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The UK’s tech sector enjoyed a record year with start-ups attracting more capital than ever before. In what was its best year since 2014, some £24.4billion was raised by start-ups and scale-ups, according to figures released by the Government’s Digital Economy Council. That is more than double the sum raised the year before, and follows in step with what many had predicted would be a period of accelerated digitisation because of the coronavirus pandemic.
Venture capital has flooded into online platforms like the car-seller Motorway, and the second-hand clothes site Depop, as well as the banking challenger Starling Bank — all raising money that pushed them north of a $1billion (£740million) valuation, helping them to achieve so-called unicorn status.
The US remains top in the tech start-up market, however: in the first week of December 2021, Apple’s stock market capitalisation approached $3trillion (£2.2trillion) — more than the entire German stock market on that day.
But, as Wolfgang Münchau, a German political analyst writing in Euro Intelligence, noted, Europe is now catching up with the Americans.
The continent now has its own promising corner of small company start-ups to rival the US’ Silicon Valley “for the first time”.
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But, as Mr Müchau wrote: “This is mostly a UK story.”
Germany and France come considerably behind the UK when it comes to cumulative investments, around $45billion and $50billion (£33billion;£37billion) less respectively.
The boom appears to reflect Europe’s north-south divide, with Spain hanging on by a thread, and Italy not even in the list’s top ten.
Mr Münchau said: “So this is not an EU-wide phenomenon, and certainly not a euro area phenomenon, but a British and Northern European one.
“There are tonnes more statistics in [Atomico’s] report, about the biggest VC [venture capital] deals, the biggest VC exits, and many more.
“In the jargon of the VC industry, VC start-ups valued at $1bn [£740million] or more are called unicorns.”
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One in five of Europe’s unicorns are in the fintech sector — financial technology — which explains the prominence of the UK, especially London, as a favourite location.
Mr Münchau said he believes the next “big sector to attract investment” will be crypto-finance.
He wrote: “This, too, will be a UK story first and foremost.”
While Britain has enjoyed early conclusions showing it as a growing start-up power, data from last year could be a cause for concern.
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Figures from Beauhurst, a start-up monitor, reveal that US investors launched an unprecedented raid on British technology companies in 2021.
A total of 130 UK tech first were acquired by American companies between January and mid-December 2021, up from 87 the year before and above the previous record of 105 in 2018.
While a positive sign that Britain is becoming a hub for start-up creation, the data could raise concerns that domestic businesses are being sold before they can grow to their full potential.
It comes on the eve of a new national security force coming into force which will allow ministers to intervene in far smaller deals.
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Currently the Government cannot examine takeovers of companies with a turnover of less than £70m a year in most industries.
This limits its ability to prevent promising businesses from being snapped up before they reach this stage.
But the new law, which comes into effect on Tuesday, will remove this threshold and require all companies of all sizes to inform the Business Department if they are being sold to an overseas buyer.
Tobias Ellwood, Tory chairman of the Defence Select Committee, told the Daily Telegraph: “In the global push to become more strategically independent after Covid, America is doing an incredible job to the detriment of Britain.
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“We need to recognise the impact this is having on our own capabilities and sovereign strength.
“It goes against the grain of the Government’s wise long-term ambition of becoming a high-tech superpower.
“That ambition isn’t supported by the current laissez-faire attitude of allowing our key high-tech businesses to be purchased in this way.”