UK start-ups wooing Silicon Valley investors in the wake of Brexit
With many UK-based companies thinking of relocating to other parts of Europe in response to Brexit, including 20% of start-ups considering leaving Britain, UK technology start-ups are aiming to attract the investors of Silicon Valley.
While Silicon Valley has started to lose momentum in recent years, many start-ups look to it as a technology hub with a well-developed ecosystem that invests unstintingly in growth, rather than focusing on profitability.
20% of start-ups anticipate it will be harder to attract VC funding
In January 2017 Silicon Valley Bank carried out a survey of 941 UK start-up executives mainly in the technology (69%) and medical (15%) fields, which reveals that 20% of start-ups are considering relocating their headquarters outside the UK.
Similarly, 20% say attracting venture capital (VC) funding is harder and the cost of running a business is increasing. The respondents are also worried about retaining non-UK staff and attracting European talent.
Securing capital is the number one concern for start-ups at any time, and 13% of respondents believe that it will be extremely challenging and 68% somewhat challenging to procure funding. Fifty-five percent regard acquisition as the long-term goal for exiting this unpredictable environment.
Forty-eight percent of respondents believe that the business environment will improve, which is 31 points lower than three years ago. Silicon Valley Bank managing director Gerald Brady says that “investors here just don’t know what Brexit means yet”.
Ample opportunities for start-up growth in Silicon Valley
Against this backdrop, an increasing number of start-ups seem to be considering relocating their headquarters from the UK to Silicon Valley.
Silicon Valley has suffered a notable loss of VC momentum since late-2015, when concern about the overvaluation of unicorn companies (start-ups valued at over $1bn) grew among investors. But US and non-US investors continue to be fixated on the area, with investment in Silicon Valley companies totalling $25bn (c.¥2.72trn; PwC and CB Insights data) in 2016.
Slack is a UK company providing workplace communication tools that has grown rapidly to be worth $3.8bn (c.¥412.72bn) after moving its hub to Silicon Valley. CTO Cal Henderson told the BBC that his company’s success is “just not possible anywhere outside of the Valley”. He points out that the UK has a strong tendency to be risk averse, and that this leads start-ups to miss out on the chance to achieve rapid growth.
Northern England, the second-fastest growing UK tech hub after London, has its sights set on Silicon Valley
We tend to take a very London-centric view of the UK, but recently the presence of technology companies has grown strongly in northern England, centred on the old industrial cities of Manchester, Leeds and Sheffield. In addition to large companies such as software company Sage and The Hut, which boasts annual sales of £335million, the region has seen the birth of a string of start-ups. Investment in the region totalled £326.9million in 2016, 16.5 times the level in 2007, making it the second-fastest growing region after London. There has apparently been many moves to lure these companies overseas since the Brexit vote.
According to the Guardian, this second UK technology hub is trying to build bridges with Silicon Valley. Many technology companies in the region have a high opinion of Silicon Valley as an “ecosystem that props up startups,” in the words of Luke Massie, who founded social ticket exchange market Vibe Tickets. He attests to the differing attitudes of investors on either side of the Atlantic, saying, “investors over here [in San Francisco] are backing growth, whereas in the UK they’re focused on profitability”.
The start-ups of northern England are making moves to woo the investors of Silicon Valley but it remains to be seen whether their efforts will bear fruit. As British-born San Francisco-based investor Andy McLoughlin notes, Silicon Valley’s view of the UK is still heavily London-centric, and northern England-based start-ups are likely to have a hard time winning over Silicon Valley investors.
Even London, which has over the last decade created an ecosystem capable of attracting international attention, has only just set out on the long and winding road. And the scale of the northern England ecosystem does not even put it at the start line. It looks like the region has a long struggle ahead of it.