Why Britain will never create its own Silicon Valley
The Wandisco fiasco is just the latest in a long line of disasters that have blighted attempts to build a thriving UK technology industry
Welcome to the Wandisco inferno – asbestos trousers obligatory. If a week is a long time in politics, then it’s a lifetime in the topsy-turvy world of Britain’s technology scene.
After all, it was only on Monday that Wandisco, a software provider touted as a future homegrown technology star, made a big song and dance about listing its shares in America. With the shares surging to a decade-high of more than £14 on the back of the announcement, the decision appeared to be immediately vindicated.
Fast forward a mere three days, and it’s probably fair to say Wandisco’s dreams, as well as its credibility, have gone up in smoke – torched by the discovery of possible fraud, and what could be a fairly sizeable one.
Annual turnover for last year is now expected to be “as low as $9m” (£7.5m) compared with $24m previously – a whopping 63pc less. It also has “no confidence” in bookings that were taken in the final quarter of the year. To top it all off, the company says there are “significant going concern issues”, raising questions about its survival, or at the very least the need for an emergency cash injection.
Whatever the fallout, it is likely to stretch way beyond the four walls of Wandisco’s Sheffield headquarters, damaging not just the start-up’s now unclear prospects, but dealing a further blow to the reputation of the wider British technology industry.
There may be a temptation to dismiss the company’s problems as an isolated incident from which there is little else to deduce. After all, in its mea culpa to the stock exchange, management suggested the accounting irregularities are the work of a single “senior sales employee”.
However, to seasoned observers of British technology, the saga will feel sadly all-toofamiliar. Wandisco’s troubles are merely the latest in a long line of accounting scandals, wildly overblown valuations and costly, unfulfilled promises that have blighted this country’s efforts to build a technology industry of international standing – never mind one that has any chance at all of challenging American hegemony.
Indeed, when the Chancellor proclaims to an audience of senior tech figures, as he did in January, that his vision is to turn the UK into the “next Silicon Valley”, one seriously wonders if he’s been paying attention or is simply hoping they haven’t been.
It goes without saying that backing the next big thing necessarily involves a huge amount of risk, not to mention courage. But there’s a world of difference between taking a bit of a punt and pouring money down the drain, and the sector’s track record is such that UK tech investing is in danger of feeling not too dissimilar from the latter.
It certainly can’t afford many more scandals before investors give up and take their capital elsewhere, leaving an entire generation of promising start-ups to wither on the vine.
Of those that have found their way onto the London Stock Exchange in recent years, it’s hard to think of one that hasn’t been a flop in some form.
There’s Cambridge darling Darktrace, whose float in 2021 was seen as a major coup for a City seeking to lure more high-growth tech start-ups after Brexit but is now fighting accusations, which it has denied, from a short-seller of flawed accounting and activities that artificially inflate a company’s reported sales. There are concerns too about its business model and culture.
Payments giant Wise arrived with similar hope but quickly went from fintech trailblazer to tax rebel after founder Kristo Kaarmann was named and shamed by HM Revenue and Customs for defaulting on a £720,495 tax bill. The revelations triggered an FCA investigation, and are one of the main reasons why its shares remain nearly 30pc below the listing price.
Deliveroo deserves a special mention – a food delivery app masquerading as a sophisticated technology champion that with overwhelming predictability has spectacularly failed to live up to expectations. But then, few floats have been quite as ludicrously over-hyped.
Away from the public markets there was Powa, the payments app that went bust; Karhoo, a would-be Uber rival that went under having spent so heavily that it was unable to pay its bills and staff at the end; social media app Fling, which burnt through $21m in less than three years before filing for administration; and Ve Interactive, a digital advertising start-up that collapsed in 2017 with £50m of debts just months after one investment bank tipped it for a $10bn valuation. Industry scholars will also recall the fate of Blinkx, Monetise and Blur Group.
Still, none can hold a flame to Autonomy, one of the few British companies that deserved to be called a tech champion, at least until its implosion a decade ago after it was bought by Hewlett Packard. Founder Mike Lynch is facing extradition to the United States to face criminal charges, which he denies, over claims that he inflated the value of Autonomy before its sale.
There are no direct links between any of these names, really. But the catalogue of disasters is so great that the harshest of critics might begin to view a UK listing not as an investment kitemark, but a red flag when it comes to tech companies.
The real growth businesses in software and hardware have either chosen to go private or have headed to America, as chip giant Arm announced it was planning to do earlier this week. Those that choose the City will increasingly stand out like a sore thumb.
‘It’s hard to think of one listed start-up that hasn’t been a flop in some form’