“A large part of what makes the U.K. special is that founders here are focused on international growth from day one,” says Chris Bischoff, managing director at General Catalyst. “West Coast VCs, and investors generally, seek the kind of global thinking and strategy that once put Silicon Valley founders on the map, and which is now seen to a high degree among U.K. and European founders.”
The U.S. venture capital firm, which has offices in California, Massachusetts and New York, and has partnered with leading U.K. startups such as Monzo, Deliveroo and Cazoo, has bet heavily on the UK over the last few years.
And they’re not alone. In March 2022, the U.K. became only the third country in the world to have its tech sector valued at $1 trillion, joining the U.S. and China as a leading tech superpower.
The U.K. is home to more unicorns than Germany, France and Sweden combined, with a growing number of household names expanding from the U.K. across the globe. Its relatively small size, coupled with its global infrastructure, has made it the perfect breeding ground for startups to test and scale fast; an inviting ‘Unicorn Kingdom’ for founders and investors alike.
Bischoff believes the U.K. will only continue to close the gap with Silicon Valley and China, “thanks to decades of sustained R&D, innovation and creativity.”
This has been turning the heads of West Coast venture capitalists, particularly as attractive investment opportunities continue to arise outside of London.
Here are some of the reasons behind the shift to the U.K.:
A focus on global growth
Graphcore has focused on global growth since its establishment in 2016, climbing the ranks to become one of the U.K.’s most valuable private tech companies, and hitting a valuation above $1 billion just two years later.
“Many of the biggest names in venture capital have begun looking for opportunities outside of Silicon Valley, and naturally they have found plenty of it in the U.K.,” says Nigel Toon, CEO and co-founder of Graphcore.
Proudly based in Bristol, a city with more than half a century of semiconductor innovation, the company develops accelerators for AI and machine learning, boasting an impressive number of investors including Microsoft, Samsung, BMW, Fidelity, M&G and Schroders, amongst others.
The chip maker was also one of the first European investments for VC giant Sequoia Capital, who are well known for being early backers of Google, YouTube, Stripe and WhatsApp.
“The U.K. has the advantage of being a world-leading center for finance, professional and legal services, with the world’s most widely spoken language and global links that make it an ideal springboard to new markets, not to mention the high concentration of engineering talent in London,” says Jess Houlgrave, senior director at Checkout.com.
The London-based fintech firm, which processes payments for other companies, has grown to a team of 2,000 employees, spread across 21 offices, since its launch in 2012. Half of its workforce is still based at its U.K. headquarters, however its presence spans across the U.S., Europe, the Middle East, North Africa and Asia Pacific, with dealings in more than 150 currencies.
Checkout.com’s customers have grown to include Netflix, Pizza Hut and Coinbase, while investors include the Qatar Investment Authority, the Arab state’s sovereign wealth fund and Tiger Global Management.
“From fintech to healthtech, world-leading startups are being established and scaled in the U.K. every year and as we continue to source and partner with exceptional early-stage founders across Europe, it makes sense we’d have such a focus and presence in Europe’s leading hub,” Bischoff adds. “Being here allows us to be on the ground for early-stage, market-transforming European companies.”
Access to talent
The UK is home to four of the top 10 universities in the world – Oxford, Cambridge, University College London and Imperial College London – and offers a rich pool of talent and pioneering research institutions.
In recent years there has been a growth outside of the capital, with more tech companies concentrated in university cities such as Oxford and Cambridge, as well as in the Midlands.
CMR Surgical, a Cambridge-based medical device company which produces a robotic surgery system called Versius, attributes its success largely to the highly skilled and diverse talent in the U.K.
“Cambridge is globally renowned for its innovation ecosystem, and we’ve been able to attract some of the brightest minds in science, R&D and engineering,” says Per Vegard Nerseth, chief executive of CMR.
In June 2018, the company raised $100 million from investors, which was hailed as Europe’s largest deal ever for a medical devices company. It has since expanded its presence to Italy, Australia, New Zealand, Brazil and Chile.
“While we have more than 1,000 skilled employees globally, around 700 of these are based across our U.K. sites. Working with our best-in-class talent means that we can deliver unique technology that is disrupting the existing market for surgical robotics. With our roots in Cambridge, we are the fastest growing surgical robotics company – with presence in over 20 markets.
Nerseth also notes that the U.K. is well poised to take advantage of the huge growth potential presented by the surgical robotics market, which is currently valued at $6 billion.
“The U.K. has several key advantages that make it a major focus of interest for investors,” says Nikolay Storonsky, CEO of Revolut. “English is the universal language, facilitating communication among international investors. The country’s timezone is also important to align with other international financial hubs. In addition, the U.K. offers strong professional services and a great pool of talent from lead universities making the country very appealing for investors.”
