Britain’s music tech sector is facing a scaling crisis, with funding for growth-stage firms collapsing by 90 per cent over the last five years despite the rapid rise of AI and growing investor interest in music licensing infrastructure.

A new report from industry body Music Technology UK (MTUK) found investment into growth-stage music tech companies plunged from £101m in 2020 to just £10m in 2025, raising concerns that promising British firms are being forced overseas before reaching meaningful scale.

The findings come as policymakers and investors grapple with Britain’s well-documented struggles turning highly effective startups into global leaders.

Between 2020 and 2025, UK music tech firms attracted more than £809m of investment, according to the report, which analysed 922 companies alongside research partner Beauhurst.

Funding peaked at £183m in 2021 but fell to £68.8m last year, representing a 51 per cent decline.

While seed-stage investment more than doubled during the period, rising from £8.4m to £22.1m, larger growth rounds all but disappeared.

The results led MTUK to warn of a widening funding gap for companies that have already built products and customers but need capital to expand internationally.

“When we published the first Sound Investments report last year, we argued that UK Music Tech was undervalued, underinvested, and underrepresented” said MTUK chief executive Matt Cartmell. “A year on, that is changing – but not fast enough.”

Many companies are increasingly looking abroad for funding, the report said. In some cases, considering relocating operations to markets with deeper pools of capital.

That challenge mirrors concerns raised across Britain’s wider tech ecosystem, where founders have long complained that scale-up funding remains harder to secure than in the US.

AI boom raises the stakes

Generative AI has created a new category of buyer for music tech businesses, with AI developers increasingly seeking access to licensed music catalogues and proprietary datasets.

Recent research commissioned by the BPI suggested the UK is on the verge of an AI licensing boom, with more than 270 licensing agreements already signed globally between rights holders and AI companies.

MTUK said the backdrop has spawned a significant opportunity for British firms, but increases the risk that promising businesses are snapped up before they can scale domestically.

Its report found UK music tech investment has fallen sharply behind the US. In 2020, British investment equated to roughly 76 per cent of US music tech funding, but by 2025 the figure dropped to just 21 per cent.

The Creative Industries Sector Plan aims to increase annual investment into the sector from £17bn to £31bn by 2035, while the British Business Bank has earmarked £4bn through its Industrial Strategy Growth Capital programme.

Creative industries minister Ian Murray said music technology had a “vital role to play” in driving growth and innovation.

“This report highlights both the potential of the sector in the UK, but also the challenges facing many of our pioneering organisations,” he said.

MTUK is calling on ministers to formally recognise music technology as a standalone category within government funding schemes and create dedicated investment vehicles to support scaling businesses.