Cutting-edge technologies such as artificial intelligence (AI), robotics and big data are among the fastest growing areas for investment according to analysis of venture capital flows into London’s tech sector carried out by the founders of London Tech Week.
The findings reveal that London’s AI and machine learning companies have become particularly attractive for investors, with 20 times more investment in 2016 (£85.75 million) than the amount raised in 2011 (£3 million). Over the past five years, these London-based companies have attracted over £207 million in venture capital investment, boosted by deals such as Google’s DeepMind and Magic Pony.
There has also been a sharp increase in VC pouring into London companies developing robotics and drone technologies, with over £14 million invested in 2016 compared with the small amounts invested in 2014 (£40,000) and 2015 (£70,000). Starship Technologies, the company behind the takeaway delivery robots used by Just Eat and Domino’s, received £13.95 million seed funding in January 2017.
Fintech on the up and up
London’s position as a leading global hub for financial services and technology has seen fintech companies receive over £2 billion of VC investment in the last five years – greater than any other sector including SaaS, Mobile and e-commerce. London fintech companies saw strong investment in the first quarter of 2017 with over £177 million of funding since the beginning of the year – more than any other quarter in 2016. Major deals for Funding Circle (£82 million), Monzo (£22 million) and Currency Cloud (£20.27 million) offer further proof that investors still see London as a leading hub for fintech. This follows a report released last week by Deloitte which ranked London as the leading global fintech hub following the EU referendum.
Investors continue to view London as one of the world’s fastest growing and most attractive tech hubs – despite the UK’s vote to leave the EU. In Q1 of this year, London tech firms received £395 million in venture capital investment – significantly more than total amount raised in Q4 of 2016 (£245 million). In total, London tech companies have received over £1 billion in funding since the EU referendum – representing over 70 per cent of the total £1.59 billion invested into UK tech firms since Brexit.
Other sectors seeing high levels of venture capital funding in the past five years include e-commerce and AdTech with major deals for London based companies such as Deliveroo, Just Eat and Unruly. And with more software developers than any other European city, big data, SaaS and cybersecurity all feature in the top 10 sub-sectors for venture capital investment into London companies since 2011.
The findings have been released by the founders of London Tech Week, Europe’s largest festival of technology, which will see over 300 events hosted across the capital from 12 to 16 June. Over 40,000 visitors from all over the world will be able to attend a range of events which will showcase some of the latest technologies in VR, robotics, drones, autonomous vehicles, artificial intelligence and fintech.
The jewel in the crown
Politicians and technologists alike lauding London as the reigning tech capital of Europe despite the rocky road ahead negotiating the terms of Brexit.
“Brexit holds many implications for London’s thriving fintech sector,” says Paresh Davra, co-founder of RationalFX and XendPay. He believes London is clearly recognised as the fintech capital of Europe, due to its international appeal as an English speaking market, close proximity to the Eurozone and a supportive environment for innovation. “However, despite the incalculable impact of Brexit, there are still good prospects for London to retain its crown. Between the results of the referendum and the triggering of Article 50, there were many questions over the future of long standing companies and whether or not they would remain. At the same time however, there was a significant commitment to investment from a range of global tech giants including Google, Facebook and Snapchat as they sought to create new offices in London and the rest of the UK. This demonstrates the appeal that London continues to have as a fintech hub, even during the height of uncertainty,” he explains.
“London is the technology capital of Europe. With a rich melting pot of creative talent, London is leading the way in the development of emerging technologies such as mobile payments, big data and artificial intelligence. Our world-class tech sector is creating jobs and growth across the city, with Londoners working alongside the best and brightest from across Europe and all over the world,” says Deputy Mayor for Business, Rajesh Agrawal. “Since the referendum, London’s tech companies have attracted over £1 billion in venture capital investment, offering more proof that London remains open to investment, talent and innovation from all over the world.”
