Tech
Insights from PitchBook’s 2023 VC Tech survey
Following the publication of Pitchbook’s VC Tech survey for the second half of 2023We have identified the following key takeaways about investment activity in the UK tech sector:
Growth of the AI market
The UK has seen a surge in investment in artificial intelligence (AI) and the technology sector in recent years. The UK AI market is valued at over $21 billionand is estimated to grow to over $1 trillion by 2035. This is supported by PitchBook survey respondents, who see artificial intelligence as the most innovative technology area with the greatest growth and adoption over the next 12 months.
In contrast, cryptocurrencies have been voted the most invested tech area. This could be due to several reasons (as highlighted below), but should be considered alongside the overall decrease in venture capital (VC) investment in 2023, which has been influenced by geopolitical risks, excessive market valuations (with investors who fear they have overpaid on investments made in 2021 and 2022) and macroeconomic factors such as interest rates, which according to PitchBook survey results will likely have the greatest impact on technology in the coming years.
Nonetheless, based on the increase in VC activity we observed during the first quarter of 2024, and PitchBook’s opinion that “respondents are noticeably more optimistic that VC activity will begin to recover in next year”, it seems that there will be a recovery in venture capital funding. UK investment in AI has reached record levels, with AI scaleups in the UK raising almost double those of France, Germany and the rest of Europe combined, and much more will happen now that the AI Act has been adopted. approved by the EU Council.
Cryptocurrency crisis
Conversely, despite the growing popularity in the use of cryptocurrencies, there has been a decline in cryptocurrency investment in the UK. According to a survey conducted by the Financial Conduct Authority (FCA), only 6.1% of Brits invested in cryptocurrencies in 2023, which equates to around 3.3 million adults. This is a relatively small percentage of the population and suggests a lack of awareness of cryptocurrencies in the UK and/or a reticence to invest in a relatively new asset class.
PitchBook commented that “the cryptocurrency sector is considered overinvested and less likely to experience growth.” There are several reasons why there may be a decrease or lack of investment in cryptocurrencies. One reason could be the regulatory environment; The British government has announced a series of measures to regulate cryptocurrencies, and this could impact investments. For example, the Treasury announced late last year it will regulate some cryptocurrencies as part of a broader plan to make the UK a hub for digital payments companies.
Another reason could be the perceived risk associated with investments in cryptocurrencies. Since cryptocurrencies are still considered a high-risk investment, many investors remain discouraged. The value of cryptocurrencies can be highly volatile, with the associated risk of losing all of your invested money.
Making the UK a global hub for artificial intelligence
In recent years the UK Government has announced a number of measures to make the UK a global hub for AI technology and investment. The 2017 Industrial Strategy sets out the Government’s vision to make the UK a global hub for AI innovation. In April 2018, the UK government and AI ecosystem agreed on a nearly £1 billion AI deal to strengthen the UK’s global position as a leader in the development of AI technologies. Since 2014 the Government has also made more than £2.3 billion available for investment in artificial intelligence.
However, given the regulatory measures introduced for AI and the general opinion that generative AI is “overvalued” (as highlighted by the PitchBook survey), the continued increase in funding for AI remains to be seen.