At the end of last year Dealroom, Lakestar, and Walden Catalyst delivered their third annual report which noted that the deeptech was one of Europe’s most resilient sectors in 2023. By the numbers, between
2018 and 2023 there has been a dramatic increase in the establishment of deeptech hubs around Europe, with London alone attracting $12.8 billion, followed closely by Stockholm at $10.3 billion, Paris with $7.7 billion, Munich $4.9 billion, and Oxford and Cambridge who jointly garnered $9 billion.
Now, a report published by the Royal Academy of Engineering Enterprise Hub highlights that the UK is home to nearly 3,500 active deeptech companies, with 87.2 percent based in England (London, the South East, and the East of England). Within the UK ecosystem, the report cites 591 active deeptech spinouts hailing from 68 universities.
The golden triangle
The majority of the deeptech companies are based in England (87.2 percent), with a concentration found within the UK’s golden triangle (Oxford, Cambridge, and London), due not only to access to world-renowned universities and research institutions but also the proliferation of investors and high-quality talent pools.
Well established as a deeptech innovation hub, Scotland is the next most populated country for deeptech companies (282), however the Royal Academy of Engineering Enterprise Hub also highlights growing activity in Wales and Northern Ireland.
The report also shows that with nearly 600 deeptech companies spun out of 68 universities between 2013 and 2022, the UK has become a thriving incubator for deeptech startups. These spinouts have proven to be an attractive investment opportunity, securing £7.02 billion in equity investment between 2013 and 2022. Interestingly, this figure accounts for 35.5 percent of the total equity investment secured by deeptech companies in the same period.
Cleantech and AI
With climate and energy solutions becoming an ever increasingly important topic among tech companies, so too is the interest from the UK’s deeptech sector. The most popular subsector is cleantech with 517 deeptech companies. The subsectors of clean energy generation (254) and energy reduction technology (193), although not among the top 5, contribute to the popularity of this topic but also to the varieties of programmes that support the commercialisation and implementation of clean energy technologies.
As to be expected, the field of artificial intelligence represents a major opportunity for deeptech development in the UK, with 504 AI-based companies established at the time of the survey. The potential of AI has been recognised by the UK's government, which aims to take a pro-innovation approach to regulate AI to empower researchers and entrepreneurs to drive the technology while taking a proportionate approach to regulating the risks of AI.
Investments in the UK deeptech
As noted in the report, over the last 10 years, equity investments in the UK deeptech sector have grown from £174 million to more than £5 billion.
Among the top European investors are Scottish Enterprise (with 178 participations), Crowdcube (147), and Seedrs (129).
Additionally, Oxford Science Enterprises (92) and the University of Cambridge Enterprise Fund (59) also feature among the top deal participants. The importance of their participation lies in the fact that they both focus on spinout companies from their namesake universities. Thus, their presence highlights the critical role of universities as a breeding ground for deeptech innovation but also the importance of academic-industry collaborations in driving technological advancements and economic growth.
When it comes to foreign investments, US-based investors have the lead role, with many establishing offices in London.
The report also stated that between 2013 and 2022, UK deeptech companies saw an increase in grant funding, with the total value rising from £5.42 million to £320 million (with also an increased number of grants from 75 to 926).
UK-based deeptech companies have demonstrated extensive use of various accelerators to foster growth and commercialisation efforts, with the Innovation-to-Commercialisations of University Research (ICURe) accelerator programme taking the top slot at 118 instances.
Innovation policies and initiatives
The support of innovation policies and initiatives, a favourable regulatory environment, and talent development are very important for encouraging the sector's development. Thus, the report lists several initiatives that have the potential to encourage further development of the deeptech sector in the UK:
- The UK Innovation Strategy whose ultimate objective is to establish the UK as a global innovation hub by 2035.
- The Advanced Research and Invention Agency (ARIA) - an independent, scientific research funding agency sponsored by the Department for Science, Innovation and Technology which aims to support research into transformative technologies to further the UK’s position as a research and innovation leader.
- The Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) represent the tax incentive programs in the UK aimed at encouraging investment into early-stage businesses.
- Various area-based initiatives aimed at addressing regional disparities, driving economic growth, and fuelling innovation.
The full report can be found here.
Lead image via Royal Academy of Engineering Enterprise Hub.