UK’s AI sector booms – but can the country hang on to its startups?
The UK tech sector is now worth an eye-watering $1.3 trillion, with AI firms alone hitting a combined market valuation of $230 billion in the first quarter of this year.
UK AI startups raised $1.03 billion during the quarter – the biggest fundraise in three years – according to this year’s Tech Nation Report from the Founders Forum Group. Indeed, during 2024, AI startups accounted for 27% of all UK venture capital raised.
Most investment is going to companies in the enterprise software space – $4.1 billion over the past two years – with VCs investing more in business-to-business AI solutions than in consumer tech. And London raised more than ten times as much as any other UK region during 2024 – although the North West and Scotland did well too.
The $230 billion market valuation makes the UK bigger than France and Germany combined – Europe’s largest AI market, and third in the world after the US and China, and with a compound annual growth rate (CAGR) of 22% over the last five years.
A lot of this is down to ARM, valued at $118 billion, although even when public companies are excluded, the UK AI sector is more than 55% bigger than its closest European competitors.
However, it’s not all good news. AI startup leaders said they were struggling with access to capital and talent, with one-in-three saying they were actively considering relocating their company’s headquarters outside the UK.
“While the UK excels at startup creation, we struggle to retain our most promising companies as they scale,” said Carolyn Dawson, CEO of the Founders Forum Group.
“Homegrown AI champions like Wayve, Darktrace, and Deepmind must turn to the US for investment and exit opportunities.”
Half of AI startup leaders said they wanted to see the introduction of government-backed funds, along with policies to directly reduce the cost of talent, such as tax credits or other incentives, along with better policies on immigration and remote work.
“To help AI companies scale, the government should expand visa access for critical AI skills by streamlining work visas and allowing AI graduates to stay longer, similar to Canada’s Tech Talent Strategy and France’s Tech Visa, which attract top tech talent,” said Husayn Kassai, founder and CEO of Quench.ai.
“They should also allocate a percentage of government procurement budgets to startups founded in the past five years, following the model of Israel’s Innovation Authority, which funds early-stage companies to drive national AI leadership.”
These changes, he said, would help UK startups retain talent and get a fair crack of the whip at public contracts, rather than being locked out by legacy vendor restrictions.
“The UK has the potential to lead the global AI revolution,” said Dawson.
“Our task now is to create the conditions where our companies can thrive and scale without looking elsewhere, and to champion, connect and support the innovators who are building our AI future right here in the UK.”
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