The UK government has embarked on a “scaleup policy sprint” to continue growing the number of home-grown unicorns — as the US tries to pull UK founders across the Atlantic with billions in public cash for clean tech and hardware.
The British technology secretary Michelle Donelan tells Sifted that the UK has made “considerable progress” in scaling up its tech businesses. She says the country should now aim to match the US levels of VC investment as a share of GDP by 2030 — which would mean pumping £5bn per year more into British startups, according to her department’s estimates.
This extra money, she argues, should allow Britain to become home to half of Europe’s tech unicorns by the turn of the next decade. But will they resist the temptation of relocating stateside and bid for the US Chips Act and Inflation Reduction Act funding?
“We are one of the three economies in the world that have raised over a trillion dollars in terms of our tech sector, employing over 1.8m people — we do want to retain those jobs in the UK,” Donelan says, referencing the US and China. “We should continue to close the gap on the US when it comes to VC investment.”
Closing that gap will be hard, particularly when it comes to raising late-stage investment, where the gap between both countries is biggest. There’s also the general downturn in available VC capital: The UK saw the number of new funds raised drop from 67 in 2022 to 46 in 2023, totalling $14.6bn and $9.9bn respectively, according to Dealroom data.
The opposite trend was experienced in France, where VCs closed 29 new funds and raised a total of $4.7bn in 2023, up from 26 funds of $4.4bn in 2022.
But Donelan says UK-based VC firms have raised more money than ever before in the last three years and have plenty of dry powder ready to deploy. Measures such as the Mansion House reforms, aimed at channelling capital from British pension funds into UK tech companies, and a new VC fellowship scheme will unleash further investment, she says.
Scaleups at the centre
In a speech in London earlier today the Conservative politician identified backing UK scaleups, skilling up the workforce and passing innovation-friendly regulation as her priorities for this year.
Donelan announced the creation of a Scale-Up Forum aimed at bridging the gap between tech founders and investors, and government, so that people in the private sector can jointly put forward policy ideas to address issues like access to capital and infrastructure.
The forum will involve entrepreneurs, including some who have been very successful at scaling up their businesses, as well as regulators and members of the Scale Up Institute. Donelan’s Department for Science, Innovation and Technology (DSIT) will soon publish the criteria for joining.
Donelan says DSIT hasn’t been prescriptive on the issues that the forum should tackle, but pointed out she’s working “very closely” with the energy department to address a shortage of data centres and power constraints. Both are issues slowing down the growth of AI, semiconductors and quantum businesses in Britain.
The Scale-Up Forum will also drive a new scaleup support service, which will help up to 20 startups during its pilot phase, aimed at increasing their chances of staying in the UK as they grow.
Alongside the British Private Equity and Venture Capital Association, DSIT will organise a series of Dragon’s Den-style pitching events to bring together startup founders and leading UK-based investors, following a recommendation from the industry lobbying group the Startup Coalition, Donelan says.
The exponential growth of AI has created new regulatory challenges for DSIT, including how to resolve the tension between startups wanting to access content and creators trying to protect their intellectual property and copyright, much of which is included in AI training data.
“People are concerned on both sides of the agenda and I completely understand their concerns, especially from the creative sector, given that [copyright] is the bread and butter of their business,” she says. “What we’ve tried as a government is bringing both sides to the table to see if there was any synergy and a pathway forward. That was really difficult.”
“We think we are carving out a direction of travel on this agenda,” she adds, advancing that DSIT and the Department for Culture, Media and Sports will make an announcement on this issue soon.
Donelan also ruled out primary legislation on AI any time soon. She says that, given that each bill takes about a year to conclude its passage through the UK parliament and come into force, it would have been impossible to have a new law in place in time for the release of new Large Language Models (LLMs) expected this year.
“There are some risks we don’t fully understand yet because they are emerging so quickly, and what we have said is that we need to properly get a grip on those risks. We are not going to rush to legislate and be out of date within a matter of months, or not be fit for purpose, or do something that is going to curtail our industry in a way that is not going to be able to get those benefits for our people or our public services,” she says.
The lack of action might be frustrating to UK founders. Ahead of the UK’s AI Safety summit last year, Eric Topham — cofounder of London-based startup OctaiPipe, which develops data security solutions for AI products used on physical devices — said that he would welcome clearer rules in the UK.
“The [forthcoming] Cyber Resilience Act in Europe effectively penalises for data breaches on devices, so the IT industry is going to have to respond to that,” he explains. “The UK is far less clear about what you have to do — it’s much harder to know what the standards are.”
More details on the UK’s regulatory approach to AI will be set in a long-delayed update of the government’s white paper on AI, which was due in September. Donelan says its publication is now “really imminent”.