Venture capital investment in UK firms still below pandemic-era peak

By Elizabeth Howcroft

LONDON (Reuters) – Investment in UK start-ups fell to $21.3 billion in 2023, down from $31.3 billion in 2022 and a little over half of the peak fundraising in 2021, as higher interest rates cooled risk appetite, a report by HSBC Innovation Banking and Dealroom showed on Wednesday.

New British companies raised record amounts of funding during the COVID pandemic, with venture capital investment at $41 billion in 2021, then slumped in the second half of 2022, according to the report.

Venture capital (VC) flows globally have shrunk from the highs seen in 2021 and 2022, as aggressive interest rate hikes have raised the cost of borrowing and reduced investors’ appetite for risky investments. Company valuations have also come under pressure.

There are signs of a tentative recovery for UK VC investment, as companies raised $12.6 billion in the second half of 2023, which was a 46% increase on the previous six months, the report said.

“This data demonstrates a significant positive trajectory for the UK’s innovation economy, despite what has been a challenging period globally,” said Erin Platts, CEO of HSBC Innovation Banking UK.

Platts said she was “hugely optimistic” about the sector in 2024.

While artificial intelligence (AI) became a buzzword for investors in 2023, climate tech start-ups in the United Kingdom attracted more investment than AI firms.

Electric mobility firms topped the funding table, raising $2.2 billion in 2023, followed by electric battery vehicle firms ($1.2 billion), the report showed. Generative AI firms in Britain raised just $227.4 million, lagging behind various sectors including space tech ($350.9 million), cybersecurity ($343.2 million) and mental health-related firms ($315.9 million), the data showed.

HSBC Innovation Banking, formerly Silicon Valley Bank UK, is an HSBC subsidiary launched in June 2023.

Silicon Valley Bank collapsed in the United States in March 2023 amid a liquidity crisis for regional banks and HSBC bought its UK arm for one pound ($1.27). It focuses on banking services for “start-ups to scale-ups”, according to its website.

($1 = 0.7867 pounds)

(Reporting by Elizabeth Howcroft; Editing by Emelia Sithole-Matarise)