As the year began, the startup sector in the United Kingdom was thriving. Entrepreneur, businessman, and angel investor David Kezerashvili was one of the venture capitalists who predicted that due to an increase in venture finance deals, tech startups in the United Kingdom would reach new heights in 2022.

The government’s announcement in June of new measures to boost digital trade and help the UK become a global tech powerhouse made the UK startup climate appear even more promising.

A few months later, the United Kingdom is facing another political crisis, with the big question being how it will affect the UK tech industry and new startups, as well as, perhaps most importantly, investor confidence in the market.

During a brief phone interview, David Kezerashvili commented on the situation, saying that while there was legitimate concern that foreign investors would be hesitant to invest in UK startups, the Truss government did not last long enough to erode UK investors’ confidence in the market; “The next steps by the new Prime Minister will be critical as the market is waiting for signals the government is supporting not only the tech sector and startups but UK business in general,” he said.

So, what can the tech sector and new startups really expect in the coming months? In this article, we will summarize the major events and concerns expressed by the tech sector and startups about the potential impact of Liz Truss’ resignation on UK tech, startups, and venture capital deals.

The True State of the UK’s Tech Sector and Startup Climate

The UK startup sector is rising thanks to venture capitalists providing seed capital, specifically in the tech sector. David Kezerashvili, a venture capitalist at InfinityVC, notes that venture capital ‘is an integral part of the tech startup system.’

The Vision of a Strong Tech Ecosystem

After reaching a landmark of $1 trillion in value, the UK’s tech ecosystem is now the third country in the world to join the valuation, together with US and China. While a lot of capital has flown into the UK over the past decade, the tech community is skeptical about continuing the flow of money following the Trussonomics market volatility.

In 2020, Liz Truss showed her support for the UK tech companies by promoting a package of strategic interventions. The interventions arising from stakeholder partnerships were foreseen to provide a long-term boost and immediate sector recovery following the global pandemic. 

Truss’s measures were intended to support businesses to grow and go global while making the UK a global leader in digital trade. At the same time, there was the idea of a worldwide digital trade single market. 

The Uncertain Future of the Tech Industry

With Liz Truss resigning after only 44 days in power, there are many mixed reactions from the UK tech community. Some are hopeful that the weeks of financial instability are behind them, while others fear the uncertainty of who will take over from Truss. 

Trussonomics caused volatility in the tech market, and the community is worried about the capital inflow. They hope that Rishi Sunak will introduce more confidence in the market and better economic policies. Because the tech industry is focused on research and development, it is exposed to constant uncertainty.

Establishing the growth of the UK sector will require creating plans to overcome challenges. This means offering clarity on the Online Safety Bill, suggesting a semiconductor strategy, and creating a positive and supportive investment environment for the UK tech sector. 

Major Concerns of the Tech Sector

Enormous potential can be unlocked in the UK tech industry by driving continuous investments into the sector. One obstacle that keeps coming up is the difficulty most businesses face in raising capital. 

There is a gap in domestic funding since only 28% of venture capital funding is from the UK. The right reforms can provide the opportunity to unlock more capital for financing from UK institutional investors. 

Another major concern in the tech community is the current form of the Online Safety Bill. Many consider this bill to be highly flawed and damaging for both businesses and consumers. They view the defined rules on harmful content as somewhat ambiguous and impossible to follow, pushing the tech economy decades in the past. 

Concerns of Crypto and Health Communities

The crypto community is also expressing concerns that Truss has shown a lack of vision and provided no support for the digital asset industry. Her resignation is perceived with a hope that Sunak will regulate the procedures surrounding crypto and protect the consumer. 

The tech industry is also making a lot of noise about the unresolved flaws in the National Health System. Mental health should be a priority for the next government because there is a need to make bold decisions. Many General Practitioners and hospitals are facing a lack of staffing and retaining staff, which needs to be fixed soon. 

A Word From Venture Capitalists

One of the most effective ways for new tech companies to develop is through the assistance of venture capitalists. The biggest fear regarding venture capital investments is that the founding entrepreneur loses control over the company. Another is that the venture capitalists may simply pull the money at any point in the research causing significant damages. 

Some suggest holding back on investments as long as possible to allow companies to develop naturally. There are many examples of companies that have done this successfully, but it doesn’t sit well with venture capitalists.

Kezerashvili and like-minded VCs believe that ‘venture capital is the lifeblood of a thriving economy.’ Investing in new tech companies is risky due to many uncertainties, which is why entering at the beginning is important. 

Conclusions

While the UK is Europe’s largest startup hub, producing successful businesses, in the long run, seems to be a problem. However, despite all the economic, political, and health occurrences, the UK’s tech industry is going strong. 

Both entrepreneurs and venture capitalists understand that new tech companies are risky and that not all will succeed. What remains is that investors recognize the potential of a ground-breaking idea that will skyrocket the startup. 

Liz Truss may have stirred up the economic scene and created opposing opinions on the situation, but it remains to be seen whether her successor will bring the needed financial stability to the tech sector.