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The writer is co-founder of BlankPage Capital, co-founder of Graphcore and author of ‘How AI Thinks’
It was a small company based in London that started the race to build the world’s most advanced artificial intelligence. DeepMind, founded in 2010, pioneered deep-learning AI and is working towards human-level AI. But its acquisition by Google in 2014 means that the company’s breakthroughs are largely benefiting the US, not the UK. As the AI race intensifies, the UK needs to find a way to build its own large-scale tech companies.
The usual conversation is about ways that the country can bridge the funding gap and encourage innovation. But this is not where the problem lies. The UK is world class at creating technology companies, often via spinouts from our universities. In 2023, according to figures provided by database company Dealroom to investor Phoenix Court, Bay Area seed and early-stage companies (those raising between $1mn and $15mn in funding) raised $4.5bn. The equivalent companies in the UK raised $4.1bn. So the UK is not far behind at the earliest start-up stage. This first link in our innovation ecosystem is not broken.
Yet by the final start-up stage, where these companies need to raise $100mn or more in funding to drive growth, US businesses are way ahead, raising five times as much as their UK counterparts. What is it that goes wrong in between?
The answer lies in the all-important middle stage, known as early growth, when companies have built a team and a product and are trying to expand into global businesses. In 2023, Bay Area early-growth stage companies received nearly two times the funding of their UK counterparts — at just under $14bn compared to just over $7bn.
DeepMind was passing through exactly this growth stage when the co-founders decided to sell their business and gain access to the resources that were available as a division of Google. Last year, I sold my AI chipmaker Graphcore to Japan’s SoftBank for exactly the same reason.
UK policymakers are focused on funding, pouring energy into reforming capital markets, corralling pension funds to invest in UK companies and putting more state funds into venture capital — including the new £500mn Sovereign AI Unit announced in July.
This is all helpful. But the answer isn’t money — or rather, it isn’t just money. Yes, access to capital is critical. But to attract more conservative, late-stage, global private capital, UK tech companies must be mature enough to show commercial traction, the potential for massive revenue growth and the ability to generate future profits. What is holding them back is a lack of the right kind of support to connect their businesses to customers and to turn them from technology start-ups into true commercial entities.
If your company has access to Silicon Valley investors and your early-growth stage funding is led by Benchmark Capital, Andreessen Horowitz or one of the other leading tech VC firms, you get more than money. These firms will provide access to senior leaders at the biggest tech companies, many of which they funded. You will receive help from partners who built their own global businesses and are highly connected to the market.
This is the type of support we must offer in the UK by replicating the Silicon Valley ecosystem of specialised support for early-growth companies. Founders who have built their own tech companies must pass on their experience. VCs must double down on this part of the innovation ecosystem and help early-growth tech businesses win deals in international markets and connect with expert mentors who have scaled and exited major companies.
The UK has the potential to lead in AI, just as we do in fintech. But to do so, we need to build a new base of VCs. It is their expertise that will help our most promising tech companies find global success.