As a new financial year begins, investors all over the UK will be critically assessing their investment portfolios.
As the country still battles high inflation, a cost of living crisis and high interest rates, it will be interesting to see which sectors investors see as the most economically resilient. Last year, AI seemed to take the crown, as Statista reports that worldwide spending on AI-centric systems was estimated at $154 BN in 2023 across all industries.
Let’s see what (and where!) investors are eyeing up this year.
Where are the UK’s biggest startup hubs?
Whilst investors tend to allocate their money globally, there’s no doubt that some will also be looking on home soil for new opportunities to boost their portfolios.
While London continues to be a major hub for startups, other cities across the UK, such as Birmingham and Bristol, are also seeing significant economic growth. These cities are becoming the birthplace of a wide array of startups, making the UK an even more appealing economy to invest in.
But investors aren’t just looking for good ideas. Investors are becoming more selective, focusing on startups with strong business models and the potential for high growth and disruption.
So let’s hear it from the experts: Which sectors are investors most interested in this financial year?
Our Experts
- Antony Baker, Principal at Claret Capital
- Anthony Chow, Co-Founder at Agronomics
- Johanna von Herman, Vice President & Head of Customer Excellence at ACE Alternatives
- Sam Simpson, Angel Investor And Co-Founder at Founder Catalyst
- Khalid Machchate, Forbes 30 Under 30 and Investor
- Ted Dillon, COO at Clean Energy Ventures
- Ivan Nikkhoo, Founder and Managing Partner at Navigate Ventures
- Artem Sokolov, General Partner At Venture Studio and fund SKL.vc
- Giles Moore, Regional Development Manager at Par Equity
For any questions, comments or features, please contact us directly.
Antony Baker, Principal at Claret Capital
“AI is and will continue to see huge interest across the European ecosystem. Outside of that climate, energy and sustainability companies continue to garner investor focus – the sector had a strong 2023 and contributed significantly to VC investment across the continent. More and more businesses seem to be gaining good traction here – which is not surprising when innovative technology businesses tackle high profile, current issues like emissions targets, zero carbon and energy pricing, all of which need investor backing to scale.
“Fintech, after a tough couple of years looks to be rebounding, albeit maybe less so with hypergrowth and more so with an eye on value creation and efficiency, and based on good fundamentals. Defence, whilst historically not having a particularly strong fit with VCs, is probably seeing a bit of a shift – fuelled by global tensions and Government backlogs, demand for advanced defence technologies should theoretically be at an all-time high in 2024 (despite it being a very complex space).”
Anthony Chow Co-Founder at Agronomics
“Cellular agriculture involves harnessing biomanufacturing to produce agricultural goods from living cells and single-cell organisms in a process wholly disconnected from conventional agriculture. This encompasses cell culture for meat and seafood production, precision fermentation for dairy and egg proteins, and associated enabling technologies.
“The cellular agriculture industry is expected to see significant technical and commercial advancements in the next few years. We’ve already witnessed numerous companies securing substantial funding rounds and regulatory approvals in multiple jurisdictions. Companies in this category are emerging as the ‘first wave’ within the sector to receive regulatory approval and move towards commercialisation.
“Precision fermentation, wherein microbes are engineered to generate specific proteins, has been employed in food ingredient production since 1990, when the FDA approved microbial rennet for cheese making. Today, 90% of rennet is produced via precision fermentation.
“Thus, precision fermentation ingredients have already been integrated into supply chains and used to stabilize prices and address unreliable sources of animal protein. The challenge companies face now is scaling production and concurrently reducing costs to be competitive with conventional animal husbandry.
“Several companies within Agronomics’ portfolio are expecting to receive regulatory approval across various jurisdictions in the next 12 months, including Clean Food Group, Onego Bio, Meatable, and Meatly. These technologies are driving significant improvements in the efficiency of agriculture, and offer solutions to address sustainability and human health, animal welfare, and environmental damage. This disruption will decouple supply chains from the environment and animals, as well as being fundamental to providing food security for the world’s expanding population.”
