UK AI startups outside London secure higher average funding

New analysis from the O3 platform, an AI-powered venture classification platform developed by the University of Oxford and venture capital firm OpenOcean, has revealed interesting insights into the UK's AI startup funding landscape.

The findings challenge the common perception that London has always dominated the sector, showing that between 2012 and 2021, the average funding per AI startup was actually higher outside the capital.

London was only the fourth-highest UK region for average funding in 2023, despite having over half of the AI startups in the country. South West England secured USD $17.6 million per startup, which was more than three times higher than North West England. Scotland attracted USD $9.0 million per startup in 2023, nearly twice that of North West England.

In 2022, London-based AI startups raised more on average, USD $11.3 million, than those outside London, which averaged USD $9.5 million. The O3 platform combines Oxford's research, which started in 2019, with OpenOcean's nearly 13 years of experience investing in and growing pioneering startups from across Europe. The dataset from O3 runs from Q2 2012 to Q2 2023.

After London, the South East, and Eastern regions, the North West was next in line for AI startups in 2023, with 66 AI companies and a total funding of over USD $326 million. The North of England has seen significant growth in the AI startup ecosystem over the past decade. In 2013, the North of England had a total funding of USD $9 million, but by 2023, the total funding had reached USD $568 million, showcasing the effects of the 'AI boom' beyond the borders of London and the South East.

As of 2023, the cumulative total funding raised by AI startups in the UK was USD $15.2 billion, with London accounting for 61% of this figure. The top regions for average funding per AI startup in 2023 were South West England (USD $17.6 million), Eastern England (USD $15.5 million), South East England (USD $14.7 million), and London (USD $12.8 million).

The top cities for average funding per AI startup in 2023 were Bristol (USD $55.0 million), Oxford (USD $44.2 million), Cambridge (USD $13.4 million), and London. The pandemic had a significant impact on the growth of AI startup funding both in London and outside the capital. The annual growth rates dropped from an average of 74% and 51% pre-pandemic (2018-2020) to 40% in London and 30% outside during the pandemic and post-pandemic period (2021-2023).

The number of AI startups in the UK has increased by more than eight times since 2012. OpenOcean's internal data showed that mentions of AI technologies in startup pitches have increased significantly, from 10% in 2022 to 27% in 2023. By 2024, OpenOcean expects over one-third of startups to reference AI in their investor pitches.

Ekaterina Almasque, General Partner at OpenOcean, remarked on the findings: "We're thrilled to see the O3 platform continue to provide unparalleled open-source access into the UK's AI startup ecosystem. This latest data analysis not only highlights London's impressive funding total but also underscores the pressing need for increased support and investment across all regions."

She added, "While London's success is a testament to the UK's potential, we must recognise that continuing to foster growth and innovation throughout the country is essential to maintain our competitive edge. Other nations are already investing heavily in nurturing the next generation of AI leaders, and the UK cannot afford to be left behind. The O3 platform's insights provide a roadmap for targeted investment and support that will create a more balanced and thriving AI ecosystem across the UK. By working together and strategically investing in AI development in all regions, we can unlock the UK's full potential and cement our position as a global leader in AI."

The data underscores the importance of prioritising a comprehensive AI strategy to ensure the UK remains at the forefront of this technological revolution, as the decisions made now will shape the country's future success in the AI-driven world.