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Why London will continue to be the tech capital of Europe
From deep tech to digital commerce and marketplaces, in the face of impending Brexit uncertainty the UK will remain the leader of European tech and venture capital investment, according to London-based VC, Downing Ventures.
In 2017 Downing Ventures successfully completed 44 investment rounds, 13 of which were into new businesses and most of which were into companies in the UK tech sector. The cohort of portfolio companies include enterprise SaaS, health tech, artificial intelligence, internet of things, and digital commerce startups. Despite potential negative economic signs, Downing Ventures is remaining bullish on UK tech and is continuing to increase its focus and support.
There are numerous challenges approaching the sector. Brexit’s slow progression brings with it a multitude of fears, the possibility of restrictions on high skilled workers, the reduction or full withdrawal of the EIF’s support of UK venture funds, and increased costs and tariffs associated with internationalising and scaling.
In conjunction with Brexit, macro factors are pointing to potential grey skies. Scorn previously held for well-lunched bankers peddling dodgy mortgage bonds is now being turned towards the hoody-wearing tech elite and all they represent. Although the tech backlash is largely focused on the likes of FAANG (Facebook, Apple, Amazon, Netflix and Google), it can occasionally be seen to bubble through at the early stages. Finally, we are eight years into one of the longest global expansions in history and there are hints, such as the recent UK property market cool down, that surely, at some point winter will come.
Despite this, Downing Ventures is placing ever more focus on investing in and supporting the UK tech sector. Their belief is that there have been fewer better times to invest in and support the incredible businesses being built in the UK by the plethora of impressive entrepreneurs. Their core reasons for this are:
They are seeing a government which is supporting early stage tech and entrepreneurship more than ever before, with Theresa May declaring that
“the digital tech sector is an important element of the government’s modern industrial strategy, helping to deliver a high-skilled, high paid Britain.”
This was supported by the spring Budget which stated that UK tech should remain “at the forefront of the global technology revolution” and committed £23 billion to digital infrastructure, 5G and upskilling in STEM by 2020/21.
In the Autumn Review the government made its position clear through revising the EIS/VCT rules to ensure funds are being tightly focused on early stage, knowledge-intensive businesses. A few beneficial changes include:
- Individuals will be allowed to invest higher amounts in EIS schemes.
- The definition of ‘knowledge-intensive’ companies has been relaxed and annual limits for these businesses have doubled from £5 million to £10 million.
- The government has made an arguably ambitious target of reducing advanced assurances to 15 days which, if pulled off, could massively reduce deal friction.
Over the course of the last 10 years the government has continued to develop and fund their early stage business initiatives. The coalition government backed StartUp Britain, Irene Graham has been brought in to build and develop The Scale Up Institute, and Techcity and Tech North (soon to be merged into Tech Nation) are doing amazing work to support the ecosystem and advise policy (in particular, with their Fintech program). Regional governments and London are creating fantastic programs with great work being done by the likes of the LCIF, Capital for Enterprise, and London & Partners. All these, however effective you view them to be individually, point to a government which is supportive and ready to act for the sector.
Developed tech ecosystem
The UK ecosystem has come a long way in the last 15 years. The nation has exploded to create a melting pot of developers (second only to Germany for the largest number of software developers), entrepreneurs, advisers and funds to create the perfect pool of ambition and ability. We now have over 200 incubators and 160 accelerators supporting over 7,000 businesses a year. In 2016 nearly 660,000 companies were established, up almost 9% from 2015, creating the all-important horny foals which may just one day turn into a unicorn.
As one moves up the funding ladder there is a growing layer of funds supported by the British Business Bank, EIF and the VCTs. Where maybe we are still a little lacklustre is in the fund of funds stage where the UK funding landscape is still less developed than the that of the US.
The UK is home to eight of Europe’s top 20 universities and two of the top 10 computer science universities globally. It is well known that this is not only a great training ground for home grown talent but also creates a draw to nab other countries of their best and brightest to come in and help sate the ever-growing need for talent.
In addition to this, UK universities are increasingly good at commercialising their research. A Russel Group report shows that for every 1,000 university staff in the UK there are approximately 16 licence agreements. This compares to 12 in Switzerland and 5 in Germany. We are yet to fully capitalise on this however, since Oxford University has produced only 62 spin outs in the last 10 years compared to 32 in 2016 alone for Stanford in the US. Nonetheless the opportunity is there. We are seeing universities wise up, with great organisations like Oxford University Innovation, Cambridge Innovation Capital and SetSquared (which does a sterling job at highlighting innovation from non-Golden Triangle Universities). As we continue to capitalise and retain the world-leading research we are doing, we will truly cement our position as a global tech centre.
This article is for information purposes, should not be regarded as investment or taxation advice and no reliance should be placed upon it. Any personal opinions expressed are subject to change and should not be interpreted as advice or a recommendation.
For press enquiries, please contact:
Pamela Morris, Account Director, the lang cat
0131 202 6037
Jean Birrell, Downing PR Consultant
NOTES TO EDITORS
ABOUT DOWNING VENTURES
Downing Ventures invests in seed to Series A+ companies, with the appetite for follow-on investments. We invest in a variety of technology sectors including consumer internet and mobile, enterprise software, defence and security technology, financial technology and health technology. Since being founded in 2014, we have grown to manage a portfolio comprising more than 44 companies. We work alongside a number of investment partners and accelerator programmes and incubators, including the London Co-Investment Fund.
ABOUT DOWNING LLP
Downing Ventures is a division of Downing LLP, a London-based investment management firm. We help UK businesses grow by investing in them via our range of venture capital trusts (VCT), enterprise investment schemes (EIS), inheritance tax (IHT), individual savings account (ISA) and open-ended investment company (OEIC) products. So far, over 35,000 investors have been a part of what we do and we are proud to have raised over £1.7 billion into businesses across a range of sectors, from renewable energy, care homes, health clubs, and children's nurseries, to app-technology, sports nutrition and earth satellite stations.