2023 was a mixed year for foreign direct investment flows around the world—or in other words, businesses looking to expand internationally. A challenging geopolitical context, a higher interest rate environment, and the universal, conservative approach from VCs have led to a29% decrease in FDI by projects globally in the first three quarters, according to data obtained by London & Partners.
Despite this, fundraising has been resilient, with Europe’s global share of VC rising to a record 19%. In London, investment in startups rose 14% quarter-on-quarter in Q3 2023 and was expected to reach $18 billion by the end of the year.
In my role at London & Partners, I help companies from the U.S. and Canada expand into the UK and support the best of London’s tech scale-ups as they expand into North America. Anecdotally, I’ve seen some industry sectors thrive in 2023 and others shift focus to meet the market.
So, what does 2024 hold for international trade between North America and London? Here are some thoughts:
FINTECH: A REVIVAL OF FORTUNES
2023 was a manic year for financial services even with the UK and North America having a strong history with this industry.
The effects were noticed in London as fintech companies that expanded focused on quality as opposed to quantity with their expansion hiring. On the flip side, London’s fintech scale-ups had an exceptional year winning contracts with large U.S. corporates and establishing a beachhead in North America due to conditions that favored them.
Two companies that already found success in both London and NYC include Bud, an AI-powered data platform that transforms complex data into growth-accelerating financial solutions, and Hoptroff, a plug-and-play software solution that delivers time synchronization for financial businesses.
Conversely, London had an exceptional year for attracting the investment community. Big names including Andreessen Horowitz announced its first international office in London, while specialists in the climate space including TDK Ventures and Clean Energy Ventures announced their London launch too. They are all driven by the strength of the startup ecosystem in London and its continuing role in attracting the best entrepreneurs and innovation from across Europe.
In 2024, I predict a revival of fortunes in the U.S. fintech sector and a return to their normal levels of investment in London. Economic indicators in the U.S. are positive and VCs may start to deploy their dry powder that would enable companies to expand.
I predict cryptocurrencies will move away from the Wild West vibe of its 1.0 days. Newer players will move away from using it primarily as a tool for speculation and take advantage of governments exploring central bank digital currencies. There is also a broader use for the underlying Blockchain technology and I’m excited to see what emerges.
CONTINUING THE MOMENTUM TO NET ZERO
In the U.S., the climate tech sector has been buoyed by the CHIPS Act 2022 and the Inflation Reduction Act 2023, which have opened up investment and given a lightning bolt of confidence into scale-ups in the sector. Well-capitalized and commercially successful companies in the U.S. are quickly starting to look for new market opportunities to continue their growth. The UK remains the obvious choice for many of them on where to go next.
London climate strengths have been in areas such as cleantech, green finance, proptech, smart mobility, the circular economy, and high-end services in ancillary sectors. Recent wins for London have included the carbon credits exchange Cloverly from Atlanta and the New York-based communication agency for sustainable companies the Antenna Group.
Home-grown innovation in climate tech is also a success story for London and these companies are also expanding into North America. London & Partners’ international expansion program, Grow London Global, includes companies such as the smart ventilation provider Rensair and the proptech Tallarna opening offices in New York City, and a high-density solar collector Naked Energy launching in Dallas.
In 2024, this trend will only accelerate as NetZero goals get closer and new legislation forces corporations and governments to incorporate new ideas from around the world. Local Law 97 in New York City will require a more efficient use of energy in commercial real estate, while London Mayor Sadiq Khan plans to double the size of London’s green economy by 2030. The larger global climate economy will benefit from this and will be a major contributor to FDI flows next year.
ARTIFICIAL INTELLIGENCE: NORMALIZATION AND FURTHER INNOVATION
Generative AI was certainly one of the big talking points for 2023, with ChatGPT taking some by surprise, many using it as a time-saving tool, and AI-generated portraits going mainstream.
AI is a major sector for London, with Kings Cross boasting Europe’s undisputed AI hub The Knowledge Quarter, where organizations including Google’s DeepMind are located. We also saw San Francisco’s OpenAI open its first international office in London in 2023. Due to the world-class tech talent in London, I believe this sector will continue to thrive in 2024.
I see new tools being normalized and integrated into tech stacks and ways of working. Generative AI tools will be used to speed up areas such as documentation and compliance, creating opportunities for innovative providers in the legaltech and fintech spaces. Meanwhile, marketing teams will utilize AI-generated models to help drive innovative creative experiences. For example, organizations such as London’s Charisma.ai are bringing characters to life with AI-driven voices, emotion, and storytelling.
While some jobs may be altered by this new technology, ultimately, many organizations want to provide freedom for individuals to focus on more creative and meaningful work. Disrupting tech—think the development of the personal computer—naturally brings concerns of the unknown but in the end, sparks innovation.
Overall, companies and investors alike should feel optimistic about transatlantic partnerships this year. With generative AI continuing to thrive in 2024 and naturally impacting financial services, climate change, etc., the opportunity for individuals to disrupt and make a positive impact across North America and London markets is there for the taking.
As Head of North America at London & Partners, Stephen helps NA businesses looking to scale into London and London-based companies into NA.