UK is the tech start-up centre of Europe – research

A new report from Tech Nation has crowned the UK as the European hotspot for technology start-ups, and fourth worldwide for scale-up investment after US, China and India.

While the US led the rankings by a considerable margin, the UK managed to attract 5% of global high-tech scaleup investment, with capital investments in UK firms topping £6.3 billion for 2018. Digging down into the details, Tech Nation estimate the fintech firms are doing even better, attracting £4.5 billion of investment between 2015 and 2018, with the UK leading the world.

“The UK continues to exceed all predictions when it comes to tech growth,” said Gerard Grech, CEO of Tech Nation. “This report shows how the UK is a critical hub when it comes to global technology developments, with scale-up tech investment being the highest in Europe, and only surpassed by the US, China and India. This is a testament to the innovation, ambition and tenacity of tech entrepreneurs across the UK.”

The claim itself is based on various datasets, including information from PitchBook. By identifying the number of scale-up companies in each of the determined countries, and the value of investments made into these companies, Tech Nation has drawn-up the ranking. Scale-up companies are identified as those which have either achieved employment or revenue growth of 20% for two consecutive years and have a minimum of 10 employees.

The US is leading the rankings, which will come as a surprise to few considering the dominance of Silicon Valley on the technology industry, with China coming in second and India coming in third. US firms attracted 49.3% of the world’s scale-up investment, while China accounted for 20.4%.

The total scale-up investments made in UK firms was also 2.5X the value of what would be expected for a nation the size of the UK. In fact, tech scaleup deals delivered £5 billion of the £6 billion investments made in tech companies in the UK across 2018. AI seems to have taken the crown, accounting for £1.3 billion of the total.

Critically, this demonstrates the work which has been done to attract and encourage innovation, investment and start-ups in UK society is working. Perhaps there is some method to the government madness. Looking forward, all the signs seem to be heading in the right direction. With 5G networks on the horizon, the catalyst for growth is about to emerge.

5G will not necessarily change the world overnight, but the power of the networks has the potential to foster the unicorns of tomorrow. This is a network which will deliver new services in the same way as 4G did, demonstrating the importance of being one of the first to scale the connectivity boom.

The US led the deployment of 4G networks did not spur the economy into any great revolution, but the tools offered allowed innovation. Companies like Uber scaled because evolution of the networks, while an entire new segment of the economy was allowed to flourish. Without the connectivity tools to play with, these companies would have not had the potential to scale; the same can be said about 5G.

5G offers an opportunity to create new products and services. Artificial intelligence, cyber security, latency, MEC and high-consumption/speed data-applications can all exist without 5G, but they are more attractive, practical and viable with the next evolution of the network. Uber could have existed without 4G, but it is a disruptive success because of it. Joe Bloggs cannot conceive what products and services will be available over the next couple of years, but the right tools have to be in place to ensure the innovators can scale them.

5G won’t change the world, but it will offer the opportunity for innovators to create value for themselves, customers and the national society which fosters them.

What might be a hurdle before too long are the deployment plans of the UK telcos. Having a test-bed to create these products and services in the first instance is all well and good, but soon enough these start-ups will need customers to scale the business. The faster networks are deployed, the quicker these start-ups can get to market, engage customers, tweak the proposition and potentially create the Uber of the 5G generation.

The UK Government has been looking for ways to shore-up defences against the future, hoping to give the economy and society the greatest opportunity to thrive. This is why fibre rollouts, or mobile coverage gains are so important now even if there is no immediate benefit; it’s all about making the country future-proof, ready for the unknown and resilient to the future challenges. And cultivating start-ups is a critical component.

Not only does this have the potential to address the questions surrounding wealth in-equality, it removes the UK dependence on the financial sector. Tech is the dominating growth sector in the global economy, and the best way to reap the rewards is to create an environment suitable for start-ups, the companies who could steal the headlines in the future.

The UK Government has been preaching about the world it is doing to encourage innovation and start-ups over the last couple of years; perhaps this report is vindication of the work which has been done.

A more streamlined VC approach could hinder the US in the 5G race

With US venture capitalists increasing their total investments, but reducing the number of start-ups being funded, you have to wonder whether the US is priming itself properly for the 5G bonanza of tomorrow.

According to data from Pitchbook, the total amount invested by VCs in US firms is set to exceed $100 million across a 12 months period for the first time, but the number of completed deals is actually decreasing. So far across 2018, VCs have invested $84.3 billion, already exceeding the total from 2017, though the number of deals has dropped to 6,583 compared to 9,259 last year. These numbers are correct to September 30, still leaving time in 2018, but you have to wonder what impact this will have on the innovators of tomorrow.