Government programs and regulation
In January, chancellor Jeremy Hunt reiterated the government’s pledge to make the U.K. the “world’s next Silicon Valley.” Speaking at Bloomberg’s London headquarters, the finance minister highlighted the importance of leveling up the country outside of London and the South East, while urging more businesses to invest in the U.K..
Revolut is one of many fintech firms that has taken advantage of the supportive business environment. “The U.K. has led the way in using regulation to drive innovation, through initiatives like Open Banking, Instant Payments and the FCA’s regulatory sandbox,” explains Storonsky.
“Many other countries have now begun to copy the U.K.’s approach, but the U.K. is responding by accelerating the next wave of innovation with plans on Open Finance, Digital ID and a Central Bank Digital Currency.
“In addition, the U.K. fintech sector has received strong vocal and practical support from the Government ever since 2013 when the Chancellor highlighted how he wanted the U.K. to be the global leader for financial services innovation.”
Since its formation, Revolut has grown to over 6,000 employees in less than eight years and announced its first year of profitability in 2021. It has expanded into 39 countries and surpassed 27 million customers.
This pledge is supported by a number of programs available for U.K. startups, such as Help to Grow and Future Fund Breakthrough.
During the COVID-19 pandemic, the Future Fund was launched as a rescue scheme for startups, which saw £1.14 billion injected into 1,190 companies via convertible loans. Future Fund breakthrough, a £375m U.K.-wide scheme, now supports later stage deep tech to encourage private investors to co-invest with the government in high-growth, innovative firms. It is delivered by British Patient Capital, a commercial subsidiary of the British Business Bank.
Meanwhile, Help to Grow helps business leaders increase productivity, seize investment opportunities and expand their company.
In February 2023, the Prime Minister created an entirely new Department for Science, Innovation and Technology (DSIT) to ensure the U.K. is the most innovative economy in the world as well as a science and technology superpower. It aims to bring together R&D, tech policy, strategy and science into a single department under a dedicated set of ministers.
“After the financial crisis, a new regulatory framework for payments was being implemented across Europe – the first Payment Services Directive. This aimed to open up the payments market to non-banks, driving competition,” Houlgrave notes.
“The U.K. took a forward-looking approach to this reform, providing the space and support for new and innovative payment service providers to emerge. It was the ideal setting to create Checkout.com.
“Thoughtful policymaking by U.K. authorities in the period since then has created a safe but pro-innovation regulatory framework in the U.K., and fostered the growth of what is today a world-leading fintech hub. The progressive, collaborative regulatory approach pioneered by the U.K. was reflected in genuine innovations like the FCA’s ‘regulatory sandbox’ – a world-first.”
Incubator of innovation
The U.K. has established its global reputation. It is no longer an emerging tech ecosystem, as it was a decade ago, but has proven its resilience in the face of uncertainty.
In the aftermath of Brexit and the COVID-19 pandemic, London tech companies attracted $10.5 billion in venture capital last year – a new record for the U.K. and Europe.
“The foundations are already strong,” says Houlgrave. “As the U.K.’s tech ecosystem has matured over the last decade, its constituent firms have cross-pollinated, leveraging each other’s strengths for mutual benefit.
“For example, Checkout.com has successful, innovation-driving collaborations with other U.K. tech firms, like Wise and Deliveroo – our technology powers aspects of their propositions. There’s a synergy between us that generates real value for both parties, and a better experience for consumers.”
Checkout.com reached a valuation of $40 billion last year, making it the most valuable European fintech startup. In January 2022, it announced a $1 billion funding round, surpassing the value of rivals such as Wise and Revolut, while Chief Executive and Founder Guillaume Pousaz has repeatedly said the company remains profitable. It now aims to use its funding to launch products and further its involvement in the Web3 space.
Another thing that helps the U.K. stand out is its rich history of innovation. “The U.K. has always proved itself to be a global leader in times of change – especially technological change. If you look back to the industrial revolution, so much of that innovation was coming from Britain,” Toon says.
“Now, once again, we’re a leading player in the AI revolution, with the likes of Deepmind, the Alan Turing Institute and Graphcore. The work going on across our universities is a global transformation, it is long-term and the U.K. is a leading player.”
As the U.K. continues to prove itself as the “Unicorn Kingdom”, Bischoff says, “You can’t call yourself a global investor and not have a presence in the U.K.. The groundwork has been laid over the past decade to create such an exciting and competitive ecosystem. Despite headwinds, we believe the U.K. can continue to produce startups and scaleups that are accelerating change, and we’re excited to be a part of it.”
