As software chief Matthew Scullion spoke to a room of capital market bigwigs at the London Stock Exchange last summer, there was an audible intake of breath.
Scullion – a member of the Julia Hogget-led Capital Markets Industry Taskforce – had just revealed that of the $305m (£243m) his software firm Matillion had raised from investors, just $5m (£4m) had come from the UK. The rest had been pumped in from cashed up investors overseas.
The huge gap laid bare the scale of the challenge facing the UK as it looks to unlock a wave of cash from investors and allow high-growth tech companies to attract the cash they need to grow domestically.
“The aggression and ambition and play book that you learn from [raising money in the US] is, from what I’ve seen, completely different the way that we generally go about it in the UK,” Scullion warned.
Those fears look as if they have reared their head again this week as Wayve raised the largest AI-related funding round in UK – and European – history.
The record $1bn (£837m) investment was, understandably, trumpeted as a Great British business success story. The Cambridge-founded firm, which develops autonomous driving technology, is a genuine market leader in a sector that could define future mobility. And the fact that its potential was being recognised with such a punchy investment round was—to quote Rishi Sunak—a reflection of the UK’s status as an “AI superpower.”
Missing: British late-stage capital
However, one thing was immediately obvious from a cursory look at the big names that backed it in this round—Softbank, Nvidia, and Microsoft—was the lack of any UK-based investors.
“Wayve’s recent round is a watershed moment for the UK to show that we can build brilliant tech companies that attract global interest,” said Gerard Grech, managing director of founders at the University of Cambridge and former CEO of Tech Nation. “However, it does demonstrate that there is a lack of growth capital available in Europe and the UK. If companies want to grow, they invariably have to raise from the US and Asia.”
The extent to which fundraising has dried up in the UK was crystallised in a recent report from the British Private Equity and Venture Capital Association (BVCA).
In research released last Wednesday (7 May), the body found that both the amount of investment private businesses were able to attract and the numbers involved in UK-led investment rounds had plummeted by nearly 50 per cent since their recent high water mark in 2021.
The study found that the problem is especially pronounced in the later-stage markets, which tend to be slightly less risky than earlier “seed stage” funding rounds but, as a result, tend to involve larger sums.
“The amount of capital needed to build a global autonomous vehicle technology is considerable, so we should not be surprised by the involvement of global investors like Softbank, who also bring amazing contacts,” says Sahar Meghani, Partner at Visionaries Club, an early-stage venture capital (VC) fund. “The low availability of late-stage capital in the UK is not holding British companies back, but it does mean that they know they need to look overseas for deep pools of investment as they scale.”
Brent Hoberman, the founder of Lastminute.com, used an otherwise boosterish column about Wayve in The Times to raise similar concerns about the state of our late-stage capital markets.
The entrepreneur, who has since gone on to set up the venture capital firm Firstminute Capital, dubbed the absence of funding domestically a major “hurdle” to the UK becoming a “global hotspot” for promising sectors like AI and quantum computing.
Hoberman does have skin in the game. Along with the Edinburgh-based investment shop Baillie Gifford, Firstminute is one of the only British investors in Wavye, having backed the autonomous driving firm on three different occasions during earlier funding rounds.
Moreover, the ill effects of the late-stage funding dearth in the UK are unlikely to be restricted to just the private equity and venture capital industries, even if, in Meghani’s view, they won’t hold UK firms back.
As companies expand, having a core investor base that is mostly abroad and only a small UK footprint is unlikely to result in them feeling any especially close ties to their native market. This can result in a gradual and sometimes sudden disconnect from its native market if a firm opens a major new office or produces a product for a certain market.
For Meghani, this is particularly worrisome when – as with Wayve – a significant proportion of the firm’s investors are from across the pond. “What is more concerning is that when most of [a company’s] investors are from the US, there is huge pressure for them to list there,” she says.
“Ultimately that means the benefits that come with a UK headquartered and listed company – in terms of creating value for investors and taxes – is lost to the US.”
Indeed, such is the cause for concern among those in the private capital space, that the BVCA recently published a manifesto of policy demands to help get its sector firing again.
Is Wayve assessing its options?
By Wayve’s own admission, international expansion is already on the cards. In April, the firm announced it was opening a new office in Vancouver that will be led by the firm’s chief scientist, Dr Jamie Shotton. It also appointed a President based in Israel in March and set up an office in the San Francisco Bay area, which has become synonymous with innovative tech start-ups and the venture capital money to back them.
City A.M. understands the decision to set up in Vancouver, and many of its international plays to date were made with the intention of attracting the best talent. Canada has particularly favourable immigration policies, a source said, which will allow it to attract the best staff not just in the country but across the world.
Despite this, the firm is believed to be adamant about remaining headquartered in the UK, even if, as its CEO and co-founder Alex Kendall has been forced to look overseas for sufficient mentorship as his company matures.
