Don’t write off Britain’s science and innovation sector. We are building global companies and attracting international attention, says Saul Klein
If you listened only to the mood music in the City, you’d think the UK’s innovation story was already over.
But in the week that London-founded ElevenLabs raised $500m from investors, making it the UK’s latest decacorn, it’s time the City woke up to the quality and breadth of British innovation talent.
Concerns over sluggish domestic growth and the potential disruption from AI are leading many to dismiss the UK science and innovation sector. However, the recent sale of AI firm Faculty to Accenture demonstrates the wealth of world-class talent building globally competitive companies right here.
The UK currently holds one of the most undervalued long-term assets in global markets: its innovation economy. Few countries can match it, and even fewer are investing in it with their own capital. This situation is worsened by the fact that international investors are increasingly aware of the value here than domestic ones.
The tech sector often chases hype, but the UK’s innovation story is built on data and facts. We have the evidence to prove we’re great at innovating—and it’s time the City recognized that.
Britain is already a global innovation power
By almost every measure, the UK is now the world’s third-largest innovation economy, trailing only the US and China, despite being the sixth-largest economy by GDP. On a per capita basis, it ranks number one.
It produces more unicorns, Colts, and Thoroughbreds than France, Germany, Sweden, and the Netherlands combined. These aren’t inflated tech companies, but real businesses with measurable revenues. Colts generate at least $25m in annual revenue, while Thoroughbreds exceed $100m.
When I returned to the UK from working with early tech companies in San Francisco and New York 23 years ago, the UK had fewer than 10 venture capital-backed companies. Now, there are over 20,000 VC-backed businesses employing roughly 100,000 people, including 800 Colts or Thoroughbreds.
Looking at sectors of the future, the evidence continues to mount. A key metric for AI leadership is large-scale compute deployment. The UK ranks third globally, with double the capacity of fourth-placed Switzerland.
Companies and countries rarely lead in every technological shift. Microsoft missed mobile but dominated cloud and AI. Apple missed early internet software but led smartphones. Investors must think in terms of decades-long innovation waves, not just short-term trading windows.
The next wave will be driven by AI, advanced materials, engineering biology, photonics, semiconductors, space, and quantum technologies—all areas where Britain excels. These innovations can help mitigate climate change, support aging populations, cure diseases, and enhance energy security.
The UK boasts four of the world’s top 10 universities: Oxford, Cambridge, UCL, and Imperial. Five of Europe’s top 10 university spinout institutions are British. We excel at creating startups, but capital isn’t flowing from pension funds and insurers to scale these companies from early stage to global growth.
Missing dividend for UK savers
UK institutions control roughly £6 trillion in investable capital, yet less than 1% is allocated to the domestic innovation economy. This is why international investors dominate Britain’s most successful companies and assets. Canadian, Australian, and Japanese capital backs Octopus Energy. Australian super funds own most of King’s Cross. Some of the largest pension backers of UK venture funds are Bavarian, Danish, and Korean.
While overseas investors readily invest in the UK’s innovation economy at a discount, domestic capital remains on the sidelines. Research by Jonathan Haskell and Stian Westlake suggests this under-allocation costs UK citizens up to £143bn per year in lost potential.
However, for the first time in decades, the UK has the infrastructure to channel more domestic capital into innovation. The Mansion House reforms have doubled commitments from major asset allocators, and pension consolidation will strengthen this pipeline, accelerating the growth of regional tech clusters in cities like Leeds and Manchester.
Over £100bn could be deployed into the sector over the current parliamentary term through a National Wealth Fund and long-term vehicles like the British Business Bank, the National Security Strategic Investment Fund, and Sovereign AI.
Simultaneously, regulation, once a perceived weakness, is now a strength. The new Regulatory Innovation Office and progressive stances at the FCA and CMA position Britain as a safe and trusted jurisdiction for scaling frontier technologies.
Venture capital follows a power law: just 1.8% of startups become unicorns, and 1.3% reach $100m in revenue, meaning most returns come from a small number of winners. Public markets are similar: 2.4% of companies generate 100% of £76 trillion in returns.
That’s why asset allocators must understand the UK’s innovation strengths. For the first time in generations, the conditions are aligned: world-class research, a deep pipeline of startups and scaleups, growing domestic capital, international trust, and a supportive regulatory system.
The question isn’t whether the UK innovation economy will succeed, but when the City will recognize its systematic undervaluation and allow British savers to share in the value being created beyond the Square Mile.
Saul Klein is executive chair and co-founder of Phoenix Court