Looking at the data, the number of deals which are valued at $50 million or more is significantly on the increase, while the bottom three categories (which you can see in the table below) are decreasing. This is not necessarily a bad sign, innovation can come from larger companies and more established SMEs, though some of the brightest ideas over the last two decades have come from companies which didn’t exist in the 20th century.

VC Deals 1

Think of the likes of Facebook, Uber, AirBnB, Shopify, Android and Netflix, these are all organizations which have risen through the ranks in recent years and are defining their respective segments. All were powered by the democratization of the internet, in particular mobile internet, and the emergence of a new form of economics. They are companies which succeeded because they thought and operating differently from the status quo, leaving many traditional businesses playing catch-up today.

In short, the start-ups are an excellent source of innovation and, in many cases, a completely under-utilised resource for national economies. However, with the upcoming 5G bonanza promising fortunes for those who seize the opportunity, is a more streamlined focus from the VCs creating the right, nurturing environment?

5G is going to create a completely different playing field, though we’re not entirely sure how at the moment. Those who think they can accurately predict where future fortunes will come from are nothing but blowing hot air. They might well be right, but this is likely more to be luck than judgment. For example, back in 2005 who would have thought a relatively unknown networking website designed for university students would become one of the most powerful companies on the planet, influencing elections, stimulating fake news and completely revolutionising how companies communicate with their customers?

The point is there is a ‘build it and they will come’ attitude with 5G. If you create the right technology environments, underpin them with supportive regulations, open doors to new markets and fuel them with seeding funds, the next great idea will emerge. We don’t know what it is just yet, but that was the exciting thing about 4G and will be the exciting thing about 5G.

Another consequence of a lack of available funding for the smaller players is the risk of acquisition. Without the fuel to grow their own ideas, some entrepreneurs might be tempted to sell their business and product to an established company. This in turn would direct innovation into the acquirers main focus area. Perhaps this will leave potential usecases and the dark corners of what is possible unexplored?

The issue here is whether VCs are putting enough cash into the early stage start-ups to nurture this innovation and create the blockbuster idea of tomorrow. Fuelling companies which are already out there is not a bad idea, but it is likely going to get you a better version of what exists today. This is a perfectly acceptable approach to business and will reap rewards, but are these trends going to create a landscape in the US which will dominate the 5G world of tomorrow? We are sceptical.

VC Deals 2

TIP offers start-ups a new way into the telco business

With internet traffic continuing to accelerate and innovation starting to stagnate, new ideas are needed to stimulate the telco industry. For the Telecom Infra Project team, start-ups could be the answer.

There have of course been numerous examples of start-ups disrupting an industry or creating an entirely new segment. Think of WhatsApp impact on the world of messaging or Netflix on content delivery, though navigating the waters of the telco industry can be a rough ride for start-ups. Few achieve the recognition their ideas deserve, possibly to the detriment of the industry.

“If the big players would buy them [start-ups] at a time when there is a product and they acquire them not to kill the product it would be okay,” said Axel Clauberg, VP of IP End to End & Infrastructure Cloud at Deutsche Telekom and Chairman of the Board at TIP. “We saw a couple of positive examples where it happened in the past, however many good ideas just don’t make it to that stage because when people start running a company and want to get funding by approaching a venture capitalist, suggesting their market is telco, the answer is no, sorry.”

“We were routinely being approached by start-ups who had really innovative ideas, but they were running out of money really quickly,” said Aaron Bernstein, Director, Connectivity Ecosystem Programs at Facebook and a TIP Board Member. “It was impossible for them to get the attention of VCs, and it really comes down to how do they go from zero to dollars as quickly as possible. That is what led to the creation of the TIP Ecosystem Accelerator Centre programme. How do we connect VCs who are interested in infrastructure with start-ups and operators who can create the idea of coaching to get them from zero to dollars much quicker.”

The TIP Ecosystem Acceleration Centre (TEAC) programme is an initiative which looks to creative the wrongs of telco life and bring new innovation into the fray. Several of the world’s largest Telecom Service Providers are hosting TEACs in the UK (BT), Paris (Orange), Seoul (SK Telecom) and Germany (DT), with the aim of creating breakthrough technologies that reimagine telecom infrastructure. TIP is an initiative which is all about doing something different to stimulate innovation, and accessing untapped ideas in the start-ups is certainly one way to go about.

Whether it is the procurement cycle, the cut-throat nature of acquisition or simply running out of funds, gaining traction in the telco world is an incredibly difficult task for start-ups. Perhaps this is the reason the industry moves at such a sluggish pace compared to the internet players of Silicon Valley who embrace the concept of start-ups, but for a healthier ecosystem, all ideas need to be taken into account.

For the moment, the TEACs are small scale, but every idea has to start somewhere. Start-ups could be the saving grace the telco world needs to stimulate innovation and recapture lost revenues, but the ecosystem has to change to embrace them.