Yahoo Finance How UK tech is confounding Brexit uncertainty to attract record investment
The UK's world-leading fintech sector is one of the main reasons why its tech companies are receiving unprecedented levels of investment
"Brexit is a dire threat to the UK tech industry”. Those were the words of pro-Remain group Tech for UK, which claimed that the prospect of leaving the EU’s customs union would tear apart the bedrock on which the tech industry operates.
An exodus, they said, was on the cards.
“Anecdotally, we know many of the innovative startups of the future are looking to other EU cities to relocate to, or simply bypassing the UK altogether,” they wrote in an open letter in November last year.
At the start of this year, British technology pioneer Dyson confirmed it was moving its legal headquarters to Singapore. Sony had similar plans for its European HQ.
But despite these losses, fears of a no-deal Brexit scenario crippling tech investment or stifling talent are yet to be fully realised. In fact, investment in the UK tech sector has hit record highs according to the annual State of European Tech report from Atomico.
The London-based venture fund, led by Skype co-founder Niklas Zennström, says that the UK's technology sector has attracted just over $11.1bn (£8.6bn) so far in 2019 – placing it well ahead of Germany on $5.4bn, France on $4.8bn and Sweden on $3.4bn. It is also more than double the $5.2bn UK companies raised in 2016.
Brexit proof?
“We’ve raised money since the vote on Brexit,” says Christian Owens, chief executive of London software start-up Paddle. “I speak with our investors and other founders, and there seems to be a consensus that Brexit is not affecting this side of the economy.”
Uncertainty over Brexit may be having a verifiable impact on more established technology companies investing in Britain, particularly those building hardware or reliant on manufacturing. But for fast-growing, agile software and financial start-ups – companies working in two of Britain’s strongest sectors – the figures tell a different story.
According to the report, the UK is now the single largest source of billion dollar VC-backed tech companies from Europe with 29, followed by Germany and France.
Tech unicorns in the UK – or startups worth more than a billion – include Monzo, Checkout.com, Deliveroo, Darktrace, Graphcore and Improbable.
“A year ago, Brexit was my big concern in continuing [our] momentum,” says Taavet Hinrikus, chairman of payments business Transferwise. “Today, it’s clear the current crop of scale-ups will meet this challenge.”
Some of this year's largest deals so far have come in the UK’s financial technology space, which is world-leading.
Monzo, the British start-up bank, was valued at £2bn after taking on £113m from US investor Y Combinator, a renowned start-up incubator. Japan’s SoftBank, meanwhile, has also been increasingly active in the UK where it has headquartered its Vision Fund investing division.
The UK’s strength in finance, its embrace of technologies like contactless payments and the willingness of regulators to allow experimentation have all made it the natural home of “fintech” in Europe, and a viable challenger to Silicon Valley in that sector at least.
Ethical tech
Britain is also leading the way in creating “tech for good”. It’s home to companies such as Everledger, which is using distributed ledger technology to prevent the sale of blood diamonds. It recently raised £16m in a funding round led by China’s Tencent, and has also received backing from Graphene Ventures and Fidelity Investments.
Outside of Britain’s increasingly robust fintech and tech for good sectors, Amazon led a £450m funding round for food delivery company Deliveroo.
Brexit also does not appear to have stopped venture capital investors from raising money with a remit to invest in the UK.
In the last two weeks alone, UK headquartered Balderton Capital announced a new $400m fund and MMC Ventures a £100m fund. Northzone, a venture fund with offices in London and Stockholm, confirmed a $500m new fund this week.
“The current investment climate is still very strong,” says Charlie Delingpole, chief executive of UK financial technology start-up ComplyAdvantage, which has itself raised $30m, something it “could not have achieved anywhere else in the world”.
“Many new venture funds have recently raised new multi-hundred million dollar funds and the UK continues to attract talent.”
Bulldog spirit
The report from Atomico follows comments last week by billionaire Eric Schmidt, Google’s former chairman, about Britain's resilience in the face of political uncertainty.
“Britain is a particularly good platform to do global things,” the billionaire said. “There’s enough unicorns here [startups worth more than $1bn] that the system will generate enough learning to continue to generate more capital. Markets are accessible and so on... And this seems to be independent of what happens politically in the country.”
Of course, Brexit and the threat of a no deal has clearly caused a number of headaches for start-up founders. There has not been a mass exodus of tech companies but some have had to set up European hubs earlier than expected. Meanwhile, there remain some concerns over what a no-deal Brexit would mean for visas and immigration.
Some of the signals from the data in Atomico’s report are mixed. The number of venture capital deals in the UK appear to have peaked in 2015, when there were 1,600 investments compared to 1,130 last year and 1,300 so far in 2019.
And whilst London remains Europe’s start-up capital, attracting $8.2bn in venture investment so far this year, there’s growing competition across Europe. Paris, Berlin and Stockholm have all presented themselves as attractive destinations for those looking to escape the Brexit malaise.
France, for one, has loosened rules around immigration under its new French Tech Visa, while in September Emmanuel Macron announced a massive €5bn “deep tech” fund to back start-ups working on foundational technologies like artificial intelligence.
Despite this, it’s clear that the UK technology sector remains in rude health. The possibility of a no-deal Brexit appears to have somewhat diminished in recent months and investors remain upbeat.
Separate research by the Department of Digital, Culture, Media and Sport in August found that UK tech companies secured a record £5.5bn in foreign investment in the first seven months of this year – more than the amount invested per capita in the US tech sector.
“All the signs indicate 2019 will be yet another great year for the UK’s tech sector which is on course to exceed $11bn worth of investment before the end of the year,” says Culture Secretary Nicky Morgan.
“Clearly we like many in the world would like to see a sensible deal done with Europe,” adds Will Fraser Allen of AlbionVC. Now, investors main concerns surround access to the right people at the right price. “Most important for us is the free flow of technical talent,” he says.
Eileen Burbidge, a partner at Passion Capital, agrees: “As long as we can continue to attract the best talent I’m optimistic about the outlook.”
