From AI surge to crypto downturn: Insights from PitchBook’s 2023 VC Tech Survey

Following the publication of Pitchbook’s H2 2023 VC Tech Survey, we’ve identified the following key takeaways on investment activity within the UK technology sector:

AI market surge

The UK has seen a surge in investment into artificial intelligence (AI) and the technology sector in recent years. The UK AI market is valued at over $21bn, and it is estimated to grow to over $1tn by 2035. This is supported by the respondents of the PitchBook survey, who see AI as being the most innovative area of technology and having the most growth and adoption over the next 12 months.

In contrast, cryptocurrencies have been voted as the most overinvested area of technology. This could be due to several reasons (as highlighted below) but should be considered alongside the general decrease in venture capital (VC) investment in 2023 which was impacted by geopolitical risks, overpriced market valuations (with investors fearing they’d overpaid on investments made in 2021 and 2022), and macroeconomic factors such as interest rates - which, according to the results of the PitchBook survey is likely to have the biggest impact on technology over the next few years.

Despite this, based on the increase in VC activity that we have seen throughout the first quarter of 2024, and PitchBook’s view that ‘respondents are notably more optimistic that VC activity will start to pick up over the next year’, it seems as though there will be an upswing in VC funding. UK AI investment has reached record highs with UK AI scaleups raising almost double that of France, Germany and the rest of Europe combined, with much more to come now that the AI Act has been approved by the EU Council.

Cryptocurrencies downturn

In contrast, despite the growing popularity in use of cryptocurrencies, there has been a decrease in investment into cryptocurrencies within the UK. According to a survey conducted by the Financial Conduct Authority (FCA), only 6.1% of Brits have invested in cryptocurrency as of 2023, which equates to around 3.3 million adults. This is a relatively small percentage of the population and suggests a lack of awareness of cryptocurrencies within the UK and/or a reticence to invest in a relatively new asset class.

PitchBook have commented that ‘the crypto sector is seen as overinvested and less likely to experience growth’. There are several reasons why there may be a decrease in, or lack of investment into, cryptocurrencies. One reason could be the regulatory environment; the UK government has announced a series of measures to regulate cryptocurrencies, and this could have an impact on investment. For example, the Treasury announced at the end of last year that it will regulate some cryptocurrencies as part of a wider plan to make the UK a hub for digital payment companies.

Another reason could be the perceived risk associated with investing in cryptocurrencies. With cryptocurrencies still considered as a high-risk investment, many investors remain deterred. The value of cryptocurrencies can be highly volatile, with an associated risk of losing all monies invested.

Making the UK a global hub for AI

The UK government has announced a series of measures over the last few years to make the UK a global hub for AI technology and investment. The 2017 Industrial Strategy set out the government’s vision to make the UK a global centre for AI innovation. In April 2018, the government and the UK’s AI ecosystem agreed on a near £1 billion AI Sector Deal to boost the UK’s global position as a leader in developing AI technologies. The government has also made more than £2.3 billion available for investment in AI since 2014.

However, given the regulatory measures being introduced for artificial intelligence, and the general view that generative AI is ‘overhyped’ (as evidenced by the PitchBook survey), the continued rise in AI funding will remain to be seen.