It was the moment British entrepreneur Rich Pleeth had been dreading, but he knew it was coming, so he was prepared for it.
“We’re all in,” the U.S. investor told him. “But we’ll need you to become a Delaware C corp.”
Make no mistake: Pleeth, the co-founder of Fin Sustainable Logistics, was thrilled with the investment and gels great with Americans, but his frustration with the U.K. tech ecosystem was palpable.
“The U.K. doesn’t have enough successful exits,” Pleeth says. “So everyone is so risk-averse and appetite is significantly lower.”
On the surface, the U.K. tech scene is on fire. It raised $6.7 billion in the first half of 2024, surpassing China to claim the No. 2 spot globally in funding, trailing only the U.S.
However, a significant portion of that funding comes from the U.S. Most recently, San Francisco-based CapitalG, Alphabet’s independent growth fund, invested $100 million in British neobank Monzo.
$6.7 billion
The amount of funding the U.K. tech scene raised in the first half of 2024.
The lack of domestic investment in the U.K. startup ecosystem is driven by various factors, including Brexit, currency fluctuations, and, perhaps most challenging, ingrained cultural attitudes.
A surefire way to get funding is to have a pre-seed company already generating revenue. Many of those companies have founders whose families can help get them off the ground.
“It’s really sad,” Pleeth laments, “because it means mainly people who have enough wealth can do a startup and fund themselves.”
He points out that Americans take the opposite approach: helping people from the bottom up.
“When I go to America, VCs say, ‘Hey, meet this person and this person.’ But in the U.K., people are much more reserved. It's a whole elite schoolboy mentality. In the U.S., people want you to succeed, but in the UK, people hold their connections to their chests. It's a power play.”
“It’s really sad, because it means mainly people who have enough wealth can do a startup and fund themselves."
British entrepreneur Rich Pleeth.
Pleeth has adopted a policy of connecting as many people as possible and asks that, in return, they do the same at every possible turn.
Kritika Amarnath, managing director at Beach Level Associates, which provides fundraising consulting and strategic advisory services for startups, says it’s not enough just to connect people. She coaches her clients to network relentlessly, including with people they’ve never met.
“Americans have no shame,” London-based Amarnath says. “Smiles and dials. They send out their deck to everyone. Versus British people who would say, ‘Oh, how shameless to just reach out to someone you haven't spoken to.’”
Other deeply rooted cultural attitudes are also at play.
“There's a huge difference between U.S. and U.K. founders,” Amarnath says. “An American founder says, ‘I'm going to be worth a billion dollars. I'm going to IPO. And I won't let you tell me otherwise.’ Of course, some of this is unbridled enthusiasm for something that will never happen, but I encourage my British clients to take at least a page out of the book and embrace aiming higher.”
“Americans have no shame. Smiles and dials. They send out their deck to everyone. Versus British people who would say, ‘Oh, how shameless to just reach out to someone you haven't spoken to.’”
London-based Kritika Amarnath.
Outside of cultural differences, Amarnath helps Brits to begin thinking outside of the U.K. market from the outset. She suggests they adopt the immediate international scale-up mindset that smaller startup nations like Israel and Estonia have.
“Brits easily forget that Great Britain is an island,” Amarnath says, highlighting that the U.K. as a scaleup gateway to Europe has lost its shine since Brexit.
In interviews with a half dozen U.K. tech leaders, they all lamented that instead of Brexit freeing the U.K. from regulation and making the country more independent, Brexit seemingly accelerated the push for the U.K. tech sector into Chinese and American hands.
“A lot of funds are saying no to the U.K. now because they want EU ties for a multitude of reasons, including scale,” Pleeth says. “We have amazing talent, but Brexit made it harder. Now, we are really confined.”
Many leaders highlighted what one called “the unspoken truth about Brexit,” from the ability to attract top European talent to accessing European funding and pressure on the British pound.
“A big part of it is the currency stability since Brexit,” Amarnath says. “I'm not going to take any side in the Brexit argument, but when you see those currency fluctuations, you can't say, ‘Most of my revenue is going to be in the U.K. This is a small island country. It’s crazy to say it's going to be your number one source of revenue.”
Prime Minister Kir Starmer says he sees no circumstances under which the U.K. would rejoin the EU, the single market or the customs union. So tech leaders say the best hope for the pound to gain footing against the dollar would be an improved renegotiated post-Brexit trade and R&D deal. The EU has signaled it expects and would be delighted by closer ties with the new U.K. government.
Beyond cultural and geopolitical factors, U.K. tech leaders are concerned that local investors’ focus on real estate allows U.S. investors to dominate the tech sector.
“There is this legacy love of property in this country,” says Amarnath. “People in the U.K. are so much more comfortable with property as an investment versus a new venture on their own. And getting investment in other sectors is just incredibly difficult.”
The tech sector also needs more startup investment from family offices.
“It's changing with the younger generation, but not enough family offices here think about startup investing as a viable, scalable thing that they should constantly be looking at,” Amarnath adds. “I went to London FinTech Week and was shocked I encountered no CVCs or family offices.”
"People in the U.K. are so much more comfortable with property as an investment versus a new venture on their own."
Kritika Amarnath.
Amarnath believes that for the U.K. tech sector to thrive, corporations must take a longer-term view on investing in innovation, even if it falls outside their core competencies. She cites Jaguar Land Rover (JLR) as a prime example of how this can be successfully managed.
“JLR recognizes that their core job is making cars, and they don't pretend to be experts in areas like biofuels or vegan leather,” Amarnath explains. “Instead, they set up InMotion Ventures, a venture arm designed specifically for exploring new technologies that align with their future needs. This allows JLR to stay ahead in innovation without diverting focus from their primary business.”
Amarnath stresses that this approach, where corporations outsource non-core innovation to dedicated venture arms, allows them to grow U.K. tech companies while remaining competitive and minimizing risk.
“One of the inherent challenges with venture investment is the concept that you’re going to fail sometimes. By keeping these innovation efforts at arm’s length but still aligned with the company’s values, corporations can invest in the future without the pressure of daily performance metrics.”
She argues that more U.K. companies must adopt this mindset to keep pace with global competitors. “The key is to understand that not every innovation will succeed, but it’s essential to invest in the potential for long-term growth.”
Without this commitment, she laments that the U.K. will continue to see its tech sector increasingly eaten up by foreign investors.
