The Rise of Regional Venture Capital in the UK
The UK has long been a hub for tech investment, with London traditionally attracting the lion’s share of venture capital (VC). However, as part of the government’s ‘levelling-up’ agenda, there has been a significant shift in focus towards regional VC opportunities. These emerging areas are becoming increasingly attractive, especially within sectors like fintech, providing experienced investors with new avenues for growth outside of London and the South East.
The Expansion of Regional VC in the UK
In 2021, the UK saw startups and scaleups secure £29.4 billion in investment, more than double Germany’s £14.7 billion and three times France’s £9.7 billion. Of the £89.5 billion invested into the European tech ecosystem that same year, the UK captured a third of it. As a result, the UK reached an all-time high of 25 companies achieving unicorn status in 2021, with four more joining in 2022, such as fintech company GoCardless and EdTech firm Multiverse.
Although much of the funding still circulates in London, regional investment is on the rise. A report by Dealroom in June 2022 revealed that £3.8 billion, or nearly one-third of VC funding in the first half of the year, went to startups outside of London. Seed-stage investments in these regions grew by 88%, while London saw a 22% decline in seed-stage funding.
This shift reflects growing investor interest in regional tech hubs across the UK. For example, Praetura Ventures found that equal funding for businesses outside of London could potentially boost the UK’s GDP by £92 billion. Regions such as Greater Manchester and Wales are already seeing significant investments, with initiatives like Greater Manchester’s Digital Security Hub and the Welsh Government’s £9.5 million investment in cyber security.
Additionally, 35% of UK business unicorns and ‘futurecorns’ are now based outside of London, indicating the increasing potential of regional VC investment.
Opportunities in the North East
The North East of England stands out as a region ripe for VC investment. Known for its strength in life sciences, fintech, and net-zero initiatives, the North East is home to £30 billion worth of investable projects. Durham, in particular, has gained recognition as an emerging global startup hub, with businesses like Atom Bank driving growth in the region.
The North East is also a leader in net-zero investment, receiving 28% of the UK’s total investment in this sector, second only to London. This growth aligns with the rise of Environmental, Social, and Governance (ESG) investing, making the region even more attractive to forward-thinking investors.
Fintech: A Regional Powerhouse
Fintech continues to be a key focus for VC investment, both in the UK and globally. The global fintech market, valued at £110 billion in 2019, is projected to more than triple to £380 billion by 2030. The UK is a significant player, holding 10% of the global fintech market and generating £11 billion annually.
The shift towards digital payments and cashless transactions, accelerated by the COVID-19 pandemic, has only increased the demand for fintech solutions. As a result, the UK is positioning itself as a global leader in fintech, bolstered by initiatives such as the Financial Conduct Authority’s (FCA) regulatory sandbox.
Although London remains the epicenter of fintech activity, other UK cities like Manchester, Leeds, and Edinburgh are emerging as key fintech hubs. According to the Kalifa Review of UK Fintech, these regions are home to a growing number of high-growth fintech startups. The review highlighted that Manchester and Leeds collectively boast over 135 fintech companies, with specializations in lending, payments, and RegTech.
The Growing Importance of Regional Fintech Hubs
Several UK cities outside of London are rapidly developing their fintech sectors. For example, the North East has seen impressive growth, with the number of fintech startups increasing by 81% from 2019 to 2022. This growth has been supported by initiatives such as the North East FinTech Strategy and substantial investments in digital skills, innovation, and infrastructure.
The North East’s rise as a fintech hub is part of a broader trend of regional growth, with the area contributing £312 million to the UK economy in 2021. By 2025, this is expected to increase to £431 million. This surge has been driven by small and medium-sized enterprises (SMEs), which have created high-income jobs and boosted local economic activity.
The Future of Regional VC and Fintech Investment in the UK
The UK’s fintech revolution is far from over. With the fintech sector set to exceed 3,200 companies by 2030, the rise of regional hubs will continue to play a significant role in the country’s economic recovery and long-term growth. As a result, regional VC investment opportunities are becoming increasingly attractive to sophisticated investors.
Investing in these high-growth regions offers both strong potential returns and the opportunity to drive broader social and economic benefits. The rise of regional fintech hubs outside London could contribute to greater economic diversity across the UK, while also offering a chance for investors to capitalize on emerging sectors poised for rapid growth.
In summary, regional venture capital is no longer just a London-centric activity. The growth of fintech and other tech sectors in regions like the North East, Greater Manchester, and Cardiff presents an exciting opportunity for investors looking to diversify their portfolios and achieve superior returns. The UK’s venture capital ecosystem is evolving, and with the right focus on regional hubs, investors can benefit from the growth of these emerging areas.
