Sector trends

Opportunities ahead for UK tech start-ups

The impact of coronavirus on the UK economy is potentially long lasting, but there are early signs that the tech sector will see a number of new opportunities emerge from the crisis.

According to data collated by Tech Nation for the Digital Economy Council, tech start-up founders raised $5.3bn in venture capital finance between January and May this year, almost matching the $5.4bn raised during the same period in 2019, which turned out to be a record year. The figures suggest 2020 could be another strong year for UK tech start-up growth, despite coronavirus. The sector’s strength is certainly something the UK government aims to advertise to the rest of the world. Last month, international trade secretary Liz Truss announced a new internationally focused strategy for the UK tech sector. The Future Tech Trade Strategy includes a range of measures to help boost tech exports and attract foreign investment to the UK’s tech scene. 

Boosting the tech sector

The strategy represents further support for a sector that the government has taken steps to safeguard against the damaging economic consequences of the pandemic. The £1.25bn coronavirus support package for businesses, announced by chancellor Rishi Sunak in April, is designed specifically to protect firms including start-ups that are faster growing and more innovation-focused. It includes a new £500m loan scheme for high-growth companies called the Future Fund, and £750m of support for SMEs focusing on research and development (R&D) projects. 

But the extent to which these measures can continue to create opportunities for UK tech start-ups remains to be seen. Some are sceptical that government attempts to prop up businesses and propel them through the coronavirus crisis have only amounted to knee-jerk reactions, and it won't be enough to help high-growth and evolving areas of the economy, like the tech sector, to really thrive. 

In order for the sector to maximise opportunities going forward, the government needs to keep its finger on the pulse of UK tech, says David Dunn, CEO at Sunderland Software City tech hub in Tyne and Wear, and chair of the UK Tech Cluster Group. This involves recognising the changes going on in the sector and providing more targeted support to those areas and sub-sectors that need it most. 

“There’s a risk that some of the government’s funding won’t reach the companies it needs to reach, because a lot of it will just go to companies that have won Innovate UK grants before. I completely understand why the government needs financial mechanisms that will support as wide a range of businesses as possible, but when you start to look at the economic recovery and the need to ‘level up’ across the country, some of their ideas don’t work,” he says.

“When I look at my area in the North East, for example, there are lots of companies that are either already in the tech sector or are now moving further into ‘digital’ that need support more than ever. Three months ago, they might never have become digital companies, but now they’re facing collapse and being forced to innovate. These are businesses that historically wouldn't have looked to Innovate UK for help. But now, funding needs to be made more accessible for companies that weren't previously on Innovate UK’s radar.” 

Helping businesses manage digital adoption

According to Dunn, many of the opportunities in the tech sector will come from meeting demand for greater digital adoption among firms in traditionally non-tech sectors. “It will be about balancing supply and demand in tech,” he says. 

Any tech that solves the problem of identification, or verification, or fraud reduction will be highly sought after

Brad Hyett
CEO, Phos

“Suddenly, there’s all these companies that would probably never have touched technology with a barge pole wanting to do as much as they can digitally. They now realise they can drive efficiency, productivity and customer engagement through greater use of digital. The key will be to connect those two areas – the technical and the non-digital – to increase digital adoption overall.”

Brad Hyett, CEO at UK fintech start-up Phos, expects the coronavirus crisis to lead to a surge in start-up launches  across the sector, as larger companies struggle to keep pace with even faster-changing demand for tech. “Established businesses have so many moving parts, and so many balls in the air, that when sudden shifts in the economic environment like this happen they’re not able to react quickly enough,” he says.

“Start-ups tend to be more agile and specialist. And they don’t necessarily have an appetite to steal customers away from you. I think we’ll start to see these types of businesses pop up rapidly now more than ever.” 

Hyett adds that any redundancies at larger tech firms resulting from coronavirus are likely to add to this start-up momentum. “The next three to six months are going to be interesting. There will be many rounds of redundancies, and you’ll get a lot of highly skilled people – who are already plugged into investors – launching new businesses in any areas in the market where they recognise a strong need.”

Identifying a need

In terms of the tech sub-sectors where innovation is most likely to be needed, and where start-ups may see better opportunities to step in and meet demand, Hyett identifies medtech and insurance tech (or ‘insuretech’) as particular areas to watch. 

“Any tech that solves the problem of identification, verification or fraud reduction, or anything like that, will be highly sought after. Technologies that solve proof-of-age, or proof-of-delivery issues are becoming so much more important now too, as more and more of our daily processes are being done remotely,” he adds. 

But Dunn believes it would be a mistake for tech entrepreneurs to choose this particular moment to jump headlong into an area of the sector – like medtech or retail tech – that’s received lots of attention during the pandemic. Instead, his advice for start-ups is to focus more on the longer-term recovery from coronavirus. 

“I would be looking more at what comes after,” Dunn says. “Clearly, there’s a need at the moment for technologies that make queuing at supermarkets easier, or enable better social distancing in shops. But how long will those be needed for? Six months to a year? 

“I think the leisure industry is where the biggest challenges and opportunities are for tech companies. The need to build tech into spaces where people meet socially, like restaurants and pubs, will increase. The desire to interact and socialise will never go away, but we’ll need to do it safely. That’s where tech can step in.” 


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