Downing Ventures: we’ve put the UK’s regions firmly on our investment map

Michael Tefula - Associate

Michael Tefula

18 March 2019

When it comes to finding the most entrepreneurial communities, the stats tell us that London is still the place to be. No surprises there then. But a look beyond the headline data tells us that there’s more to life outside the capital.

London is home to 51% of all the equity investments made into private businesses in the UK, according to data from 2017. When it comes to cash investment, London-based tech companies also received 72% of the £2.49 billion invested across the UK tech sector in 2018. Beyond London, the data looks less promising, with some regions - notably the North East and East Midlands - seeing over a 30% decline in deal volumes.

Despite London taking the lion’s share of equity deals across private equity and venture capital in the UK, regional cities are actively cultivating startups into highly successful, large-scale businesses, particularly in technology.

Talent starts at home

The UK currently has five tech hubs outside of London in which two or more unicorn businesses have been created. Cambridge and Oxford, for example, are home to a number of life science and technology companies that have grown into global businesses. Manchester has also helped harness an eclectic mix of familiar startups such as Autotrader, while online retailer Boohoo—which now has a market cap of £2 billion—was established in the city and still has its headquarters there.

Leeds and Edinburgh are home to household names Sky Bet and Skyscanner respectively, the latter of which was sold for £1.4 billion in 2016. Meanwhile the £1.3 billion machine learning company, Graphcore, was founded in Bristol and continues to be based out of the city.

Although it’s still true that regional founders will sometimes leave their original base to be closer to other talent pools and customers, these examples clearly show that investors should not overlook the potential value of supporting entrepreneurial businesses in their embroyonic stages and homes.

Turning heads towards the regions

We all know how expensive it is to live in London, and the same goes for the office rentals in the capital, which are set to rise by 11.4% over the next three years. On the other hand, cities like Manchester are launching attractive initiatives that can lower the startup costs of a company, such as subsidised space with zero business rates. And then there are incentives such as the £1 million subsidy from the Welsh Government to support the creation of over 300 jobs in Cardiff by digital bank, Monzo. All of this means that companies launching in regional cities will often have a lower cost base, which, for investors, could ultimately translate into higher returns.

Recent research from the University of Oxford’s Saïd Business School suggests that it isn’t always enough to rely on government programmes as a way of encouraging more entrepreneurship in other cities. Instead what’s needed is a combination of private investment activity from smart money, in tandem with government initiatives. This combination should cultivate successful entrepreneurship ecosystems that can help the nation thrive as a whole.

All too often, there is a lot of talk about the many exciting opportunities in the regions by our industry but, as those original headline figures at the start of this article show us, there is a lot less actual investing going on. Bristol-based Open Bionics, an advanced prosthetics startup, is just one example of how our own team at Downing Ventures is putting its views into action by growing its portfolio beyond London, having participated in a recent £4.6 million funding round. We also have investments in Wales, Edinburgh, Brighton, and continue to develop our pipeline across other cities.

Much like other London-based VC firms, we have some way to go in our efforts investing in regional talent. But given the untapped potential across the country, a regional strategy is clearly something that should be on the map of any ambitious venture capital fund.

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.

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