April 28, 2023

UK tech sector unfazed by regulator blocking Microsoft’s takeover of Activision

Founders and investors think the move could be a “net positive” for UK startups

Microsoft president Brad Smith attacked the UK’s decision to block the tech giant’s takeover of video game developer Activision Blizzard on Thursday. The move would “stifle investment, competition and job creation” in the UK gaming sector, he said.

But the mood among the country’s VCs and startups immediately after the decision isn't one of panic. “It’s not bad for UK tech. Activision is such an outlier and already a massive company, so the acquisition dynamics here are non-typical for a startup,” says Carl Fritjofsson, general partner at Creandum.

The UK’s Competition and Markets Authority blocked the $69bn deal — which would have been the gaming industry’s biggest ever takeover — on Wednesday, to a massive outcry from Microsoft and California-based Activision. 


The stance of UK regulators and policymakers towards tech faces close scrutiny at the moment, as the country deals with a global slowdown in the tech sector and it tries to maintain its startup funding dominance over European peers like France and Germany despite leaving the EU and its single market. 

The CMA’s decision also follows the UK government proposing to give the agency powers to fine global companies 10% of their global turnover for breaking local consumer protection laws. 


While overall VC funding for British startups fell year-on-year in 2022, funding for games development in the nation hit a record $611m, according to the CMA. The regulator estimates the sector will be worth £1bn in the UK by 2026.  

Funding for UK games companies isn’t about to be shaken by the fallout from Microsoft’s blocked acquisition of Activision, says Gordon Midwood, founder and CEO of game development startup Anything World. “It’s a different world from a startup raising a couple of million. The ruling is at a level far higher than most startups are at, so it’s not a concern,” he tells Sifted.

“The broader M&A landscape for gaming startups will not be affected in the least, meaning investor appetites will stay the same,” adds Jere Partanen, investor at Sisu Game Ventures. “The proposed acquisition was the largest in the industry's history, and it’s hard to see any other acquisition of a gaming company receiving such scrutiny.” 

The criticism of the UK tech ecosystem from Microsoft and Activision is also inaccurate, Midwood tells Sifted. “They’re presenting the UK as a close-minded space, but it’s a good market for startups — probably the best in Europe. Given the [economic downturn] and Brexit, it’s important that we portray ourselves well.” Midwood doesn’t think that US investors will be put off backing UK startups because of the criticism.  

The decision to block the takeover could also be good for UK game development startups looking to get their products on gaming platforms, he says. “Vying for attention on digital stores is hard enough [for game development startups] and if only a few companies control revenue it makes it harder for startups to get attention.”

The CMA argued in its decision that Microsoft already controls 60-70% of the cloud gaming market and an acquisition of one of the largest games developers in the world would give it an unfair level of dominance in the industry. 

A “net positive”

Ed Lascelles, partner at AlbionVC, tells Sifted that a strong regulator, which is able to limit the number of companies that big tech gobbles up, is a good thing for UK startups.

“If a regulator acts effectively in stopping big tech from buying category-leading businesses that are winning in their emerging industries, this could help the UK develop more global leaders,” says Lascelles. 


“Regulators have been trying for ages to prevent big tech from buying up promising startups,” he tells Sifted, which can be a positive for investors. “The types of companies that [big tech will try to acquire] have huge opportunities ahead. Startups that big tech would like to buy are exactly the sort of companies that we as venture capitalists would like to be supporting.”

Lascelles points to fintech Plaid’s continued success following the US regulator blocking its takeover by Visa in 2021. The payments scaleup went on to raise a $425m Series D just a few months on from the deal collapsing. 

Kai Nicol-Schwarz

Kai Nicol-Schwarz is a reporter at Sifted. He covers UK tech and healthtech, and can be found on X and LinkedIn