraging a more diverse team is a way of navigating your business out of this difficult situation. I believe that transformation is not just about the kit, but it is about the people too. And ensuring we have more females and ethnic minorities at the top of technology firms isn’t about social justice and being a nice thing to do but ensuring we remain competitive as a nation.”

It is all about the Ecosystem stupid!

Investment, data, and skills are big-ticket issues no doubt but can any of them be properly solved without looking at the tech infrastructure and ecosystem that each of our UK cities has.

Harry Destecroix is a serial investor, tech entrepreneur and academic who has recently opened Science Creates Ventures.

It is a tech ecosystem which Harry says, ‘stands up for the scientist’.

He explains in more detail why a strong tech ecosystem is so important: “Where a tech discovery is founded has a huge bearing on whether it is commercialised or not and this can mean we miss out on fundamental breakthroughs in technology and science. The external ecosystem a business is part of plays a major role and place is very important in determining whether a start-up becomes a success or not. Currently, a small number of cities produce most of the world’s technology which means we must be missing out innovation?”

Harry continues: “Relationships with universities, corporates and a network of investors who are smart and know the space; as well as physical buildings and lab space where companies can carry out R&D – that is flexible, are key.

“We can turn failure rates on their head by creating strong ecosystems and there is research which shows that a successful ecosystem will decrease failure rates by 88%.”

Will the mood music change with Biden?

To conclude the look into the UK tech sector, Business Leader wanted to see how it compares globally. Japan, USA, China, and South Korea remain leaders along with the UK and once again investment provides a yardstick which shows that the UK is a major tech player.

Nathan says: “Investment is a yardstick for confidence and investors are generally smart. On the global stage, we have seen a significant number of eye-watering investments into UK tech firms from money outside of the UK. Just look at Graphcore – the business is four years old, and it’s already raised $700m for its game-changing technology.

“The UK tech sector is firmly on the global stage and cities like Bristol, Cambridge and Manchester are now pulling their weight alongside London.

“One note of caution though; 80% of investment is going into scale-ups rather than at seed level and I’d like to see more investment at this stage to ensure we don’t run out of supply of scale-ups.”

Russ Shaw is also confident about the UK’s role globally.

He explains why: “The US and China are driving global tech ecosystems and the UK I would say comes after these two. We need to think about how we help UK businesses expand globally and how we also encourage businesses to come to the UK.

“You may not be ready for the US and China, but you can come here first and then expand into those two markets in time. The British rule of law and our regulatory system and universities give us a huge advantage.

“I also believe that we need to be looking at Biden because he will take a tougher role of big tech and social media and he is looking at how they can be managed differently as publishing businesses. Tax systems will also be important, and Biden will be looking at how these big-tech firms pay tax, and the UK has been trying to go down a digital tax route for some time.”

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