UK needs more investors with experience of launches
Fifty years ago a Saturn V blasted off from the Kennedy Space Centre in Florida, in a record that remains unsurpassed. Standing 363ft tall – 48ft higher than the tower housing Big Ben – the launch vehicle that was used to propel Apollo 11 to the Moon remains the tallest, heaviest and most powerful rocket ever built.
It’s not just in rocketship technology where the US retains an edge. In the funding of start-up technology companies, Silicon Valley remains the Saturn V of the global venture capital industry, far outspending anywhere else on Earth and sending successful companies into orbit at a frenetic pace. In the three months to June 30, venture capital firms pumped $30bn (£24bn) into thousands of North American start-ups – twice the $15bn invested in Asia and nearly four times the $8bn invested in Europe, according to CB Insights.
In comparison, Britain’s VC scene is a tiddler – more of a Trident missile than a Saturn V – although it remains the strongest single market in Europe. The birthplace of more than a third of
Europe’s “unicorns” – companies valued at more than $1bn, such as Monzo, Checkout.com and Deliveroo – Britain is also at the forefront of key investment themes including artificial intelligence and financial technology. Ask anyone in the industry and they will say Britain remains a great source of talent, ideas and innovation, often spun out of top universities. It is less good, however, at commercialising that expertise and building successful companies with the potential and scale to become national champions.
All too often, UK technology companies are snapped up by foreign giants before they get the chance. Google’s acquisition of Deepmind, the London AI specialist, and Softbank’s purchase of Cambridge chip developer Arm are obvious examples. Others rush to the US at the earliest opportunity, assuming it is a more natural home for them.
British conservatism and a desire for founders to cash in their chips at an earlier stage than in the US may offer a partial explanation for this trend. But another issue that rarely receives the attention it deserves is the character of the UK’S VC market, which remains closely allied to the City of London.
At top-tier US venture capital firms, 40pc of investors have entrepreneurial experience working for young companies. In the UK many enter the industry after a career in the City. Just 8pc of UK venture investors have prior experience working at a start-up, while only 4pc had a prior role at a technology company, according to Diversity VC’S report this month. In contrast, about 41pc of UK VCS come from the financial services industry. Why does this matter? Put simply, it affects the quality of the advice.
Silicon Valley’s emergence was above all tied to the critical mass of people, expertise and capital that grew up as it evolved. If you have enough start-ups, some will be successful and exit, recycling their capital and expertise as venture capitalists.
Perhaps it is no surprise that so far many of Britain’s most successful technology companies specialise in finance, an area in which the VCS backing them are more likely to have genuine expertise. But with thousands of tech start-ups across a range of industries in the UK now, there are grounds for optimism that it is evolving in a similar direction as the US.
Either way, the UK does need a healthier balance between VCS who have started and exited businesses, and financiers from the City who often have not.
If Britain wants to build a rocketship to blast its technology companies into orbit, it needs to consider how this can be achieved faster.