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November 16, 2022

UK startup jobs are disappearing at a rate of knots – except in cleantech.

Lifestyle and metaverse startups are suffering job losses as the cost of living crisis bites hard into the British startup sector

By Afiq Fitri

The first two years of the pandemic were a gold rush for the tech industry. Low interest rates combined with an almost religious belief in virtual experiences saw record-breaking investments in the UK’s tech sector totalling close to £30bn last year. But British start-ups are now going through a febrile moment as investors begin to reel from the one-two punch of macroeconomic volatility and political chaos. The events of this summer provide a window into the scale of disruption, losses and layoffs that lie ahead for the British tech industry at large – as well as clues as to where the interest of VCs is beginning to drift. 

The situation in the UK is hardly unique. Data from Layoffs.fyi, which tracks the number of tech workers made redundant across the globe, reveals a sector battered by supply chain disruption and inflation. During the first few months of the pandemic, close to 70,000 tech workers from India to Canada were made redundant, before the sector recovered towards the tail end of 2020 and saw a period of calm until the end of the following year. Layoffs then began picking up again during the first quarter of this year and rose precipitously in the summer, peaking earlier this month with 24,355 workers being fired – half of whom came from Meta.  

Other UK-based companies which staked their fortunes on virtual experiences have witnessed similar levels of turbulence. During the summer, the virtual events company Hopin made almost 30% of its workforce redundant, putting the total number of workers laid off this year to 380. Described by Skift as Europe’s ‘fastest growing start-up of all time’, the company had raised more than $1bn in 2019 and was valued at $8bn at its peak. 

Lifestyle platforms are being hit hard amid the cost of living crisis

The cost of living crisis has also rebounded fiercely on UK start-ups. In April, Pollen - a music festival and travel platform - raised some $150m before abruptly firing 200 staff and collapsing into administration four months later. Meanwhile Cazoo, an online marketplace for cars previously valued at £5.5bn, announced in June that it was cutting 750 jobs across its UK and European offices amid fears of a recession. “The combination of rising inflation and interest rates with supply chain issues caused by the pandemic and [Ukraine] war has driven up the cost of living and hit consumer confidence,” said Alex Chesterman, Cazoo’s chief executive. “This perfect storm has placed cash conservation top of mind for the company, ahead of growth.”

Funding for UK start-ups has unsurprisingly been affected by the wider volatility in the tech industry. According to data published by Beauhurst, 518 companies received funding in Q3, a 24% decrease from the previous quarter and a 20% decrease year-on-year. As far as the total amount raised was concerned, UK startups managed to scrounge £2.76b in Q3 2022 - less than half of the amount raised in the same period last year. 

The dramatic fall in investment has also upended prior expectations of the UK tech industry’s ability to withstand turbulence in the global economy. “Whilst we were optimistic last quarter, it seems the UK equity market is now feeling the impact of current macroeconomic headwinds,” wrote Henry Whorwood, head of research at Beauhurst, in one of the firm's recent reports. Despite this growing sense of trepidation in the UK’s tech sector, however, a select number of start-ups are benefiting from an increased interest among investors in prospects that have, in their opinion, more immediate paths to profitability. 

UK startup jobs are multiplying in the cleantech segment

According to recent analysis from PwC, much of that attention has fallen upon well-proven technologies, with 46% of all UK investment going towards the mobility and transport sector. Recent data on funding deals show that this trend is set to continue. Out of the ten biggest deals announced in Q3, four involved fresh rounds of funding for companies providing sustainability-focused solutions to the climate crisis, according to Beauhurst. 

This includes firms like Gridserve, an EV charging point provider that managed to raise some £200m in August, and Connected Kerb, which obtained £110m from Aviva the following month. The latter’s chief executive, Chris Pateman-Jones, said that the recent injection of capital “will turn EV charging on its head” and will give individuals and businesses “the confidence to make the switch to electric, and dramatically reduce carbon emissions and air pollution.”

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One of the reasons for the surge in investment in such start-ups is the increasing affordability and acceptance of electric vehicles as alternatives to combustion engines, according to the PwC report. Across the globe, sales of electric vehicles have more than doubled last year compared to 2020. Start-ups that focus on cost-saving measures related to energy consumption for residential and commercial customers also have immediate financial appeal to investors, the report said.  

These recent investments in cleantech signal a paradigm shift in investor sentiment as the UK begins to feel the brunt of macroeconomic headwinds. In the ten biggest deals of Q3, fintech companies - once the preferred sector for tech investors - are conspicuously absent from the list, as the pandemic boom and consumer confidence recedes amidst rising inflation. Companies such as Hopin that were once valued in billions of pounds are now restructuring their operations, perhaps out of a realisation that workers are averse to spending any more time in virtual worlds after years of isolation. Rather than pouring money into risky bets, then, investors appear to be shifting their focus towards more profitable and sustainable technology solutions.

Read more: Investors love quantum computing. Experts fear a bubble.

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