The UK is Europe’s unicorn powerhouse—but will it stay that way?

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The UK is Europe’s undisputed startup powerhouse.

Home to nearly 90 unicorns, the UK has always led Europe in unicorn creation. Given Europe’s increasing importance in global tech, the UK’s output is only becoming more significant.

Europe overall has been outpacing the U.S. in unicorn creation. Over the past 5 years, the U.S. has been creating net new unicorns at 52% YoY—half the rate of Europe, which is creating them at 2x YoY.

While funding dropped in 2022 in both the U.S. and Europe, the beginning of the year looked great for Europe, as it was the only region besides Africa that didn’t see a drop in VC funding. Between January and May 2022, the UK raised double the funding of any other European market.

Now, however, with a rocky Q4 2022 on the horizon, the UK may be seeing a steep winter decline.

Low investor confidence is setting in

UK markets have taken a hit in September. On Monday, September 26, the British pound hit an all-time low against the dollar, dropping below $1.04. Cost of living has soared, and most UK citizens are struggling to pay their energy bills during one of the worst energy crises in decades. In 2022, the average UK household is expected to lose 8.3% of its total spending power.

So how will the UK tech sector feel the effects?

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Overall, the UK is predicting an economic slowdown between 2023 and 2026, with a short-term “technical recession” during the last half of 2022. Higher interest rates are discouraging long-term investments, which could hit valuations and put a stop to the UK’s 248 potential future unicorns—valued more than $250 million—from becoming actual unicorns.

There’s one factor, however, that could put some of these unicorns’ minds at ease, and it’s that most investments in UK tech don’t come from inside the UK.

Low domestic investment as a benefit

Between 2020 and 2021, U.S. investment in European unicorns increased by 5.3x, growing from $4.6 billion to $24.6 billion. To compare, European investments in European unicorns only increased by 2.9x in that same period.

European unicorn investment is fueled by U.S. firms.


European unicorn companies are seeking more funding from the United States than Europe, but American VCs are also actively looking across the pond. In 2020, Silicon Valley-based Sequoia Capital opened an office in London, and in 2021 the firm contributed 35% of total funding for European startups.

U.S. investment across unicorn-generated wealth spreads risk across the U.S. and the UK, which comes at a great time for the latter’s startup economy. While economists have long been predicting a recession for both countries, the U.S. is still expected to grow at a faster rate than its European counterparts.

We don’t have a crystal ball that can tell us how the U.S.’s not-as-bad economy will translate to UK unicorn investment, but we have something else that comes close: data exhaust.

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What data exhaust tells us about investment trends

Data exhaust is background data produced from online interactions and activities, like meetings and emails. To assess the health of the VC landscape, we can look at deal growth in the form of network interactions between investors and founders.

Anonymized Affinity platform data found that meeting activity in both the U.S. and Europe has been steadily increasing over the last three quarters (from Q4 2021 through Q2 2022). U.S. firms saw a 10% growth in meeting activity in H1 2022, and European firms saw a 9% increase during the same period.

This means VC firms in both the U.S. and Europe are building a strong opportunity pipeline in the midst of a potential recession. They’re also growing their networks, with American VCs expanding their business networks by 39% YoY and European firms seeing a 22% growth in business networks YoY.

These signals tell us that both American and European firms are still keen to grow their networks, meet, and make deals—albeit more selectively than during the boom of 2021. In that selection process, both Germany and the UK produced 12 unicorns in H1 2022, and only time will tell whether the UK can hold on to its lead in the European startup world.

For more information on the state of the European unicorn economy versus the U.S., access Affinity’s recently released The Relationship Intelligence Benchmark Report: U.S. vs. Europe Unicorn Edition.

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