UK Shuts Down Top Tech Incubator After Failing to Become the 'World's Next Silicon Valley'

Tech Nation, the U.K. startup accelerator program, is set to close its doors after failing to renew its funding from the government, the organization said Tuesday.

This is a disappointing turn of events for the program, which has helped many startups get off the ground. However, without the necessary funding, it is simply not sustainable.

The tech industry body has announced that it will be shutting down all operations and initiating a redundancy consultation process.

The group is looking for people who are interested in acquiring its portfolio of assets so that it can continue in a new way, it added.

Tech Nation was created in 2010 under the premiership of ex-Prime Minister David Cameron. The goal of the organization was to create billion-dollar tech companies of global significance and rival the likes of Silicon Valley.

The school claims to have helped produce some of the UK's most well-known tech names, with a diverse range of alumni working on projects for companies like Monzo, Revolut, Deliveroo, Just Eat, Darktrace, and Ocado.

Tech Nation programs have produced more than a third of all tech unicorns and decacorns in the U.K. to date. These companies have raised a combined total of £28 billion ($35.4 billion) in funding.

According to Tech Nation, while 80% of startups fail in their first two to five years, over 95% of startups on their accelerator programs have gone on to scale.

Earlier this month, the Department for Digital, Culture, Media and Sport awarded its £12.09 million Digital Growth Grant to Barclays Bank. The lender’s Eagle Labs incubator is set to replace Tech Nation as the recipient of the grant. Eagle Labs is an independent incubator operated by Barclays that helps startups and small businesses grow.

The government put the contract out to tender last year after raising concerns that Tech Nation was in breach of state aid rules. The Sunday Times reported that the government was concerned that Tech Nation had failed to become "self-sufficient."

Tech Nation says that the DCMS grant made up around 62% of its funding in 2021/22. The rest of its income came from sponsorship, commercial partnerships, and other government contracts.

As a result of the move, Tech Nation said that its current activities would not be viable on a standalone basis and would therefore need to be wound up.

Tech Nation is in discussions with Barclays Bank about transferring employees whose primary role is government delivery work over to the lender.

Tech Nation has notified the Home Office of the move, and its visa program for foreign tech workers will continue in the immediate term.

"We have been supporting Tech Nation since 2017 to help startups and scaleups across the UK to grow and thrive," a spokesperson for the Department for Culture, Media and Sport told CNBC via email.

"We decided to make the Digital Growth Grant competitive in order to align the funding with the majority of government grants. Barclays Eagle Labs was successful because their application offered the best value for taxpayers' money, will benefit the most startups and scale-ups over the next two years, and was scored highest by an independent panel."

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A spokesperson for the Department for Culture, Media and Sport (DCMS) said: "We are committed to supporting Tech Nation until March 2023."

The U.K.'s decision to leave the European Union has raised questions about its ambitions to become a global leader in digital innovation. Just days ago, Finance Minister Jeremy Hunt talked up the U.K.'s chances of becoming the "world's next Silicon Valley."

"I've seen firsthand the impact that Tech Nation has had in creating a vibrant and dynamic part of our economy," said Martha Lane Fox, founder of lastminute.com and currently president of the British Chambers of Commerce.

The skills and opportunities that they have provided entrepreneurs with are second to none and they will be missed.

The U.K.'s tech sector is currently facing difficulties due to a global slump in venture capital funding and fears of an oncoming recession. This adds to the sector's woes and makes it even more difficult for companies to succeed.

On Tuesday, the International Monetary Fund said that the United Kingdom was the only nation among all advanced economies that was on track to contract in 2023. Even sanctions-hit Russia is forecast to grow.

"The UK tech community has suffered a loss today," said Russ Shaw, founder of Tech London Advocates. "This is a setback for our ecosystem, and we will feel the effects of this loss."

Total VC funding to startups in the U.K. totalled $29.9 billion in 2022, a decrease of 27% from $41 billion the previous year. Global startup investment also declined, reaching $233.3 billion in 2022, a 33% decrease from $359.6 billion in 2021.