First the bad news, then the good. The UK economy has contracted far more than its peers during the pandemic - GDP shrunk by 20% from lockdown #1 to lockdown #3, against an OECD average of a 10% decline. That's according to figures presented by Chi Onwurah, MP, Shadow Minister for Science, Research, and Digital, who chaired the first session* of a Westminster eForum on supporting trade and investment in UK tech.
Her implication was clear: Brexit and COVID-19 have dealt a double blow to a country that has been adrift from its allies since the 2016 referendum. Meanwhile, some politicians' promise of borderless trade with the EU continuing post Brexit has been exposed as a fantasy - and a dangerous one at that, data adequacy notwithstanding.
But the digital sector has a different, more upbeat story to tell, albeit one that is hard to isolate from the background noise about our response to the pandemic, as we are pushed towards mobility, remote working, cloud platforms, and collaboration tools.
Onwurah - a former telecoms engineer with global experience in software, hardware, and technology strategy - said:
I've long argued that government needs to do more to ensure a speedier and fairer transition to a digital society, and the pandemic has proved to be an unexpected catalyst for that.
But what about the impact of the pandemic on tech investment? The UK was already a global leader before the pandemic. London based tech companies attracted £3.2 billion [$4.45 billion] of investment in the first half of 2020, outperforming Paris, Stockholm, Berlin, and Tel Aviv together. Not a lot of people know that.
But still too many start-ups across our country face the so-called ‘valley of death', and too many have to seek funding abroad.
She was referring to the venture capital gap that still sometimes occurs in the UK. Its 81% services-based economy is largely backed by a traditional investment culture - one that tends to be risk-averse about new technology, at least when compared to the US portfolio approach (aka ‘invest in 100 companies and one big success outweighs 99 failures').
Some good news
In the UK, it is relatively easy to secure modest seed, angel, or Series-A funding for digital ventures, and there are massive sources of institutional private equity available at the other end of the scale. But a handful of VC-attracting unicorns aside, the vital piece in the middle - investment at the millions to tens of millions level to help fledgling businesses build and scale - is often absent. For many innovators, that is the missing rung on the ladder to success.
In the past, UK start-ups have often looked to Europe to grow their customer bases, and to the US West Coast to hit the big league in an English-speaking market. The former route is now more difficult, and the latter perhaps more wary of the UK's political isolation.
But Gerard Grech, CEO of UK entrepreneurs' network Tech Nation, believes that the UK has become more attractive to investors and technology innovators, not less, over the past five years. In an optimistic presentation - something the UK could do with more of, if the message is rooted in facts - he reeled off numerous positive statistics, while singling out the AI, fintech, and Net Zero sectors for praise.
For example, 2020 UK investment in tech was the third highest in the world, hitting a record high of $15 billion. This year looks set to notch up more records, with $8.3 billion invested in Q1 alone. UK deep- or hard-tech investments rose by 17% last year, the highest rate of growth in that market worldwide.
There was more good news: monies raised via tech and consumer Internet IPOs doubled between 2018 and 2020 on the London Stock Exchange, with more flotations in the offing this year.
In 2019, the UK was the fifth biggest digital services exporter in the world and has seen those exports rise by 25% since 2015. The UK is also "more attractive to international investors than ever", he claimed: in 2020, 63% of investments in UK technology came from overseas, up from 50% in 2016.
But those figures don't tell the whole story. 2020's $9.4 billion in venture capital invested in the UK from overseas actually represented a year-on-year decline of nearly $1 billion, while digital services exports also fell significantly against the previous year.
So, while the five-year trend from 2016 has been positive, and there are good reasons for optimism about the digital sector compared with the wider UK economy, it is too early to tell how big a factor any COVID-19 bounce, or dip, may have been from one digital market to the next. We are still in the woods, so counting trees only tells us so much.
It is also too early to say whether overseas investment is motivated more by tactical asset stripping in the market for bright ideas than by investors making a long-term strategic bet on the UK. After all, there is a world of difference between an economy that's ‘on fire' and a fire sale.
But there is much to celebrate, said Grech:
In 2018, a tech business was born in the UK every 60 minutes, but in 2020, one was born every 30 minutes […], which is a good thing, because obviously that will mean an acceleration of job creation in the sector.
The contribution of jobs in technology is very significant now: it has reached 2.9 million roles across the UK, which is approximately nine percent of the total UK working population.
Aside from deep tech (including robotics and AI) and fintech (in which the UK is world number two after the US), so-called ‘impact tech' is emerging as another hotspot, as organisations look for help in hitting the UN's Sustainable Development Goals (SDGs) and the UK's Net Zero target.
Over the last two years, investment in impact, which includes green tech, has tripled in the UK. The green-tech sector specifically saw an increase of 81% between 2018 and 2019, and then a 63% increase between 2019 and 2020 to reach a total of £1.3 billion [$1.8 billion], which is really staggering.
