How Britain became a global leader in tech stock “unicorns”

Theresa May at London Tech Week © Getty Images
Theresa May announces $1.2bn in new investments in UK tech companies

The UK has more billion-dollar technology companies, or “unicorns”, per capita, than China has. That’s cause for celebration, but they need nurturing. Simon Wilson reports.

What’s happened?

Theresa May opened London Tech Week – which has grown since its debut in 2014 into Europe’s biggest tech-business jamboree – with an announcement of $1.2bn in new investments in the UK from 13 tech companies, and £358m in government support for quantum computing. Meanwhile, India’s Infosys and Japan’s NTT Data are opening innovation labs in east London, and Lilium, the Munich-based flying-taxi start-up, announced it was hiring hundreds of software engineers at a new London hub.

And what’s this about unicorns?

Most striking of all was the news, in a report by Tech Nation and Dealroom, that the UK has created 13 new tech “unicorns” over the past year (meaning start-ups now valued at more than $1bn) and now has more unicorns – a total of 72 – than any country except the US and China. By way of comparison, Germany (our nearest European rival) has 29 and India 26. Per head of population, America (703 unicorns) is well ahead of Britain, but China (203) is behind us. Meanwhile, investors have poured a record $5bn into UK tech start-ups since January, reinforcing the country’s status as Europe’s leading high-tech nation, the research found. More than a third of Europe’s fastest-growing tech companies are based in Britain, and there are a further 75 firms in the pipeline identified as potential future unicorns (currently valued at more than $250m).

Who are they?

The food-delivery app Deliveroo is the best-known name. Amazon recently led Deliveroo’s latest £452m funding round, which valued the company at at least £1.5bn (and up to £3bn). But the UK’s particular strength is financial technology (fintech). For example, the millennials’ darling Monzo, known for its coral cards and clever tools to track spending, reached unicorn status last year after a £85m funding round. Monzo’s rival Revolut raised £179m last year, valuing it at £1.2bn (and is reportedly looking to raise another £400m this year). OakNorth, focused on business banking, raised nearly £350m from the SoftBank Vision Fund last year, valuing it at $2.8bn. And Greensill, specialising in supply-chain financing, attracted a £630m investment earlier this year from Japan’s SoftBank, valuing it at £2.7bn.

Are there more?

Other fintech unicorns include mobile-payments firm SumUp, TransferWise (now worth £3bn), Radius Payment Solutions and Checkout.com (payments software). But it’s not just fintech. In the field of computing, Improbable – creator of the cloud-based SpatialOS – received nearly £40m in investment from China’s NetEase, bringing its valuation up to around £1.5bn. And Graphcore, which was founded in Bristol in 2016 and creates semi-conductor processes that accelerate machine learning and AI applications, raised £157m from investors including BMW, Microsoft and Atomico, to value the firm at £1.3bn.In the field of biotech, notable new unicorns include Oxford Nanopore Technologies, Immunocore and BenevolentAI. Darktrace, which brings together biotech and cybersecurity, is worth £1.3bn just five years after launch. In e-commerce, there’s The Hut Group, and in energy supply, Ovo.

Why is the UK doing so well?

Part of it is down to London’s historic strengths as a major global hub and leader in financial services. In terms of fintech unicorns, London ranks second globally only to the Bay Area (the cluster of cities around San Francisco) for the number of unicorns created to date, at 18. But at the same time, the UK’s success reflects a “flourishing ecosystem that increasingly extends well beyond the capital”, argues The Times. Cambridge, Oxford and Manchester have produced five unicorns each; Edinburgh three; and Bristol and Leeds two each. Already, the UK technology sector employs more than two million people, and has been growing at 10% a year – far in excess of the economy as a whole. That success has happened because the UK “is able to offer access to finance, highly skilled staff, world-leading research at its universities, and high-quality services in areas such as accounting and law”.

Could Brexit ruin it all?

Unlikely. The uncertainty around Brexit has put a brake on overall business investment in the UK, but the jitters have yet to hit the tech sector. Indeed, the UK attracted 5% of global high-growth tech investment in 2018 (according to Tech Nation), whereas it accounts for only 2.2% of global GDP. In the event of a no-deal Brexit, tech firms are seen as less exposed than those that rely on complex supply chains of physical goods. No one in business will want to see post-Brexit immigration controls that discourage EU or other overseas workers from coming to the UK. But potential changes to immigration policies – conceivably placing a minimum threshold on salaries for skilled overseas workers – are likely to have less of an impact on a sector where pay is high.

How can Britain remain a global leader?

We need to learn from the US, where massive investment in education, research and engineering in the 1950s and 1960s bore fruit in the 1970s and 1980s with the rise of Silicon Valley. That US success story was built on a culture of enterprise supercharged by an immigration system that welcomed the best brains from around the world. And we need to learn from China, the world’s number-one producer of undergraduates and PhDs in science and engineering, where the rate of research and development investment massively exceeds that of the US or Europe, and where the government supports young businesses via more than 2,500 tech incubators and accelerators. Above all, reckons the Tech Nation report, we need to foster ever more intensive collaboration between investors, entrepreneurs and other stakeholders; more openness towards investment; and increased support from the government for future leaders of technology businesses.