The Disappearing Tech Unicorns

Nothing says success in the tech world like fostering multiple unicorns—start-ups with a value of at least $1 billion. In the decade or so following the financial crisis, Britain achieved that, producing a UK-record-breaking 38 new unicorns in 2021, and attracting $40 billion in investments—more than any other European country.

Then, the magic disappeared. Last year, Britain debuted a mere six new unicorns. That has turned heads both in Britain and throughout the world, given that the UK government is betting big on technology for its future economic development. There has already been a heavy emphasis on the growth of artificial intelligence, with a flashy endorsement from UK Prime Minister Rishi Sunak last year.

But cash has dried up for the sector over the last two years. “There are some pockets of strength, but overall, it is fair to say that funding has dropped,” says Vinay Menon, Korn Ferry’s senior client partner for IT services and software and global lead for the AI practice. In general, most tech hubs have followed the same trajectory as the US, the world’s largest VC market, which saw funding drop by more than 60% last year.

That decline in funding came in the wake of rapid interest-rate hikes in much of the developed world, including the UK, Germany, and the US. Higher borrowing costs have made investing in venture capital less attractive than purchasing less risky assets, such as bonds or well-established blue-chip companies. “The priority in valuations has shifted from emphasizing growth to prioritizing profits,” says Fiona Vickers, Korn Ferry’s senior client partner and managing director of digital. “A very different situation to previously and definitely one of the reasons for valuations being lower.”

Growing levels of brutal global competition intensify that focus on profits. “The market itself is now so competitive that any individual with a bit of brain can executive it,” says AJ van den Berg, a Korn Ferry senior client partner in London. In the past, accessibility was different, he says; the market was “specifically harder for outsiders to penetrate.” He notes that some leading fintech startups with millions of customers can’t make money being based in the UK: “Suddenly, it’s all cost and efficiency.”

The question for many people is whether the drop in tech funding will undermine Britain’s big bet on a future supported by artificial intelligence. But to date, backing behind AI is strong, experts say. “I never would have imagined the UK would be a primary base for AI,” Menon says. “It is turning out to be a true hub.”

The potential problem here isn’t money, Menon says. Instead, it’s access to skilled individuals. “Britain has a rich tradition of invention and attracting talent—it is broad-based,” he says. “The single biggest challenge to start scaling up is the need to attract growing numbers of talented people.” Specifically, he says, the talent pool in Britain lags far behind that of the US.

Menon says that part of any tech initiative, such as AI, also requires having the robust infrastructure of a 5G network and access to the right microprocessors and chips. “These are the foundations on which tech grows,” he says.

Learn more about Korn Ferry’s Organizational Transformation capabilities.

Read more This Week in Leadership articles