Indeed. But for Microsoft's UK Government Affairs Manager Simon Staffell, the key opportunities lie in broader areas, driven by the UK's fast-evolving trade policy:
We're seeing this acceleration opportunity in a whole range of ways, whether it's new business models from hybrid working, new applications of technologies like AI, or new uses of data creating different business models, opportunities, and insights. That acceleration has been quite staggering over the last year.
The value of data
The UK has real opportunities on the world stage in the ethical sharing of open data, he added:
The UK can really play a leadership role, given the perspective that it has tended to have on getting the balance right between data sharing, openness, and safeguards. But equally, it's important that there's a focus on the equitability of that data and the democracy of that data.
Whose data is it and who's benefiting from it? That needs to be our first and ongoing question when we're applying some of these new models and new approaches to using data.
The global impact of COVID-19 has made it clear just how valuable data can be, and how integral it is to the recovery stage, and to some of the future opportunities that can arise out of rapid digital transformation.
To fully realise the benefits of this, data policymakers need to work with industry, academia, and civil society, to develop new kinds of initiatives that think about how we share public and private sector data responsibly across organisational boundaries, across national boundaries. Initiatives that maintain principles of adherence to the rule of law, safeguard human rights, and allow for effective data use and innovation.
Trade policy is clearly a key part of that, but it's actually much broader than that: thinking about how national policy writ large is best geared towards open data and finding opportunities for the UK.
How best can government, and can we, support the growth of new companies whose business models are based in someone's bedroom and in the cloud, and don't require public infrastructure? In that context, what is public value? What does government investment in public value mean in that world?
A good question. Historically, public investment has tended to focus on civic infrastructure and the built environment, rather than on building out into the virtual world from an entrepreneur's garage. Yet every one of us has benefited from digital services over the past year.
However, the spectre of Brexit still lurks at high table and raises issues that need urgent clarification. One of these is another potential funding hole, observed Dr Leslie Kanthan, CEO of TurinTech and Managing Director of DataSpartan. They said:
Some of the things that have been helpful in the past could be more emphasised, such as Horizon 2020 grants and Innovate UK funding. Horizon 2020, which we have won ourselves, was largely an EU-based grant. And obviously, there are a number of changes that have taken place in the UK [since then].
There's some uncertainty over this type of grant in the future, which many deep-tech firms rely on, because it allows for collaboration with universities, which is pivotal for deep tech. Much of deep-tech originates from IP and proprietary research that is spun out from universities, so that's an important challenge.
The European Commission addresses these concerns on its website, saying:
The UK is expected to soon become an associated country to the EU's R&I Framework Programme Horizon Europe [which replaces Horizon 2020]. The UK will therefore have the same rights and obligations as other countries associated to the Programme.
This should mean that universities, research centres, and businesses will be able to participate in first calls for proposals to Horizon Europe. However, whether the UK government has plans - or the cash - to fill other funding holes left by Brexit is unknown, given the unprecedented decline in the economy.
The impact of Brexit
That aside, how much of an impediment has Brexit been to the digital sector? And how big a problem might it be in future, once data adequacy has been fully established and UK trade policy has added some specifics to the rhetoric emanating from Whitehall?
Most delegates agreed with, and shared, the perspectives offered by UrbanTide CEO, Steven Revill. He said:
Brexit has had an impact practically in terms of us needing to set up a proper office in Europe. We didn't have to do that before, of course. Also, politically for our Irish contracts, I think there's an additional barrier to giving [business] to a UK organisation. We've felt that a little bit.
From a legislative point of view, I think the big thing for us in our company is getting more data released. I'm really worried about where the European Open Data Directive lands and how it comes through UK government, because I haven't seen anything about it.
EU members states must transpose the Directive into law by 16 July this year. Although the UK has left the EU, of course, it remains Britain's largest trading partner. And - as Revill and other speakers explained - many UK companies are setting up shop in Europe, in some cases moving headquarters there to avoid the obstacles created by Brexit. As such, they are subject to EU laws and regulations.
But away from the UK's unique political challenges as it emerges from lockdown into a messy, uncertain future, another problem holds the tech sector back from reaching its full potential. Onwurah called it out in her opening address:
The UK can become the best place in the world for tech to attract investment, grow, and answer the problems facing society. But to do that we need to unlock the potential of everybody. One of the reasons I went into engineering myself was because I saw - and see - that technology is democratising and enabling, so I'm a tech evangelist and proud of it.
But tech, unfortunately, remains the preserve of one demographic. The proportion of women in tech roles has flatlined at 16% since 2009, and just four percent of the UK tech workforce is currently Black and Asian minority ethnic. How can technology meet the needs of all of us, if it is built by so very few of us?
We certainly need more action from government. So, I was disappointed to see that the Department for Digital, Culture, Media, and Sport, in its tech priorities published in March, failed to mention diversity. I emphasise daily the fantastic technology we could have if everyone's shoulder was to the wheel of innovation.
That also impacts the resilience, openness, reach, and humanity of the tech sector. Diversity is not a ‘nice to have' or a tick box; it is a necessity.
Wise words from a rare figure in UK politics: someone who has walked the walk in the tech industry herself, and not just talked the talk.
*: This report is based on the first session of a two-part conference that took place on 30 April.