Then to now: How does the UK compare to Silicon Valley?<\/strong><\/p>\nAs the UK is the biggest tech hub in Europe, it\u2019s often compared to the biggest in the world \u2014 Silicon Valley. But Andrew Williamson, managing partner of Cambridge Innovation Capital, ditched the UK for California in the 90s as there was \u201cliterally nothing going on\u201d.<\/p>\n
One of the more interesting phenomena is where you have people from Silicon Valley seeing Europe as a good place to build a startup<\/p>\n
The contrast with today is stark, he says, particularly referencing Cambridge, home to one of Europe\u2019s top “unicorn universities”: \u201cCambridge has completely transformed: It\u2019s now perhaps the most innovative ecosystem in the whole of Europe for deeptech. There\u2019s a cross-party recognition that the future for the UK for the next 20 years is going to be innovation-driven.\u201d<\/p>\n
Stephen Nundy, partner and CTO at Lakestar, says the amount of company formation in the UK has \u201cincreased significantly\u201d over the past 10 years.<\/p>\n
\u201cWhat does that mean for the next 40 years? A couple of years ago we started reaching breakout velocity, where people are coming to Europe, to the UK, to start companies,\u201d he says. \u201cOne of the more interesting phenomena is where you have people from Silicon Valley seeing Europe as a good place to build a startup.\u201d<\/p>\n
Referencing the upcoming BVCA Report on Investment Activity for 2022, Chris Elphick, senior VC manager at The British Private Equity & Venture Capital Association (BVCA), noted that while it showed that investment was down from 2021, \u201c2022 was a challenging year for VC globally, not just in the UK\u201d.<\/p>\n
\u201cWe need to look at the growth over the past 10 years and we\u2019re still performing strongly. The UK is still by far the largest in Europe, so the growth in VC has solidified and continued to increase as a general trend.\u201d<\/p>\n
UK vs Europe<\/strong><\/p>\nHow does the UK compare to Europe? In 2021, more unicorns were created in the country than in France and Germany combined, with more than two created every month on average.<\/p>\n
\u201cConsidering the tumultuous last few years, I think we\u2019re in a robust place,\u201d says Nundy. \u201cWe\u2019ve also seen the rest of Europe up the ante when it comes to seeing the opportunity that startups bring to productivity and GDP.\u201d<\/p>\n
There\u2019s an easier movement of talent around Europe. And we\u2019ve taken that simplicity away
\nHe points to French president Emmanuel Macron\u2019s visa policy \u2014 startups meeting certain criteria can bring talent from anywhere in the world in two weeks \u2014 and Station F, the world\u2019s biggest startup campus in Paris: \u201cIt\u2019s clearly poked what Germany and the UK are doing and I think that competition at a governmental and national level is healthy.\u201d<\/p>\n
One of the biggest challenges for UK tech, however, remains talent. While tech companies globally are grappling with this, Brexit has made things stickier.<\/p>\n
\u201cThere\u2019s an easier movement of talent around Europe,\u201d says Nundy. \u201cAnd we\u2019ve taken that simplicity away.\u201d Even with the introduction of talent visas, \u201cyou\u2019ve still put sand in the gears\u201d.<\/p>\n
There\u2019s work to do when it comes to regional disparity \u2014 tech in the UK is still dominated by the “Golden Triangle” of Oxford, Cambridge and London.<\/p>\n
The scaleup gap<\/strong><\/p>\nOne way to take the temperature of a nation\u2019s VC is as a percentage of GDP, and Williamson points out that \u201cventure investment as a percentage of GDP is broadly similar now in the UK to the US, and far ahead of everywhere in Europe except for Israel\u201d.<\/p>\n
When you get to the Series B, C rounds, there\u2019s fewer funds of scale in the UK that can lead those rounds<\/p>\n
Yet there are places where the UK still falls short. And the US remains leaps and bounds ahead when it comes to turning ideas into globally competitive businesses.<\/p>\n
\u201cUp to Series A, the UK is very strong,\u201d says Elphick. \u201cWhere the gap is \u2014 the scaleup gap \u2014 is when we\u2019re looking at those big growth rounds, \u00a350m deals and upwards. When these deals are done in the UK they\u2019re more often led by US VCs. When you get to the Series B, C rounds, there\u2019s fewer funds of scale in the UK that can lead those rounds.
\nA BVCA analysis of Beauhurst data from 2020-21, looking at science and technology companies, revealed that over half of 52 Series B+ growth rounds in the UK (ranging from \u00a335m to over \u00a3400m) were led by US VCs, while only seven were led by UK investors. Comparable deals in America are 80% led by US investors.<\/p>\n
This so-called scaleup gap has led to concerns that the UK might fall behind. Lakestar and McKinsey numbers on closing that gap put the cost at \u00a375bn a year over 20 years: \u00a31.5tn by 2040.<\/p>\n
What\u2019s needed, Nundy says, are efforts to increase the amount of capital for scaleups to expand globally.<\/p>\n
\u201cThere\u2019s plenty of capital in the UK, it\u2019s just in places that aren\u2019t being released,\u201d he says. \u201cIf we run larger pools of capital, we can invest in later-stage companies and the reliance on Middle Eastern or US funds falls away and it becomes much more competitive.\u201d<\/p>\n
Government initiatives<\/strong><\/p>\nAnd moves are being made.<\/p>\n
One significant change is the defined contribution (DC) pension reforms, and the related Long-term Investment for Technology & Science (LIFTS) scheme. These aim to unlock capital from UK DC pension funds, which have historically been unable to invest in startups.<\/p>\n
Pension savers get better returns in their pensions and the UK economy will benefit because there\u2019s more capital to scale up the best businesses
\n\u201cThe government is recognising that they have to not only create an attractive situation for entrepreneurs to set up shop here, but also create the capital flows to allow the continued growth of these hubs beyond the first \u00a35m check,\u201d says Nundy.<\/p>\n
American pensions, in contrast, have always invested in VC, both at home and abroad. The reasons are in the returns. \u201cOver a 10, 20, 30-year cycle, the data from the US and Europe has shown that private equity and venture capital investments yield stronger results than investing in a FTSE or other kind of index basket,\u201d Nundy adds.<\/p>\n
BVCA\u2019s 2021 performance measurement survey illustrated this: VC as an asset class has performed well post-dotcom crash. The returns post-2006 \u2014 at 15.6% \u2014 are higher than private equity.<\/p>\n
\u201cThis is one of those rare win-wins in life,\u201d says Williamson. \u201cPension savers get better returns in their pensions and the UK economy will benefit because there\u2019s more capital to scale up the best businesses.\u201d<\/p>\n
Other indicators point to good times ahead for UK VC. A flurry of funds have been established, many led by the British Business Bank, a government-owned development bank; newer funds like Notion are beginning to lead big rounds in the UK; and schemes like LIFTS look to catalyse billions of pounds of investment into later-stage companies, too.<\/p>\n
\u201cNow there are investment opportunities, we\u2019ll start to see more funds set up,\u201d says Williamson. \u201cAnd then I strongly believe that it\u2019s just a matter of time before things start to snowball.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"
Venture capital has planted deep roots in the UK over the past 40 years \u2014 and the country\u2019s tech ecosystem has blossomed, maintaining its position as the largest market in Europe and rubbing shoulders with other world-class hubs such as the US. What predictions can we make for the future of VC in the UK? […]<\/p>\n","protected":false},"author":3,"featured_media":2062,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false,"footnotes":""},"categories":[5,29],"tags":[50],"acf":[],"yoast_head":"\n
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