London has one of the biggest and most vibrant start up scenes; and it could hold the key to the UK’s economic future economic growth. Investment is pouring in, and London presents a prime location for high tech employees.
Having worked with startups for many years and now judging the London MassChallenge competition, I can assure you that not only are there vibrant startup scenes across Europe, but that London is one of the biggest and most compelling; and it could hold the keys to the UK’s economic future.
London-based startups are estimated to have raised almost $1bn in the first nine months of 2014: a ten-fold increase from 2010 and 30% more than in the whole of 2013. This level of funding was eclipsed in the first three months of 2015, with an estimated $1bn of investment across Europe in March alone. Global venture capital (VC) funds such as Santander, Google Ventures, Index venture, Accel partners, T-Ventures, Balderton Capital are taking part, in addition to many more.
But the cash received by London’s startups is still dwarfed by what has been invested in West Coast tech companies. US venture capital funds have invested $160bn since 2012, with $70bn of it in Silicon Valley, according to the National Venture Capital Association. It’s clear that UK startups will need to continue to compete for US dollars to keep the cash flowing in, as these funds have deep pockets and a greater willingness to invest.
Within Europe, London has its advantages: in particular, it is home to an increasing range of experienced VCs; is globally seen as a desirable place to live and has many excellent universities and established technology companies nearby, providing a source of talent.
However, in a more densely populated continent with more languages than the US it’s harder to create one dominant startup centre. Silicon Valley has attracted companies across a very broad spectrum, whereas in Europe and Israel we tend to find different cities being leaders in certain areas. In the UK you find a wide range of consumer fintech companies and enterprise adtech, followed by an even split between health, employment and consumer fashion services; while in Israel there are primarily enterprise infrastructure, security and adtech firms, though there is a healthy consumer communications sector as well.
And London is not alone in its success in Europe: almost $6.5bn was invested across almost 600 companies throughout Europe and Israel over the past three quarters, with March 2015 alone accounting for nearly $1bn. The largest deals took place in the UK and Ireland, a market that’s continuing to grow at pace, closely followed by Israel and trailed by Germany, France and the Nordics. It’s interesting that although American VCs are investing more heavily than ever before, especially in Israel and the UK, they have been outpaced by the growth in domestic investors.
The picture becomes even more interesting when you examine the startups’ sector mapping: their target market (who are they selling to?); vertical market (what kind of problem are they addressing?); and business model (how do they plan on making money?). The consumer and enterprise markets are increasingly targeted, with small businesses and government barely present; but this isn’t even across the countries. German startups are almost entirely consumer-focused, while Israeli ones are almost entirely enterprise-focused and the UK is almost perfectly balanced between the two.
Startup hubs don’t have to be limited to London. Although that’s where the bulk of the investors are today, they can grow wherever there is good access to talent and investment. This is where London’s strong network of incubators including TechStars London, Wayra, Solve Together, and more, not to mention accelerators such as MassChallenge, become critical too.
It is unrealistic to think that London can go head-to-head with Silicon Valley. However, now that there is an established model in London successes can be exported to other areas in the UK, making not only London but the entire region an important high-tech hub for the EU.
Dave Akka is CEO of ABRS tech recruitment firm