For many years, the UK has generally been considered to be a strong market for technology startups. London, in particular, has long ranked high in the estimates of ambitious companies looking to build business and attract investment from venture capital firms.
In recent years, however, London’s hype has cooled somewhat. Emerging from the coronavirus pandemic fresh into a conflict with huge geographic, financial and socio-political ramifications, all with the backdrop of choosing to leave the world’s largest single market, the UK’s position as a must-invest space is no longer certain.
This begs a multitude of questions, has market interest slowed for reasons of stronger alternatives? Is the government to blame? Are we simply in a down patch and luck will turn and this is all simply negative chatter or is there a real problem on our hands?
As a point of order, the UK’s current standing as one of the leading European tech hub remains clear. In this year’s FT1000 ranking of the fastest-growing European companies, it boasts five out of the top ten, including positions one and two.
London has long-exhibited and fed key tenets to attract startups into which venture capital money has been poured.
Aside from no shortage of VC funds to win funding from, top talent from highly-regarded education systems can feed these companies, which can exist within a strong ecosystem of startup accelerators and incubators to help them succeed.
The Conservative government, over whose decade-plus tenure much of the growth has occurred, has too long been championing the country’s technology sector.
London itself boasts almost a tenth of the whole list and more than twice as many as its nearest rival, Paris. The UK as a whole, however, trails behind Italy and Germany in terms of numbers of fast-growing companies.
Where Are The Cracks In The UK’s Tech Sector?
Most recently, the country’s foremost official network for startup entrepreneurs, ceased operations in March, after losing out to Barclays bank on a £12m bid for a Digital Growth government grant.
The doyenne of British startup supporters began life in 2011 and two years later, the UK tech ecosystem was valued at $60bn.
Today, the UK tech ecosystem has expanded across the country and has surpassed a $1tn valuation and Tech Nation played no small part through helping to bring up household names such as Deliveroo, Depop and what3words.
Whether Barclays’ Eagle Labs, which will step into the role vacated by Tech Nation, can support the ecosystem with the efficacy of its predecessor remains to be seen.
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But given the government’s incessant talk of levelling up and championing its technology companies’ growth, it does beg the question how it could allow one of its most influential names to fail.
But is the concept of a technology ‘hub’ an outdated one? Should the focus be more on advancing the UK’s position through investment in other major cities like Manchester, Liverpool and Edinburgh?
In his Spring statement this year, Chancellor Jeremy Hunt unveiled a near-$1bn funding programme which appeared to acknowledge this notion, as it was based around regional “investment zones”.
“True levelling up must be about local wealth creation and local decision-making to unblock obstacles to regeneration,” said Hunt in a statement. From unleashing opportunity through new Investment Zones to a new approach to accelerating research and development in city regions, we are delivering on our key priority to supercharge growth across the country.”
Europe is now no longer based purely around a handful of cities as tech hubs.
As European countries remain largely open-bordered and the travel culture of generations developing these technology companies remains strong, there is an argument to be made that ‘centres’ or tech hubs are an outdated concept.
This is borne out by the growth of global investment into companies based in cities without London’s historic incubator culture such as Madrid, Bucharest and Milan.
But it seems the UK has a wider problem of technology understanding.
By a wide margin, its most successful tech startups both historically and currently are based around financial services; think Starling Bank, Monzo, Atom etc, leaving a real investor and analyst knowledge gap in the multitude of other sectors that can easily be found in markets such as the US and can lead to the UK missing out on big listings.
The most recent and significant example of this came last month, when SoftBank opted against a dual listing for its Cambridge-based chipmaker, Arm, choosing a single primary flotation on the New York Stock Exchange. Other examples include household goods and brand-owners of top licensed online casinos opting for an overseas base.
“We need to get the public markets working, and that means a lot more investor expertise, a lot more analyst coverage and emphasis on risk,” says Manish Madhvani, co-founder at tech investment group GP Bullhound:
“We are matching the US for growth funds but the UK lacks a deep understanding of tech.”
He added that another sizable, and perhaps more urgent, problem with the UK is the apparent drop-off in support once a company edges out of ‘startup’ size and scale.
“There is a dramatic change at the £5bn-10bn mark, when the UK really plateaus out,” he told the Financial Times last month.
“The UK needs to get better at creating companies of scale. At the moment, a lot of our best companies go to list in the US — it shifts the centre of gravity from the EU to US and it’s the missing piece of the jigsaw.”
There are, of course, other factors to consider.
Global capital has had a rocky few years with the coronavirus pandemic and the ongoing war in Ukraine. Both, it can be safely said, have at different times but to significant degrees, cooled investor risk appetite as well as physical cash to deploy.
The thorny issue of Brexit also remains a key factor in the UK’s past, present and future ranking as a leading technology investment hub. Attracting talented foreign technology talent, much of which comes from Europe, will be much more difficult moving forward.
This despite the fact that there was a tech visa scheme running that showed promise that had been overseen by, guess who, Tech Nation.
Determining the UK’s status as a premium option for tech startups and investors is, at present, too nuanced.
Should the government come good on its promise to level up the country and not just London, there could well be macrocosms where there are currently microcosms of successful tech companies. London, too, can thrive and exceed its current position of strength.
But fundamental to the development for the companies and their investors is a shift in how quickly the UK can upskill its understanding of the technology sector and offer the diverse expertise it is currently being trumped on overseas.