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The UK tech sector reacted with shock to the loss of TechNation, which was seen as key to nurturing British start-ups, until the government stopped funding it.
For many entrepreneurs who have gone through the programmes, the move in January felt out of step with Downing Street’s ambitions, which were outlined in a competitive bid to fund Barclays Bank.
All of these were about fostering a vibrant tech scene that boosted Britain’s achievements in industries such as life sciences and fintech. Now, founders are concerned that warm words from Chancellor Jeremy Hunt on the importance of technology are not being backed up by policies and financial incentives, as they face challenges in labor supply and EU market access after Brexit.
Many are unfazed by government plans to reduce R&D tax credit support, widely used by British start-ups, and warn of funding gaps when companies reach a certain amount.
The UK public market is seen as less attractive than the US when it comes to tech companies looking to list. That was seen earlier this month when SoftBank opted against a dual listing for the Cambridge-based chipmaker’s arm in New York.
The worry is that London will start to lose its edge as rival cities do more to nurture start-ups and fast-growing companies.
Tim Levin, chief executive of the publicly listed venture investment firm, confirmed that London has been “very resilient” since Brexit. But he said other cities are becoming more of a “competitive threat” and as a result “what others are going through should be recognized”.
“London is not the only game in town,” agrees Tom Wehmeier, a partner at the venture capital firm Atomico. He says: “Other tech ecosystems are expanding across Europe. The data shows that talent and founders have more choices than ever to choose the most favorable conditions for launching and scaling their companies. This attractive offer creates a huge incentive in the region to build.
London’s current position as a European tech hub is evident in the FT1000 rankings: it has nearly a tenth of the region’s fastest-growing companies and twice as many as its closest competitor, Paris. But, to take the British government’s interest to the next level, the UK itself trails behind Italy and Germany in terms of fastest-growing companies, underscoring the capital’s importance to the country’s tech sector.
Hussain Kanji, partner at Hoxton Ventures, which has invested in British startups including Deliveroo and Darktrace, said London in particular had become the “tech hub of Europe”. The concern at this point, according to investors and founders, is whether the capital of the United Kingdom can maintain this position.
Atomico’s research shows that the 352 “unicorns” founded in Europe – technology companies with a value of more than 1 billion dollars are created in more than 120 different cities in 29 countries. Wehmeyer says this shows how tech companies don’t need to root in one center and can quickly set up in cities like Milan, Madrid and Bucharest.
Paris has emerged as a competitive tech hub in the past few years, he says, thanks to the French government’s recent efforts to attract tech hubs to the country.
Manish Madhvani, co-founder of technology investment group GP Bullhound, said: “London is dominant in terms of the number of technology companies – especially if you look at the number of ‘unicorns’. But France is really getting its act together.
Echoing the fears held by many in the UK capital, he said London faces major challenges in keeping companies afloat as they seek to list on public markets.
“There is a substantial change of £5-10 billion from what the UK is ahead of,” says Madhvani. “The UK needs to be better at creating companies of scale. At the moment, many of our best companies go to list in the US – it shifts the center of gravity from the EU to the US. It’s the missing piece of the jigsaw.”
Other tech investors told the FT they would not recommend listing their portfolio companies in the UK, where there aren’t as many analysts or investors as in the US.
“We need to make the public markets work, and that means more investor knowledge, more analyst coverage and an emphasis on risk,” says Madhvani. “We match the US for development funding, but the UK doesn’t have a deep understanding of technology.”
The UK government has launched a series of reforms to its financial regulations designed to add to plans to streamline listing rules under Lord Hill’s review.
Still, some worry that these are moving too slowly, and won’t help address the problem of reluctance among public investors — such as overly conservative pension funds — to back fast-growing companies.
Tech entrepreneur Brent Hoberman said the government – as well as the opposition – “is very much in agreement with the fact that London needs to be made more attractive to growth companies”, but added: “There is a ship turning. The proposed structural reforms are all positive, but we don’t have enough growth investors on the public market.
However, he said the fact that Westminster had moved so quickly to resolve the UK’s situation around the failed Silicon Valley bank “helps the perception that the government is ready to add supportive words to the tech sector”.
“The UK now leads a European growth equity scene as strong as the US, but very few of Europe’s most successful companies choose to list here. It is still very difficult to list in the UK, and companies cannot currently achieve the valuations they can in the US.
America simply has the scale needed by successful tech groups, Kanji says. “The growth market is the US,” he emphasized. “You won’t be the next Google to ‘win’ in England.”
Brexit also remains an issue, raising concerns about the ability of entrepreneurs to attract talented workers from the EU, despite the Tech Nation-led tech visa scheme. Executives ask who will take this responsibility.
However, not everyone is disappointed. Many see the UK’s exit from the EU as a “slow hole” rather than a “cliff” at worst – although there are signs that business, people and assets are moving out of London.
Ministers are confident they can use their ability to pass laws and regulations outside the EU to combine tougher rules and freer investment into technology. But, for many in the sector, the time has come for Westminster to deliver positive reforms. “There is friction from Brexit without seeing the benefits yet,” says Hoberman. That’s the challenge – turning from head to tail wind.
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