If 2023 was the year of downturn for the tech industry, last year was broadly one of recovery. The job losses continued but global investment in start-ups rose 5 per cent, fuelled by a boom in artificial intelligence.
The recovery has been geographically patchy, however. The UK — the biggest tech market in Europe — registered a drop in investment from venture capital groups in 2024 falling to approximately $15bn from $20bn the previous year, according to KPMG analysis of VC funding.
But Conor Moore, global head of private enterprise at KPMG, says despite the “apparent anomaly” with the wider recovery there was still plenty to be optimistic about in terms of the investment outlook for UK start-ups.
He attributes the drop in UK investment to several “mega deals” — financings worth more than $1bn — in other regions, especially the US. Such large deals hoover up funds and can make it hard for even the most promising UK start-ups to attract large investments.
“That is less of a commentary on the health of the UK investing environment than it is on the frothiness of investment in other jurisdictions in this AI era,” says Moore. The UK decline last year was “not inconsistent” with some other European countries, he adds. “There are many reasons to feel positive about the UK funding environment.”
UK start-ups that do manage to attract suitors in the tough economic climate can rely on a well-established and varied infrastructure to help them. There are dozens of hubs across the country — combining office space, research and development facilities, venture capital connections, and sources of advice — that aim to provide the ideal conditions to help clusters of start-up companies evolve.
Organisations running the hubs range from not-for-profit university spin offs, investment and finance companies and start-ups themselves. Common programmes within hubs include three-month “accelerators”, to prepare a start-up for investment, or “incubators”, to nurture a young company over a couple of years.
Among them is Founders Factory, which is the top-start-up hub in the 2025 FT/Statista/Sifted ranking for the UK and Ireland, and number five in Europe.
The investment company, which is headquartered in London, but also has offices in countries including Germany, Italy, Singapore and Australia, says it has invested in more than 300 “early stage” start-ups. These include Landvault, a maker of metaverse technology, which was acquired last year for $450mn, and Storyblok, which makes a publishing platform for corporate content and last year raised $80mn in a financing.
The hub offers start-ups support with developing products, with technology (data science and tech engineering) and helps with legal matters and marketing. It also invests in start-ups itself and connects them with other sources of financing.
Large companies including Aviva, L’Oréal and Rio Tinto, partner with the hub, advising its start-ups on topics such as product distribution and market analysis.
Such advice can help start-ups, especially those in business-to-business software, to reduce lengthy sales cycles — the time it takes to close a deal — says Henry Lane Fox, chief executive of Founders Factory. “Anything to shortcut that [sales cycle] and . . . to work with the start-ups is terrifically helpful,” he adds.
Helping connect start-ups with the right investors and explain their potential to scale, is also crucial, he says. “All start-ups are hungry for cash, so fundraising is absolutely crucial.”
Such connections with large investors have proved particularly useful for Tembo Money, a UK digital savings and mortgage platform aimed at first-time buyers, which co-developed its business with the Founders Factory from the idea stage.
One of Tembo’s corporate partners — Aviva — became one of its main investors, says Richard Dana, the start-up’s CEO and co-founder.
Tembo was the second start-up that Dana had founded. His career path is an example of the cross-pollination that can occur between serial entrepreneurs and entrepreneurs running start-up hubs: Dana was previously chief financial officer of Founders Factory, before he started Tembo.
“Aviva has been . . . really, really critical to our success [and has] invested in us now four times,” says Dana.
Working with a start-up hub — tapping into their contacts and professional expertise — was also the right decision at the time given Dana’s financial commitments. “[When starting Tembo] I had a young family [and] a mortgage. I kind of wanted to de-risk a little bit my second start-up and try and give it as much opportunity for success as possible.”
Dogpatch Labs, in Dublin, is ranked at number four in the FT UK and Ireland ranking and at 20 in Europe’s top start-up hubs. The hub provides workspace, incubators and accelerator programmes workshops, and a matchmaking service that helps tech engineers and other colleagues find a co-founder to build a company.
The hub works with start-ups on different timelines ranging from “day zero”, when its founders quit their corporate jobs to create a start-up — to two to three years into the start-up when it is big enough to set up in its own premises and establish a business culture, says Patrick Walsh, Dogpatch CEO and founder.
Previous start-ups in the hub include Intercom, a business messaging app which has been valued at more than $1bn.
Walsh says the best hubs are usually the ones that are “entrepreneur-led” and provide start-ups with “deep connectivity” to investors and talent.
A recent trend in some European tech hubs, he adds, is to expand the range of facilities for start-ups and local communities to include retail stores and restaurants. The large, campus-style environments are similar to those at large tech companies such as Google and Microsoft.
“In France, they started with the [tech] hub, but now they’ve got co-living, they’ve got retail, they’ve got restaurants,” he says. “They’re really thinking about this entire environment for entrepreneurs, I think the best hubs, are not just big office blocks sitting on their own.”
That point is echoed by one of Dogpatch’s current members — Barespace, a Dublin start-up that makes software for hair and beauty salons.
[Dogpatch] provides so much more than an office space ,” says Conor Moules, Barespace co-founder and CEO. “From the CEO perspective, to have other CEOs around you that are doing something similar, that you can kind of spark off [is valuable].”Working with and learning from Dogpatch’s team, including with Walsh has been “kind of like a finishing school for CEOs”, adds Moules.
Investors can also benefit from the one-stop shop facilities and talent provided by top start-up hubs.
Amy Neale, a general partner at Delta Partners, a Dublin VC, which has invested in some of Dogpatch’s start-ups, says: “We spend a lot of time physically in Dogpatch, attending events, mentoring start-ups that are going through various programmes and engaging with the principals in Dogpatch so that they have a good understanding of the way that Delta operates. And we have a good understanding of their objectives and what they’re trying to do. And for us, it’s an incredible source of deal flow.”
UK and Ireland start-up hubs are well established but they are facing growing competition from Paris, Amsterdam and Munich as well as further afield.
For the UK to maintain its position as a tech start-up leader, some experts argue that it must produce more world-class “unicorns” — start-ups that have gone on to be valued at more than $1bn.
And that may require the UK’s tech hubs to consolidate, into four to five regional hubs — possibly north-west England, Bristol, Strathclyde in Scotland, London and Oxford-Cambridge — says Duncan Johnson, CEO of Northern Gritstone, an investment company focused on start-ups in the north of England.
“You need a small number of world-class [tech] ventures that you really get your shoulder behind,” he says, adding that to be successful start- up hubs should be no more than 10 miles apart. “We need more concentration of tech clusters . . . [with] more gravitational pull.”
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