Johanna von Herman, Vice President & Head of Customer Excellence at ACE Alternatives
“In the dynamic landscape of the German VC market, several key trends have emerged in the past six months, shaping investment strategies and opportunities for the next financial year:
“Dual Use Opportunities: The increasing prevalence of dual-use technologies has captured investor attention, particularly in response to geopolitical tensions. Investors are acknowledging the need for military resilience in Europe, leading to a surge in funds dedicated to dual-use investments. This trend emphasises the potential for substantial returns amidst evolving security landscapes.
“Space Technology: Space technology has garnered significant interest, especially within a geopolitical context. With start-ups entering the space sector backed by VC funding, excitement mounts over the potential impact of aerospace advancements. While investments in cutting-edge tech carry inherent risks, the bets are substantial, hinting at transformative future implications.
“Fund Operations Tech: The integration of large language models and AI is reshaping fund operations, posing challenges and opportunities for both established players and smaller firms. As AI plays an increasingly significant role, competition intensifies, emphasising the importance of innovative value propositions.
“Technologies like OpenAI are not merely singularities but embedded tools, enabling access to public markets and facilitating capital-intensive ventures, with $100 million rounds becoming increasingly common.
“Bigger, Bolder Investments: With computing power and CPU demands rising, investments in advanced technologies are becoming more significant and daring. This trend reflects a willingness to allocate substantial resources to innovative ventures, underscoring the evolving nature of VC investment strategies.
“These trends highlight the evolving nature of the German VC market and increasing risk appetite, where investors navigate geopolitical shifts, technological advancements, and operational challenges to capitalise on emerging opportunities”.
For any questions, comments or features, please contact us directly.
Sam Simpson, Angel Investor And Co-Founder at Founder Catalyst
AI remains buoyant in general, though investors increasingly cynical about AI companies that are just exploiting ChatGPT or similar services due to lack of value within the start-up itself. B2C and to a limited extent B2B2C remain suppressed as a result of ongoing cost of living, inflation and interest rate impact.
2024 investors at early stages remain focussed on the path to breakeven rather than the growth at all cost mantra of 21/22.
It’s definitely still a buyer’s market, so pressure on valuation persists and term sheets remain relatively investor friendly.
The end of tax year rush, a particular crunch point for investors wishing to maximise their tax relief under the Seed Enterprise Investment Scheme and Enterprise Investment Scheme was energetic this year but it will be a long tough summer for many founders who haven’t managed to close their funding by mid-June.
Khalid Machchate, Forbes 30 Under 30 and Investor
“The global recession and geopolitical tensions were final needles to burst the VC bubble we’ve seen pre-2023. While we’ve seen receding valuations and investment amounts in Fintechs, they still constitute a considerable portion of the ongoing rounds. On the other hand, the rise of all things AI will likely be sustained beyond 2024, following the hype around generative AI and the new $40B Saudi AI fund announcement. Climate tech is also seeing increasing interest globally, both in institutional and VC/PE funding, with several major sub-trends including clean energy, mobility, and hydric resource management.
“The VC landscape is also adapting to the new valuation realities, developing better due diligence processes, evaluation metrics, and risk management tools, as LPs are getting more and more exigent towards funds. Startups need to understand this new reality and refocus their efforts on profitability with lean operations, instead of economically unsustainable growth with the expectation of unlimited VC cash raining on them just for the slightest promise of Unicorn status.”
Ted Dillon, COO at Clean Energy Ventures
“The climate-tech sector is white-hot poised for investors right now, particularly at the early stage. We’re seeing a convergence of rising demand for climate solutions, favourable policy tailwinds, and a new wave of entrepreneurs entering this space. At the top of our list are startups working to decarbonise industrial heating and cooling. Companies like Electrified Thermal Solutions are replacing furnaces and boilers with electrified fire bricks that store heat for days, and promising firms like Rebound Technologies are replacing classic thermodynamic cycles with new cooling technologies for data centres and the cold chain.
