Investment in UK start-ups has fallen to a post-pandemic low, leading fledgling technology groups to consider moving their headquarters to the US in the search for capital.
Figures from research company Dealroom showed that British start-ups raised just £16.2bn in 2024, the lowest haul since 2020. By contrast, Silicon Valley peers raised more than £65bn over the same period, up 71 per cent from 2023.
The chief executives of several UK start-ups told the Financial Times that the desire to attract American investors had already pushed them to incorporate in the US, despite being based in London.
“Recognising that most venture funding comes from the US, we set up as a Delaware corporation — the preferred and familiar structure for US investors,” said Mati Staniszewski, co-founder of AI group ElevenLabs, which was valued at $3.3bn in January this year.
Of the 70 UK-founded, venture-backed tech start-ups now headquartered in the US, almost a fifth were incorporated after 2020.
The trend comes as Sir Keir Starmer’s government points to the burgeoning AI sector as a potential route to economic growth, with start-up founders and investors saying the quality of British engineers and tech staff are a match for their American contemporaries.
But fledgling companies warned that difficulty in accessing capital was holding UK businesses back from competing with global peers. In the past, leading British tech groups, from DeepMind to Arm, have also been acquired by much bigger international investors.
Barney Hussey-Yeo, whose London-based AI start-up Cleo has raised $140mn since founding in 2016, said he was considering moving away from the UK. He said the draw to move to the US was getting “stronger and stronger every year”, pointing to a better investor mindset and the British government’s recent decision to increase capital gains tax.
Hussey-Yeo, who already spends four months of the year in San Francisco, said: “You get to a certain size where there is no capital in the UK — and the problem is getting worse,” he added. “Honestly, the UK is kinda f***** if it doesn’t address [the problem].”
Alex Macdonald, who recently launched his second start-up, Sequel, chose Miami as its headquarters with a UK subsidiary in a structure designed to avoid relocation later down the line.
“I’m an investor as well. My advice to founders right now is to incorporate in the US with a UK subsidiary as you get better access to capital, while getting benefits of UK talent at a much lower [hiring] cost,” he added.
Macdonald, who hired most of his operations team in London, said that talent in the UK is on par, if not superior to the US, as well as being in a far smaller geographic area.
“The UK is a great place to start a business, but we need to see changes, such as encouraging pension funds to invest in venture capital, to encourage further start-up growth,” he added.
The UK’s pension industry has historically been reluctant to invest in private markets compared with counterparts abroad. A study by New Financial, a think-tank, last year found that UK pension schemes invested just 5 per cent in private equity — lower than US equivalents.
Last month, UK pensions minister Torsten Bell told the FT he was pushing retirement funds to invest more in private markets as part of wider government plans to improve performance and consolidate £1.3tn of UK pension assets.
Two UK-educated founders in their early 20s, Timon Gregg and Kylin Shaw, said they incorporated their companies in the US because of better investor and customer attitude.
“US customers and investors are quicker and more willing to try things — the level of ambition is just different,” said Gregg, who incorporated his AI insurance business Strala in San Francisco last year.
Shaw, whose health-tech company, Hippos Exoskeleton, also moved to San Francisco, said: “The mentality is different — people are willing to take risks.”
Dealroom’s research showed that last year, 57 per cent of global venture capital went into US start-ups, above 50 per cent for the first time in a decade, with investment growing 30 per cent since 2023.
By contrast, UK start-ups received just 4.8 per cent of global funding, with total investment down 11 per cent over the same period.
Antony Walker, deputy chief executive at TechUK, said the nation was “at risk of losing its brightest companies to international markets” if more was not done to fix the widening “investment gap” with the US.
“Without action, many high-potential SMEs will consider relocating overseas, costing the UK jobs, tax revenue, and economic growth,” he added.
Dom Hallas, who founded the StartUp Coalition, an industry group, said the UK was a victim of its own “partial success”.
“We’ve built a tech ecosystem that is worth it for American and other international investors to scour for founders,” he said. “We need a real plan to incentivise them to stay.”
