London has long been Europe’s leading hub for technology innovation and investment, and even with the gathering storms of the Brexit deal on the horizon, the capital’s tech scene looks set to continue its impressive growth.
With over 187,000 tech companies achieving a combined reported annual turnover of £292bn, London tech businesses, from start-ups to international powerhouses, have benefited from the many advantages the capital affords.
What is also eye-catching about these impressive numbers though, is the fact that the annual collected turnover of these businesses has grown 16% year-on-year in the last three years.
There are also near to 1.3 million people that work in the tech sector in London, and this number has risen 15% year-on-year in the last three years.
Start-ups and incubators
The lifeblood of the tech system are start-ups that are either developing a piece of tech or software to disrupt a sector – or pioneering tomorrow’s world, today.
These start-ups face the same struggles as others do in different sectors – funding, staff, office space – but what are the specific challenges and appealing factors for starting a tech business in London?
In 2018, London start-ups contributed £11.4bn to the UK economy, and gave employment to almost 40,000 techies across the 33 London boroughs where they are based.
Many of these start-ups are based in 50 plus accelerator programmes and shared office spaces that are spread throughout the city. These programmes provide a vital resource for tech start-ups.
One of the most prominent and well-respected tech communities is Level39.
Based in the heart of London’s business centre – Canary Wharf – this incubator has over 1250 leaders in cyber security, fintech, artificial intelligence, blockchain and retail tech based at their offices.
Almost 200 member companies call the space home – all of which are considered ‘fast-growth tech companies’.
Asif Faruque is the Head of Content at Level39: “We give them the space, support and community to get to market faster and grow their business.
“We’re owned by the Canary Wharf Group, so we have a world-leading property company backing us – providing the high-quality real estate, infrastructure and security that these businesses need to operate. A company will typically join Level39 with a handful of employees – in time, and with our support, we see these businesses grow, bring in new clients and expand to new markets.”
What Level39 has done is utilised the best elements of what London has to offer. One of their most prominent clients is computer security service, Cybsafe.
Marketing Manager at Cybsafe, Rebecca Bourke, comments: “Level39 has definitely been a contributing factor to our success. We’ve had access to mentors, investors and regular networking events. The flexible infrastructure and access to world class talent has been a game-changer for us.”
Why choose London?
The capital has always been a melting pot of great and diverse talent from other cities and countries. This has always the case throughout both turbulent and prosperous times.
Just as it was during the first three industrial revolutions, London has become the European leader during the ‘Digital Revolution’ – or Industrial Revolution 4.0.
Toby Kress is the Head of Accelerator at Accelerator London – an innovator programme run by the London Metropolitan University.
For the last 15 years, it has been the home for tech start-ups in Shoreditch – an area of London that now boasts and annual tech turnover of over £3bn.
He comments: “London is the dominant force for tech in the UK. A lot of that is to do with its sheer scale. To start a business, you need to get customers, they need great people to work for them, and they need capital – London is the only city that has got all of those at a high enough level to support a big tech ecosystem.
“Availability of finance is crucial to start-ups, and the majority of funding that goes into tech start-ups in the UK comes from London. That is because the growth funds are here, the VCs, the private equity companies are largely London-based. Tech companies can then tap into that in order to scale-up. Capital is crucial to businesses and being located near to centre of the UK’s financial sector is vital for these tech companies.”
Asif agrees with this sentiment. He comments: “Having the finance, government and technology districts close together has made London an attractive place for start-ups to consider setting up base.
“In the morning, you can be having a meeting with the regulator, followed by lunch with a major corporate and then closing off with an evening event at a university. It’s that kind of variety and accessibility which makes London an attractive city for start-ups who wish to build their network and make new connections.
“Along with its proximity to academic institutions and major corporates – these combine to make London a leading tech hub, globally.”
Whether it is an incubator, start-up or investor – there are common themes as to why London has risen so far ahead of other UK and international cities from a tech growth perspective.
Flavia Richardson, Portfolio Manager at Funding London – a SME investment company – believes that one of the other main strengths the city has is its availability of funding.
She said: “London is still the epicentre of the European Venture Capital market, as most funds are based here. Out of the $5.2bn (£4.1bn) invested across Europe in Q3 2018, $1.7bn (£1.3bn) have been invested in the UK, of which $1.4bn (£1.1bn) in London.
“It continues to attract technology entrepreneurs and skilled talent. It benefits from top-ranked universities and research centres pushing the agenda for innovation. The City and the high density of financial institutions and corporate headquarters are the bedrock for fintech and a key advantage we have compared with the continent.
“The current status is a privilege and is not unchangeable. The government, the investment sector and interest groups must design measures to sustain a world-class ecosystem for entrepreneurship and innovation.”
The boroughs by numbers
The many positive attributes that London offers has led to several of the boroughs stepping ahead of many global cities, in terms of turnover and success.
At the height of the financial crisis in 2008, the London tech sector had a combined turnover of just over £150bn – meaning that in a decade, these companies have improved their figures by over £100bn. Couple this with double the amount of employment levels across the city within the same time period.
As seen in the infographic, the City of Westminster is leading the way with an annual turnover of £59bn, followed by Camden (£58bn) and City and County of the City of London (£38bn).
These figures can be put in perspective to see just how far ahead London is when it is compared to other major UK cities.
UK tech hubs such as Manchester, which boasts an impressive array of companies such as UKFast, LADbible Group and AccessPay currently stands at an annual turnover of £3.2bn.
Couple this with the university towns such as Cambridge, which stands at £2.4bn and Oxford (£1.8bn), it shows the attraction London has to take the next generation of academic elite to the capital.
Nearby areas of Reading (£13.6bn) and Newbury (£7bn) showcase that the close proximity to the city has given them the chance to grow faster than many of the larger cities throughout the UK.
Other notable tech hubs such as Bristol (£7.9bn), Southampton (£2.1bn) and Portsmouth (£4.7bn), have seen large growth areas and accelerator programmes of their own, but are still a long way behind the capital.
To understand the scale in which London is ahead of the rest of the UK, the borough of Southwark (£8bn) has over double the turnover of the whole of Scotland (£3.9bn).
So, London has established itself amongst the world-leaders in tech innovation and financial success, but what does the future hold?
If this exponential growth continues throughout 2019, the predicted value of the London tech scene will break the £300bn threshold.
Flavia concludes: “London represents a world hub for capital, entrepreneurship and innovation. It is reliant on a continuous flow of exceptional talent, and in the coming months, the uncertainty in the political sphere will determine the approach large and small organisations will have to adopt. The tech sector will be most affected. Restrictions on immigration or stringent visa rules will negatively impact growth.
“Venture Capital funds will continue to reside and invest in the London market though. However, we assess that in 2019 we will observe a drop in the number of deals, with potentially a reallocation in favour of later stages of development.”