Investment in the UK’s deep tech sector has slowed since 2022 as investors lack the knowledge to understand the potential of start-ups in the industry, according to a new report by the Royal Academy of Engineering Enterprise Hub.

The report says that the deep tech sector has consistently attracted over £5 billion in annual venture capital funding since 2020.

However, 2024 presented “significant” challenges for startups trying to get funding due to factors including the economic climate, higher interest rates, post-pandemic inflation and lagging productivity growth.

The Academy said that as a result, fewer companies have been receiving substantial funding as investors are becoming more risk averse.

Certain sectors such as AI and healthcare are bucking this trend and have seen sustained levels of investment.

Investment from outside the UK into UK-based deep tech companies is still high and the report said that non-UK firms have participated on over 300 deals each year since 2021.

According to the study, deep tech companies are leading the development of novel technologies that could transform the UK’s technological capabilities. They have the potential to improve the UK’s global competitiveness in industries including robotics, hardware, healthcare and energy.

To improve investor knowledge around deep tech, the Academy has partnered with Imperial College London to launch a Science and Technology Venture Capital Fellowship, which is backed by the government and aims to unlock capital in the sector.

The Academy said that more venture capital investment is “essential” to supporting the development of businesses that will secure renewed economic growth for the UK and which use deep tech to address some of the biggest challenges of our time, such as food shortages and natural disasters.

Sir John Lazar CBE FREng, president of the Royal Academy of Engineering, said that investment would enable companies to remain in the UK instead of relocating oversees, adding that these businesses are crucial to providing “home-grown” technology.

“As today’s report shows, the UK has many fantastic deep tech companies that attract investment from the UK and globally,” he added. “But continued success cannot be taken for granted.

“We must ensure we remain an attractive place for entrepreneurs to start up new deep tech companies from our extraordinary science and engineering R&D base.”

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