Silicon Valley investment in the UK smashed through the £1 billion mark for the first time in 2017, with investors snapping up British talent in 74 deals worth £1.08 billion.
That’s according to UK law firm Penningtons Manches, which said the vast majority of investment went to tech companies operating in the so-called “Golden Triangle” of Cambridge, London and Oxford. Software startups were most popular, followed by life sciences companies, then businesses developing medical technology.
The investment represents a surge of 252 percent since 2011, and comes as analysts, bankers and investors anticipate a wave of tech flotations in 2018. (Tech IPOs have already raised more than $7 billion this year — more than 2015 and 2016 combined, according to the market-data firm Dealogic, as reported in the NYT).
“These figures back up what we’ve seen and what we continue to see first-hand whilst on the ground in the Bay Area,” said James Klein, partner, Penningtons Manches.
“Over recent years we have noticed an increase in the levels of US interest and investment in the UK, which has a particularly strong footprint in finance, retail and the creative industries. This has fuelled the start-up space and produced many scalable and investable companies.”
Silicon Valley-based firm 500 Startups was the most prolific US investor in terms of deals done, making eight investments into UK companies in 2017.
“Great companies come from everywhere so it’s important to get out of the Valley,” said Matt Lerner, partner at 500 Startups. “The UK has an abundance of talent, lots of companies accessing global markets – or Europe at a minimum – and its fintech and health tech innovation is ahead of the Valley.”
Almost half the investment (42%) and (41%) went to companies at venture and growth-stage, with only 17% going to seed-stage companies.
Cross Big Pond for Big Money?
Not everyone is overjoyed. The House of Lords’ report on Artificial Intelligence (AI), published yesterday, captured a range of responses to questions about funding, but concern about lower European risk appetite, as well as availability of domestic finance shone through – as did concerns about the inability of the UK to scale-up promising startups.
“To ensure that AI startups in the United Kingdom have the opportunity to scale up, without having to look for offshore investment, we recommend that a proportion of the £2.5 billion investment fund at the British Business Bank, announced in the Autumn Budget 2017, be reserved as an AI growth fund for SMEs with a substantive AI component, and be specifically targeted at enabling such companies to scale up,” The Lords concluded.
The statement follows the acquisitions of DeepMind, VocalIQ, Swiftkey, and Magic Pony, by Google, Apple, Microsoft, and Twitter respectively – with the Royal Society saying such acquisitions “reinforce the sense that the UK environment and investor expectations encourage the sale of technologies and technology companies before they have reached their full potential”.
All About the Benjamins?
Greater access to US markets is the largest driver for UK businesses without existing US backers, Penningtons Manches said, saying 83 percent of the non US-backed companies that it surveyed had cited access to markets as a reason to take US investment. (Technical expertise and a favourable investment climate followed…)
Brexit doesn’t seem to have deterred investors, Penningtons Manches noted (a low pound may make for attractive valuations), but the law firm fires a warning shot on access to talent amid pressure from the government to reduce immigration.
“The UK’s rich talent pool has been cited by US investors as one of the primary reasons they are attracted to invest in the Golden Triangle. With this in mind, we absolutely must ensure that the UK’s ability to welcome global talent continues as the country transitions to life outside of the EU. Along with talent, our strength in developing investable hard science and our protected intellectual property landscape are also assets that we must continue to nurture.”