Why Wealthy Asians Are Buying Up U.K.’s Tech Startups

More Asian wealth has been invested into U.K. tech startups in the first six months of this year than the entire of 2020.

In the first half of the year, Asian and Middle Eastern investors plowed £1.7 billion ($2.3 billion) into U.K. tech companies versus £1 billion ($1.4 billion) in 2020.

So far, 577 U.K. startups have Asian backing according to data from Dealroom.co and the Department of Digital, Culture, Media and Sport’s Digital Economy Council. Among them are online retailers Farfetch and Checkout.com, and the recently floated Cazoo and Arrival.

Over the past five years, investors from China have rushed to buy up a new wave of U.K. tech startups. While the Japanese are the largest Asian investors in U.K. tech firms, largely thanks to Softbank’s funds, their share has steadily been declining in the face of Chinese investors.

The number of billionaires and millionaires in China has been growing rapidly, and the places where they stash their wealth, Singapore and Hong Kong, are now the second and fourth largest investors in U.K. tech startups respectively. The U.A.E., the Middle East’s largest wealth hub, is third.

Oliver Dowden, secretary of state for Digital, Culture, Media and Sport has welcomed the flood of money, saying it is a “huge compliment to have a region that has been at the forefront of tech and innovation for decades to believe so strongly in what we’ve built here in the UK and to want to be a part of that.”

Last year was a record for fundraising in the U.K. More than $15 billion was raised by the tech sector, $200 million more than the year before.

Already this year, many firms have witnessed surging valuations. In May, Dealroom.co predicted there would be 132 unicorns, or start-ups valued at more than $1 million.

While Britain has not produced any tech behemoths on the scale of Apple or Amazon, it has specialized in certain areas, such as fintech and healthtech.

Financial technology has raised more money than any other area of tech in the U.K., a point underscored last week by the successful listing and resulting $13 billion valuation of Transferwise, a money transfer company.

But it is the diminishing appeal of Asian tech firms that is causing many investors to turn their attention to the U.K.

New downloads of the ride hailing app, Didi, have just been banned in China amid data security risks. Its shares, which only started trading in New York at the end of June, have since lost a third of their value.

It comes after Alibaba was fined $2.8 billion for anti-competitive practices and Ant Group’s IPO was cancelled over concerns about its lending practices.

A host of other Chinese tech firms and apps have also been subject to probes and bans. The combined scrutiny of Chinese regulators has turned many Asian investors away local tech firms, forcing them to look elsewhere instead.

But Chinese investment itself is coming under tougher scrutiny. Earlier this month, Chinese-owned Nexperia bought Newport Wafer Fab (NWF), the U.K.’s largest semiconductor producer.

Many in parliament opposed the deal, including Tom Tugendhat, chairman of the Foreign Affairs Select Committee, who said in a letter to U.K. Business Minister Kwasi Kwarteng that it “represents a significant economic and national security concern.”

Prime minster Boris Johnson ordered a review of the deal, which eventually sailed through on 5 July, showing that Chinese investment in U.K. tech remains undiminished in the second half of 2021.

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