Thursday 18 September 2014 4:20 pm

London's tech boom is more than just hype – and the City is at its heart

WHILE London Technology Week may not yet rival London Fashion Week for glamour, there is real substance to the capital’s tech boom. This is why, for the first time, TechCrunch is bringing its Silicon Valley conference to London this October.

A number of things are driving this tech boom. London has long acted as a “bridge” both for US tech companies entering Europe, and for European companies scaling their proposition before expanding into the US. At the same time, its position between the US and Asia makes London a natural home for international expansion for European startups. US investors looking to pick up cheaper bargains than in bubblish Silicon Valley much prefer to invest in UK businesses, which have all their documentation in English. One Delaware company later, and US expansion can beckon.

But geography is only one aspect. Another is London’s potential for tech company M&A and flotations.

Already this year, two British tech firms have been sold for a total of some $1bn (£610m): artificial intelligence startup DeepMind was bought by Google, while Zynga bought games company Natural Motion. In 2013, 22 technology companies, the largest number since 2006 according to Dealogic, raised $795m in equity funding on the London Stock Exchange’s main market and on Aim, its junior listings venue.

The London Stock Exchange’s recently introduced High Growth Segment is gradually attracting tech flotations too. The first to use it, Just Eat, saw its shares soar on the first day of trading – pushing its valuation above £1.5bn. With Zoopla, it was one of the biggest tech IPOs in Europe in the second quarter.

London could of course work harder to attract more tech IPOs. Rocket Internet’s Amazon clone Zalando, valued at some €5.6bn, is floating in Frankfurt next month, largely because the brand is better recognised in Germany. 

But the underlying strength of the market in London remains. The proximity of the Square Mile to the Tech City cluster is obvious, but there are real numbers behind this. According to Bloomberg, London now has more jobs in financial technology than New York (44,000 versus 43,000), and fintech startups are blooming in the City’s shadow.

While proximity to the City has made the capital a hub for fintech, its creative spark is at least as valuable. Editd is a VC-backed startup selling big data to the fashion industry. Fashion startups are booming in the capital because of their closeness to large, incumbent industries like fashion, media, advertising and music.

Geography also comes into play when dealing with VCs. London’s Tech City startups are a 20 minute Tube ride away from London’s equivalent of the Valley’s “Sand Hill Road”, an area populated by VCs. Mayfair, St James and Victoria play host to Index Ventures, Accel Partners, DFJ Esprit and Balderton Capital, all major investors in UK and European tech startups.

At the same time, smaller funds like Passion Capital and Techstars London have created a “bridge” cluster in Farringdon between east and west London. And the main “venture accelerator”, Seedcamp, is based in the heart of Tech City at Google Campus. The new partners of Google Ventures Europe, a $100m evergreen fund from the search giant, will also be ordering their flat whites in offices close to the Tech City cluster. 

Those VCs are opening their wallets like never before. In the first half of the year, investors poured nearly $1bn into UK-based startups. In all, $911m has been invested in the UK, up from $362m in the same period a year ago, according to TechCrunch’s data arm, CrunchBase.

More broadly, the UK government has given a big boost to tech entrepreneurship. It has introduced entrepreneur-friendly startup visas, created new tax breaks for angel investment (the Enterprise Investment Scheme and the Seed Enterprise Investment Scheme), added Entrepreneur’s Relief, abolished stamp duty on Aim market shares, opened up government ICT contracts to small businesses, created the UK’s open data agenda, reformed the UK intellectual property regime, and launched several other initiatives like the UK’s Life Science Strategy. 

While the rising cost of office space in the capital risks affecting young startups, many are avoiding the long-term contracts demanded by London landlords, in favour of subletting from one of London’s 70-plus co-working spaces. And new legislation allowing the creation of businesses from private rented homes is likely to see the rise of the kinds of “Hacker Houses” that Mark Zuckerberg worked out of in the early days of Facebook.

It is this kind of activity that is making the Tech City hipsters smile, and perhaps what will make the supermodels of London Fashion Week flock to London Technology Week next year instead.