With London Tech Week in full swing Business Leader looks at tech investment in London and the UK.
The technology sector in the UK is one that is allowing UK plc to beat its chest globally, as it leads the way in emerging trends such as AI and FinTech.
In 2017 alone tech firms in London attracted £2.45bn in venture capital funding, claiming about 80% of the £2.99bn invested in Britain as a whole, according to data compiled by PitchBook. Showing not only it’s importance to the UK economy but it’s centralisation in London.
Compared with other major technology hubs around Europe, London claimed more investment than Paris, Berlin and the next seven most-invested cities combined, with artificial intelligence a particularly big area of growth, as firms within this space doubled the amount raised during 2016 to £488m throughout the past 12 months.
James Klein, a partner in the corporate team at Penningtons Manches’, which has a London and San Francisco office, comments on the importance of investment in technology firms: “The upwards trend that we continue to see is very reassuring.
The UK continues to be the leading European hotspot for talent and capital. The diverse talent that exists here promotes innovation and opportunity, with opportunity often turning into revenue.
“We have seen many scalable companies attract the attention of US investors, in particular software services and life science companies as investors look to spread their risk outside the US.”
Figures revealed by law firm Pennington Manches based on data compiled by data provider Beauhurst, showed significant interest in investment opportunities in the UK from Silicon Valley. With West Coast investment into UK tech companies rising by 47% last year to £1.08bn, according to the report, up from just £213m in 2011.
The number of mergers and acquisitions also increased significantly, climbing from 21 in 2011 to 74 in 2017.
Data has also shown that the rest of North America, not just Silicon Valley’s contribution, venture capital investors put a combined £2.83bninto UK startups last year, marking a 62% increase year-on-year.
“US venture capital participation in UK deals has grown considerably in recent years thanks to the solid pipeline of high-growth tech startups,” explains Joelle Sostheim, analyst at PitchBook.
“Healthy talent pipelines from colleges and universities as well as attractive salaries have contributed to the UK’s competitive venture market. Since UK venture funds have historically been smaller vehicles, US investors with ample dry powder have been able to provide vital growth capital to maturing UK startups. UK deals can potentially offer price advantages to US investors, as deals in the US have become increasingly expensive to finance.”
Regarding Brexit, Joelle continues: “The data suggests that Brexit has not had a major impact on funding of UK start-ups. 2017 was a record year for venture capital investment in the UK, with nearly €7.1bn deployed across 1,255 deals.
“So far in 2018 we are tracking slower momentum, but we believe that a grounded early stage investment ecosystem aided by government tax incentives like EIS and SEIS schemes will continue to provide capital to seed innovators.”
Klein adds: “This is a microcosm of the wider Brexit narrative. Shedding the ties of Europe, London is now free to establish stronger relationships with global superpowers in the west and east. And Silicon Valley, the world’s most mature tech ecosystem, is starting to pay attention to British tech entrepreneurs.
“Over the past few months, we have been speaking to Silicon Valley investors about the attraction of British tech companies. They consistently cited tech talent and investable hard science as their most valuable qualities.”
The figures revealed by Pennington Manches were hailed by Mayor of London, Sadiq Khan, who said in a statement: “The record investment figures are further proof that London is the undisputed tech capital of Europe and I am committed to ensuring we take over from Silicon Valley as the world’s leading tech hub.
“Technology entrepreneurs and businesses are attracted to our great city for its diverse talent pool and unique business ecosystem and I am determined that London remains open to investment and the best tech talent from all over the world.”
As the home to 58,000 technology firms, the UK has a huge amount to gain from this trend, and it’s seemingly not just the US which is looking to the UK and its booming technology hubs for potential investment opportunities.
The founder and CEO of Cocoon Networks, John Zai, says that the UK’s entrepreneurial spirit and China’s huge buying power is a perfect match.
“China has the world’s second largest economy and has a huge consumer market that will only grow in the next five to 10 years.
“This presents UK businesses with a major opportunity. The UK and China is a perfect match because every country in Europe has a small market, especially compared to China so now is time to explore its potential. The UK in particular has great technology companies while China needs to develop its technology, so UK companies have a new market here to attack.
“I see Brexit as an opportunity for UK and China. Why? Because if the UK was in the European Union then I don’t think the appetite to do business would be there to the same extent.
“The UK will need a strong market, it will need to connect with new markets and because of Brexit I think restrictions will be removed and it will be better for China and UK collaboration.”
With the UK one of the most open, dynamic and innovative economies in the world, where a new tech business is founded every hour, it’s plain to see why many are looking to invest in the UK’s burgeoning tech scene.
Klein stresses the importance of the UK continuing this upward trend of gaining technology-led investment, however, it’s his belief that the UK must not rely solely on this.
“It is important that levels of investment continue to increase but there must be no over-reliance on overseas investment. We must look at some of the challenges faced by start-ups/scale ups here in the UK, in particular looking at ways to bridge the apparent funding gap post seed pre-series A
“Given the talent, creativity and innovation here in the UK we will a sharp rise of DeepTech companies in a wide range of fields using techniques such as AI, robotics, machine learning and big data.
“We will also see a marked increase in the number of scalable creative and design companies.”
Sostheim added: “Retaining investment from deep-pocketed foreign investors will be an important factor for the late stage ecosystem. US investors are important participants in larger late stage rounds. In 2017, 46% of deals €10m (£8.7m) or larger included a US investor.
“While local VCs have been raising larger funds to keep up with this dynamic, many large rounds are still helped by cross-border investment. US VCs can also provide mentorship and insights into scaling into the US market, a significant but challenging source of growth.”