London Tech Week ambassador, Russ Shaw, credits London’s success in tech innovation to its rich and diverse pool of talent. “Over the course of the last decade London has become a global hub for the technology sector. More recently, our expertise in fintech, artificial intelligence and Robotics has shown that the city is at the cutting edge of technological innovation. London’s strength derives from the city’s diversity, rich pool of talent and global connections. This has been the basis for our considerable success, and it is important to protect these factors as our tech sector continues to create more jobs and wealth,” Shaw explains.
The impact of Brexit
But cynics predict a less optimistic future for the city with a hard Brexit on the horizon, citing a potential brain-drain, exacerbated talent shortage and export hiccups for London-based start-ups.
“It could be argued that the biggest threat to London’s fintech crown is not so much the impact of Brexit, but the opportunity it provides to other cities in the Eurozone that are gearing up to become its rival,” Davra adds. “Financial firms in cities like Berlin and Paris are lobbying their governments to relax regulations and are consciously mimicking the start-up environment of London. Furthermore the loss of access to the single market also provides a compelling argument to move to Europe for many companies. However, the key to London retaining its FinTech crown, as the Brexit process continues, is to remain as open and attractive to businesses at home and abroad as possible.”
Looking at the continent as a whole, VC firm 83 North’s general partner in London, Laurel Bowden, believes that diversifying across Europe will be the best strategy going forward. The firm invests in all stages, with an emphasis on early investments, where it works side-by-side with founding teams to build companies from the ground up. Its fintech portfolio alone is testament to this model. For example Ebury was founded in London, iZettle in Sweden, Marqeta in California and Payoneer started in Israel and is now headquartered in New York.
“It’s very encouraging for the European market to see such huge ambition to build global, category-leading companies. There have been fifteen exits valued at more than $1 billion that originated from Europe in the past five years compared to only a handful prior,” Bowden says. “Since we started investing in Europe in 2008, we have expanded our focus from primarily UK-headquartered start-ups to invest across the region and have now backed companies from France, Germany, Greece, Italy, Spain and Sweden. As we look to the future, the UK’s exit from the EU will accelerate activity in European tech hubs outside the UK. We believe this presents a big opportunity for venture funds, like 83North, that are already well-established in the wider European region.”
The threat from Europe’s other hubs
French VC firm, Iron Capital invests in start-ups in the niche, but fast-growing subscription services industry. For co-founder and managing partner, Benjamin Trochu, Brexit is not the curtain call for European investors that cynics predict it to be.
“Brexit won’t have the deep economic impact many were quick to predict,” he says. “As a company founded the other end of the tunnel you might expect us to stamp our feet and move our operations back to France. But we are not going to, due to a very simple reason: London remains Europe’s tech hub. Yes, we will see the likes of Amsterdam and Berlin attempt to woo tech companies away from the capital, but they will soon learn that the stiff upper lip mentality has never been stronger. The entrepreneurial spirit here is legendary. From Richard Branson to James Dyson, some of the world’s biggest brands have been developed from these shores and I see no reason for this to change.”
Brexit or no Brexit, however, Trochu believes that investors need to ramp up support in the UK’s grassroots service sector. While Paris may be a strong choice for international companies looking to move away from London, he counters assertions that an exit from the EU will lead to London losing its ‘financial passport’; a commercial advantage of unrestricted financial trade that EU member countries benefit from. Trochu also disagrees with warnings from commentators suggesting that Brexit will hamper the UK’s long-term economic outlook; causing wider problems for inward business investment into the UK.
“While the short-term outlook has bucked economists’ predictions, the long-term sustainability of any uplift in economic conditions will not continue unless we are investing at a grassroots level,” he explains.
“While many businesses are planning a move away from the city, or at least threatening to do so, Iron Capital is committed to boosting its investment to help budding entrepreneurs kick-start their ventures and to also help build bridges across two key entrepreneurial European markets – France and the UK.” Trochu believes that the UK is a hotbed for entrepreneurial talent, which is why the €10 million fund is looking to stay rooted in London, while other big corporates and VC firms “are running for the hills,” he adds.
“London remains a great tech hub full of innovation and exciting early stage companies. As such, we need to be committed to boosting investment to help budding entrepreneurs kick-start their ventures. The future is bright and I for one can’t wait to see what happens next.”