The UK's tech ecosystem, while progressing significantly, exhibits stark regional disparities in funding access, with London dominating investment flows. Founders outside London, particularly those from underrepresented groups, face systemic barriers to securing equity funding. Key data highlights London's dominance: 47% of startups raising at least £100k in VC capital are based there, with figures rising to 53% for those raising £10m. 80% of VC funds are located in London, deploying 69% of their capital to London and Southeast-based companies. Regional startups secure less than 50% of the value of equity deals announced between 2021 and 2023, with London accounting for 50% of first-time deals in 2023.
The British Business Bank (BBB), the largest domestic backer of VC funds, plays a crucial role but faces challenges in addressing regional disparities. Founders report issues with risk aversion among funders and funding models that lack sectoral and regional specificity. The concentration of funding, whether from angel investors, venture capital, or devolved investment banks, creates over-reliance on single sources and hinders startup ecosystem resilience. Corporate Venture Capital (CVC) shows promise but remains concentrated in London and the South East.
To address these challenges, the report recommends:
- Mandating the BBB to evaluate its regional programmes and align funding with local needs.
- Making attendance at regional demo days mandatory for venture funds part of the Enterprise Capital Funds (ECF) scheme.
- Establishing local mission-based talent investment programmes across the UK.
- Fostering sector-specialised funds to channel capital into regional centres of expertise.
- Working with mayoral combined authorities to issue convertible regional bonds based on the US Municipal bonds model.
- Taking steps to ensure a thriving spinout ecosystem, particularly turning world-leading research labs into regional growth engines by addressing institutional equity stakes and improving commercialisation processes.
