Is London, and the UK more broadly, becoming less attractive for technology businesses? Judging by recent comments from the founders of Revolut and Monzo, or executives at Microsoft and Activison, you’d be forgiven for thinking the UK is losing its standing as a global tech hub.
Regulatory roadblocks, a lack of liquidity, and the UK’s entrepreneurial mindset have all come under the microscope.
The founders of Revolut – chief executive, Nik Storonsky, and chief technology officer, Vlad Yatsenko – this month launched a stinging attack against the UK for being less supportive of businesses compared to the US. It comes as Britain’s most valuable fintech company is reportedly set to see its application for a UK banking licence rejected.
“US tech champions are so supported by the government: all the lobbyists, politicians, governors, they always promote business, business, business and it is completely the opposite in the UK,” Storonsky told The Times. “We have experienced a slowing down. You never know what needs to be done here.”
In April, Brad Smith, vice chair and president at Microsoft, said the decision by the UK’s competition regulator to block the US tech giant’s $68.7bn merger with gaming firm Activision “discourages technology innovation and investment in the United Kingdom.”
And Last week, Monzo founder Tom Blomfield fired a parting shot at London as he moved to San Francisco to take up a role at American tech startup accelerator Y Combinator. He told Bloomberg that there were more opportunities for entrepreneurs in the US and that the dearth in London listings is “very real”.
Do they have a point?
Sarah Barber, CEO of investment firm Jenson Funding Partners, thinks it’s more nuanced.
“It’s such a sweeping statement to say London or the UK generally is losing its appeal and energy for tech businesses,” said Barber. “Doing so neglects to consider the many factors that makeup one of the largest ecosystems in the world, such as stage and sector.”
Barber added that “the quality of the deal flow pipeline has arguably never been so strong” since the London-headquartered firm began investing over a decade ago.
Since leaving challenger bank Monzo in 2021, Blomfield has become a prolific angel investor.
“Presumably Tom Blomfield saw some vibrancy and ambition in the 70-plus angel investments he made after leaving Monzo, many of which are London startups,” added Barber.
Liquidity and public markets
Over the past decade, the UK’s tech sector has gone from strength to strength. But an all too familiar pattern has emerged in which innovative British tech firms scale only to be snapped up by an overseas competitor – or shun the London Stock Exchange for an initial public listing on the US Nasdaq.
UK IPOs fell to their lowest level in a decade last year, with just 41 companies completing a listing on the main market of the London Stock Exchange. They generated £1.2bn in new issues, the smallest amount in at least 14 years, according to figures from UHY Hacker Young, the accountancy group.
Despite political lobbying, the UK has failed to entice big-name tech companies such as Cambridge-headquartered chip designer Arm to re-list in London, with the SoftBank-owned company instead choosing the US for the most anticipated IPO of the year.
Investors and entrepreneurs point to a lack of liquidity and restrictive listing requirements as a significant factor behind this trend.
“London is not unattractive for companies, but I think you’ll find most tech founders and CEOs do look to the US,” said Gareth Jefferies, partner at RTP Global, a venture capital firm.
“Complexity of listing rules, regulations around running a public company, and regulations around board member compensation are often cited as factors, but in reality I think the vast majority of the relative attractiveness of the US is the liquidity aspect. Any real efforts to make London more attractive need to start there.”
The UK’s Financial Conduct Authority (FCA) has taken steps to address the issues and encourage more tech listings to a market that is heavily weighted towards traditional stocks such as banks and oil exporters.
In 2021, the FCA confirmed revised UK listing rules to let companies create dual-class share structures within the premium listing segment for five years, along with loosening free-float listing requirements.
Earlier this month, Sarah Pritchard, executive director of markets and executive director of international at the FCA, reiterated the regulator’s commitment to reforming listing rules.
But for now, entrepreneurs and investors are finding it difficult to pick the UK over the US for an exit.
“As an entrepreneur interested in huge, visionary ideas, I know that to try and create the next big, global businesses of tomorrow, you go to the US, not the UK, to raise money privately or to list publicly these days,” said David Newns, a tech entrepreneur who has sold two companies for £158m.
Dr Someit Sidhu is CEO of Zura Bio Limited, a UK-founded biotechnology company that opted to list in the US.
“Ultimately, the investor base is not as wide or deep as it is in the US and that makes it, unfortunately, less appealing,” Sidhu said.
Position of strength
However, the wider context should not be ignored. While London’s illiquidity and public market rules are a drag on growth, its tech ecosystem was valued at $314bn last year – higher than Berlin ($94bn) and Paris ($89bn) combined.
The UK capital attracted the second highest level of tech foreign direct investment in 2022 – second only to Dubai globally, according to fDi Markets data, while the UK as a whole ranked third globally for tech foreign direct investment.
“London continues to attract tech investment and talent from across the world,” says Laura Citron, CEO of London & Partners, the capital’s business growth agency. “Despite a challenging macro-economic environment, London’s tech sector remains resilient.
“In fact, last year London attracted more tech inward investment projects than any other European city and ranked second globally. We continue to see strong interest from tech companies looking to grow their presence internationally – especially in fast-growing sectors such as fintech, climate tech and gaming. Our strengths in high growth technologies can give us confidence that the UK tech sector we will continue to weather the storm.”
Meanwhile, the UK attracts more almost double the VC funding of France, its nearest European competitor.
And the UK’s fintech sector has remained robust compared to the rest of the world, with funding levels dropping 8% last year compared to 30% globally.
“As a fintech based in Barcelona but with a presence in London and Cambridge, we are acutely aware that there is increasing competition from Europe,” says Laurent Descout, CEO and co-founder of Neo. “The UK government must continue to champion the fintech sector, supporting startups and boosting digital skills in order to maintain momentum and continue to prosper, ensuring London remains a leading fintech hub.”
Other founders and entrepreneurs remain optimistic about the UK tech sector, but caution the public and private sector cannot afford to rest on their laurels.
Dimi Albers, CEO of DEPT, a global tech and marketing services company headquartered in Amsterdam, along with a UK presence, said the UK “offers too much for global business leaders to ignore”.
However, Albers added that there are “lessons the UK can learn from around the world to remain a tech leader”, such as tech visa schemes with “major tax benefits”.
Pete Sayburn, CEO of Studios-pace, a matchmaking platform for senior marketers looking to hire agencies, said: “The UK creative and digital sectors are second to none in their talent, entrepreneurship and resilience. We need more confidence to back new ideas and encourage our innovators.
“There is so much potential here. Just look at our vibrant startup scene which so many encourages talented tech entrepreneurs to set up new businesses.
“There is also a strong emphasis in the UK on collaboration between big companies and smaller innovators. This doesn’t happen everywhere but I see it happening all the time in the UK.”
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