“We’re also bullish on startups developing energy solutions for the electrification megatrend. Energy demand is surging in North America and Europe for the first time in decades as a result of new demand for AI data centres, increased domestic manufacturing, and the adoption of electric vehicles. Technologies that can store energy for days, expand transmission capacity quickly, and improve commercial and industrial energy efficiency will have a breakout year. Backing breakthrough climate-tech innovators in these areas will not only be lucrative but critical to building a net-zero future.”
For any questions, comments or features, please contact us directly.
Ivan Nikkhoo, Founder and Managing Partner at Navigate Ventures
What startup sectors are investors most interested in this financial year?
The trends this year are focused on sectors poised for hypergrowth based on demographics, industry dislocations and secular inefficiencies. As expected, there is considerable activity in AI and ML as these sectors continue to lead the pack, with their transformative potential across various industries. What is new is the significant interest in the space sector driven by advancements in rocket technologies, delivery mechanisms, satellite technology and the burgeoning commercial space industry, exemplified by Voyager Space building the next Space Station.
The surge in investment in digital healthcare and telemedicine highlights the accelerating shift towards virtual care delivery and the ever-growing significance of telehealth platforms and digital health technologies. This is further compounded by the shifts in demographics, the ever-escalating healthcare costs and poor delivery of care in many areas that lack physical access and logistics.
Biotech startups continue to draw attention with breakthrough innovations in personalised medicine, gene editing and drug development like nanome.ai’s platform for drug discovery.
Quantum computing is becoming more important as computing power is the main limitation to Ai progress. Its advancement offers the potential to solve complex problems across fields such as cryptography and drug discovery. Furthermore, in line with increasing environmental concerns, sustainable energy startups are gaining traction as investors seek eco-friendly solutions to address climate change.
Artem Sokolov, General Partner At Venture Studio and fund SKL.vc.
“The following breakthrough concepts are already changing the world and have the greatest potential for VCs: AI and machine learning, blockchain, the Internet of Things, cybersecurity and data privacy, robotics, and brain-computer interfaces. Generative AI is undoubtedly the technology of the future and the most talked-about investment trend.
“McKinsey’s study reveals a staggering potential for generative AI, estimating it could contribute up to $4.5 trillion to global GDP. In 2023, investors injected a substantial $29.1 billion into nearly 700 generative AI startups, witnessing a remarkable 260% increase in their value compared to the previous year. Global corporations create their own funds to invest in generative AI projects; one clear example is IBM. Our portfolio includes international AI startups, such as virtual and voice assistants, writing support, and editing tools.
“However, not all AI startups have a chance of becoming unicorns. Last year, more than 130 AI startups emerged just in Europe, and many collapsed at an early stage. VCs keep raising the AI ecosystem, but at the same time they are looking for competitive advantages and projects that can meet the real demand in the market.”
Giles Moore, Regional Development Manager at Par Equity
“As a Northern-focussed fund, investing in hardware and software, it’s imperative that Par Equity’s focus and interests match the aspirations of the startups being created in the North. That’s why we’re so excited by the recent investment zone announcements throughout the Northern regions – as these align perfectly with our investment strategy.
“Different regions have their own areas of expertise. South Yorkshire and Greater Manchester are known for Advanced Manufacturing, for example (including advanced materials, electronics, sensors, robotics, photonics, and data analytics); West Yorkshire and Liverpool for Healthtech and Life Science, (including digital health, medical devices, big data, genomics) and Tees Valley for Cleantech/Net Zero, (including food security, agritech, 3D printing, biochips and alternative proteins).
“We are also adapting and expanding our ethos in line with new and merging sectors. We are seeing new clusters being formed throughout northern cities. In Sheffield you have the National Centre for Child Health Technology (NCCHT) for children’s health and Advanced Wellbeing Research Centre (AWRC) for sports; in Leeds there is a focus on AI/Big Data and Space, in Manchester there is cyber, female health and graphene and in Liverpool, its energy management and quantum computing – all of which have become key focus areas for Par Equity.
“For us, there is no better opportunity to expand your knowledge and understanding of the above sectors than at this year’s Climb. If you want to be involved in the North, this really is the only event to attend.”
For any questions, comments or features, please contact us directly.
