Even as the UK government scrambles to support the cybersecurity industry following a string of attacks, VC funding for UK cybersecurity startups is on track to hit its lowest level in a decade
In the spring, the UK was gripped by a series of high-profile cyberattacks, with hackers targeting major retailers such as Marks & Spencer and Co-op. Government statistics show that just over 4 in 10 businesses in the UK have reported a cybersecurity breach in the past 12 months.
Insurance group Howden estimates that cyberattacks have cost UK businesses around £44 billion (about $59.4 billion) in lost revenue over the past five years, and yet funding for cybersecurity startups is dropping.
According to PitchBook data, £44.6 million has been invested this year across 21 deals in the UK. This represents less than a fifth of last year’s total deal value and around a third of 2024’s round count.
The UK’s dealmaking figures this year are projected to land at their lowest point since 2015. This is in stark contrast to the rest of Europe’s cybersecurity market, which is experiencing a significant rebound in activity, with deal value already reaching over three-quarters of 2024’s total.
Against this backdrop, the UK government unveiled its new Cyber Growth Action Plan last week to boost the sector. Led by experts at the University of Bristol and Imperial College London, the plan aims to deliver a roadmap for growth, focusing on trends including AI and quantum computing.
The government has pledged £16 million to support startups, with an additional £10 million earmarked over the next four years for the CyberASAP program, which helps academics commercialize their research. The program has already helped to create 34 spinouts that have raised more than £43 million in funding and aims to generate a further 25 by 2030.
The remaining £6 million will be allocated to help startups scale and access new markets. However, some believe that the government’s plans won’t be enough to stimulate the startup market.
“The government keeps trying to light a fire under the cybersecurity sector, but there’s not enough oxygen,” said Sam Hields, a London-based partner at Finnish VC OpenOcean, which has three cybersecurity startups in its portfolio. “This £16 million commitment isn’t nearly enough capital to move the needle, and then what happens when these academics step outside the lab? Do they have the support they need to build go-to-market engines or make the right connections in the industry?”
Hields points to structural issues within the UK’s startup ecosystem that hinder growth for cybersecurity companies. These include universities taking too much equity from spinouts, followed by aggressive royalty agreements, as well as a dwindling stock market in London pushing companies abroad.
“We would like to see more targeted support for enterprise-readiness: helping teams turn technically complex research into secure, scalable software that they own and that enterprise buyers can adopt. That means building data architectures with baked-in compliance and sharpening the value proposition into a ‘must-have’ that displaces incumbents,” Hields added.
Featured image by Thoman Samson/Getty Images
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