Not many will get the cultural reference in the title, but this is a good piece on growth in the UK tech sector and how it is funded:
Big investors are taking advantage of tax breaks to establish a UK Silicon Valley. By Chris Stokel-Walker
You can’t move in Covent Garden and Fitzrovia for American tourists some days, but not all the US accents heard in bars and restaurants around the tourist traps belong to travellers. The US’s biggest tech firms and investors are increasingly calling London their home — and particularly those two enclaves.
Three weeks ago Andreessen Horowitz, one of the largest Silicon Valley venture capital firms, announced it was setting up its first office outside the US in London later this year, led by veteran investor Sriram Krishnan, who will be moving over in a couple of months.
“[Andreessen Horowitz] doing more deals here will certainly attract more international attention to UK start-ups, because the tech world pays close attention to what [it] does,” said Martin Bryant, founder of the London tech newsletter PreSeed Now. Boosting Britain’s brand among the technorati, he added, was a boon in a post-Brexit world.
But it was just the beginning. Two weeks later, it was the turn of ChatGPT creator OpenAI to announce it was opening its first international office in London — thanks to Britain’s “rich culture and exceptional talent pool” — which beat Warsaw and Paris to that prize in a rare fillip for Rishi Sunak. OpenAI joins another UK-based AI company, Stability AI, led by Emad Mostaque.
It’s partly the political environment that attracts tech businesses to London — Sunak has set up a welcoming regime of tax breaks including seed enterprise investment schemes and 50 per cent tax relief on investments up to £200,000 a year, as well as benefits for high-value businesses in tech. He has also signalled his support through stunts such as replacing the “10” on the front door of 10 Downing Street with binary code that read “LTW” for London Tech Week in mid-June. Tech is an interest that stems from Sunak’s time studying for an MBA at Stanford University in California; his wife, a fellow classmate, wasn’t the only love he acquired in the US.
Another benefit of the UK is that it doesn’t require employers to pay so-called “social charges” in addition to income tax, making Britain more attractive than France. In addition, England’s capital city has been an IT destination for some time — “[it] continues to lead the tech sector in Europe, and the interest of US venture capital firms and big tech companies in having an office here underlines that,” said Davor Hebel, managing partner at VC firm Eight Roads Ventures Europe. Nevertheless, London has still been able to build further momentum recently.
“The European [venture] market has posted better returns than the US in recent years and is poised for growth, and London is central to that, which is why US firms moving here is not surprising,” said Manjari Chandran-Ramesh, a partner at Amadeus Capital Partners, another VC firm. “To scale, more capital and wider networks are always required, so I feel this will be positive.”
“London has become a hub for US venture capital investment,” added Lloyd Price, chief executive of Hive Health, a London-based cybersecurity firm. In 2021, American VCs invested £10.6 billion in London start-ups — more than any other year on record. “This trend is likely to continue in the years to come, as US VCs look to London as a source of investment opportunities,” said Price.
Sarah Cannon of investment manager Coatue Management, who backed Slack, and Luciana Lixandru of VC firm Sequoia Capital, who helped the grocery-delivery app Getir to win investment, are two transatlantic transplants to have played a part in setting up UK sites for investors based in America. London is an attractive place for US investments because of its strong tech network, which includes the likes of Deliveroo, Revolut and Wise. “These companies have created a vibrant ecosystem that attracts talent and investment from around the world,” said Price.
But the valuations of the companies that London is producing are generally lower than in the US. In part, that is due to the smaller size of the British tech market, and the different regulatory environment. “US VCs can get more bang for their buck by investing in London start-ups,” said Price. The City is also a useful gateway to the European market; a blockbuster €105 million (£90 million) funding round in June for the French artificial-intelligence start-up Mistral was led by Lightspeed Ventures, which has its European headquarters just outside Covent Garden. “By setting up an office in London, American VCs can gain access to this market and identify potential investment opportunities,” said Price.
The open regulatory environment in the UK is also conducive to growing a start-up, according to Price, which means there are plenty of opportunities to invest in firms and help them succeed.
“With investors who have access to global insights and talent, a supportive political environment and deep pools of capital on their doorstep, I see the UK tech sector only gaining in stature,” said Chris Bischoff, managing director for Europe and the US at General Catalyst, a private equity firm.
For decades, London faced criticism that it was a great city in which to grow a company, but not a fantastic place to achieve financial returns. Now, it is. High-profile floats and sales of companies based in London have helped to convince investors that they can get returns on their cash. The £8 billion listing of fintech start-up Wise on the London Stock Exchange in 2021 helped investors realise the potential of the UK, even if other companies, such as chipmaker Arm, have chosen to list in the US instead.
Data from the capital’s business development agency, London & Partners, shows that London-based start-up companies raised $22.4 billion from VC firms in 2022, up 800 per cent from 2014.
Much of that cash is coming from US-based funds that used to focus on Silicon Valley. It all means that more Americans — and more American tech figures — are coming over to the UK. They are behind the purchases of more prime properties in central London in the past 12 months than any other nationality, according to estate agency Knight Frank.
Those incomers include former deputy prime minister Nick Clegg, now an executive at Meta, the parent company of Facebook and Instagram, who recently returned to the UK. Clegg was born in the sleepy Buckinghamshire village of Chalfont St Giles, but headed stateside in 2018 after leaving politics.
Heading in the other direction across the Atlantic, perhaps to help launch the newly released Threads app, is Instagram chief Adam Mosseri, who decamped to London several years ago.
Some big American tech players, including Bessemer Ventures’ Alex Ferrara, are now joking on LinkedIn that their children have assimilated so well that they are picking up British accents. It’s all welcome news for London’s tech sector — whose movers and shakers may soon speak with a Californian lilt.
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