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Tech Weekly: Tech Nation CEO on UK fintech success, and Klarna focus on profits
Today City A.M. reporter Charlie Conchie talks to Tech Nation CEO Gerard Grech for a chat about the company’s Impact Report, which assesses how it has helped shape leading tech firms. They also discuss the UK’s place as a fintech hub, and the potential slowdown of VC investment in fintech later this year.
He also takes us through the week’s tech news — Klarna will now be focusing on profits over growth, and the ECB has warned against a continued crypto sell-off frenzy.
Episode transcript (auto-generated)
Host 0:08 Hello and welcome to Tech weekly, a podcast by city I am dedicated to bringing you the latest in the worlds of tech crypto FinTech and beyond. Later, Charlie will be talking to Gerald Grech, the CEO of UK startup network Tech Nation. They’ll discuss Tech Nation’s Impact Report and talk about the importance of impact tech in addressing environmental degradation. They’ll also talk about the UK’s place on the global tech hub stage, and the level of VC investment in fintech this year. But first, the headlines, Charlie, what’s been going on this week?
Charlie Conchie 0:46 So a very busy week of global tech and fintech headlines. By now pay later giant Klarna is moving away from a rapid growth strategy to focus on a fast track to profitability. Its boss said yesterday. The Swedish FinTech firm has been on a major growth push in recent years, but boss Sebastien CMEA kowski said the firm is now tapering back that growth amid what has been a bit of a downturn in the tech industry and his comments came just days after Klarna announced a slew of job cuts 10% of its workforce on Monday. In the US venture capital giant Andreessen Horowitz is looking to book the crypto crash with a new $4.5 billion fund this week, that is going to pump cash into crypto and so called Web three startups. The investor said that crypto firms and those driving web three which is a new age of the internet, based on blockchain technology, are entering a golden era and is decided to go big. And back in London FinTech paddles struck a $200 million deal to buy US firm profit well this week and its first acquisition since being founded 10 years ago. Pardo, which was founded by then 18 year old Christian Erin’s 2012 Bank date $200 million. Funding ran earlier this month, which was led by the private equity powerhouse KKR said it was now channelling that funding into expanding its payment services. And London venture firm Crane has buy the $140 million fresh deep tech fund this week, that’s worth 30 million pounds backing from the British business bank owned investor British patient capital. Crane closed its first $90 million fund in 2019. And said it’s now on the hunt for founders building technology across areas like open source, artificial intelligence, data and developer tools. And the European Central Bank has warned this week that a continued sell off frenzy in crypto could threaten the stability of global financial markets. In its annual financial stability review, which was published this week, the ECB said that a deep dive into the market had revealed evidence that crypto asset leverage and crypto lending are becoming more risky and deepening ties with banks and asset managers pose a risk to financial stability. Host 3:01 And now Charlie will be talking to Gerald Grech. Charlie Conchie 3:04 So we have had a decade of very buoyant venture capital investment into the UK across nearly every sub sector of our tech ecosystem. And I think, you know, the one area we perhaps pay most attention to in the UK is our FinTech sector. We saw record amounts of cash coming into that last year. But one area that’s really been sort of roaring away under the surface is so called Impact tech, and that is tech firms addressing the UN Sustainable climate development goals. A new report out today from UK startup network tech nation found that funding in the sector had jumped to 960 million so far this year, it was 2.8 billion pounds invest in the sector last year, and that is up from just 59 million in 2011. And we’ve been to mull over that rise is Gerrard. Greg, CEO of tech nation, good to have you with us. Gerard Grech 3:49 Great to be here. Thanks for the invitation. Charlie Conchie 3:51 So I wondered whether sort of just to kick us off, you could kind of break down this idea of impact tech and what sort of firms we are talking about here? Gerard Grech 4:00 Absolutely. I mean, I think first and foremost, I mean, this is quite a significant report that we’ve produced in partnership with Google for startups, because it’s what it has done is given us the wonderful opportunity to look at the last 10 years. And then specifically look at investment by companies stage and sector, job creation, value creation, research and development, talent and future developments. Right. So what we we make a number of comparisons to what we saw 10 years ago so that we give the reader a sense of where things are and where things are going and how best to shape the future by building on what we know today. So there’s so much in there, but clearly you’ve picked up on the impact stuff, which is so important because we’ve seen quite a significant increase in investment in companies and startups and scale ups that are addressing un sustainability development goals. So the the venture capital, so these are private private investment into these types of companies has jumped 43 times of that in 2011. And I think this is really, really to do with how things have changed and evolved over the last few years, especially with the pandemic, having made people realise that actually, we need to think about our planet, we need to think about our environment. And so the the increase has been even more significant in the last five years. So these are types of companies that are looking at carbon emission, climate, climate intelligence, in how do we address some of our biggest global challenges by investing in the type of people who are passionate about changing the planet? Charlie Conchie 5:44 So we’ve seen looking at areas like FinTech, the UK has really been sort of a world leader behind us and China, where are we stacking up as a country when it comes to these this kind of subject area? Are we leading the world there as well? Gerard Grech 5:56 I mean, it look, when you look at it at a macro level, the UK is now fourth in the world. And when you look at that 10 years ago, I think people scoffed at the idea that the UK would be a global tech hub in the top five in the world. So I think having achieved a record high in investment, at $40 billion, is quite staggering. That’s about 29 billion pounds. And that’s on the private markets on the public markets. There were also 37 IPOs on the London Stock Exchange, which is more than three times anywhere in Europe. So the ecosystem has grown significantly over the last 10 years. And obviously, that is very good news to your listeners that Fintech is one of our crown jewels. But one particular area that came out in the report is deep technology investment that has increased 33 times in the last 10 years, topping $8.5 billion in 2021 were mega rounds of $250 million contributed heavily to that total. So that gives a real good indication to the reader, that artificial intelligence, the ecosystem itself is developing fast and maturing. And one of the reasons for that is because the UK has amazing universities, and obviously deep technology comes from breakthrough in science and research. So we’re seeing a lot more spinouts from universities like Imperial College like University College London, Cambridge, Oxford, Edinburgh, and Manchester University. And so this is quite significant, because that’s where the future lies. We believe that the future lies in more technology companies coming from spin offs that are actually incubated in universities, which are obviously naturally attracting high calibre bright people. So that’s quite a significant jump that we’ve seen in investment over the last 10 years. Charlie Conchie 7:58 One of the sort of interesting areas as as he broke down at the start was the different stages of investment in UK. You know, you look at early stage venture in the report, you look at late stage venture, and I think you made that point that early stage funding is becoming that bit harder to come by. And I think it’s true to say that most analysts are predicting a bit of a slowdown in venture capital investment this year. Are you concerned about investment levels into the space? Gerard Grech 8:23 I think? Yes, I am. And I think what I would say is that, you know, the future growth and success is really being potentially threatened by dwindling funding for early stage startups and I think to be specific investment into seed and pre seed companies is at the very, very early stage of company, company development than lifecycle it has not decreased but growth has been low. So if you look at investment from 2020 to 2021, investment in UK technology increased by 130%, whilst investment into early stage companies increased by just over 14%. So that gives you a relative difference as to the rate of growth that we’re seeing. So I end if you look at 2011 investment in seed and precede made up 15% of the total investment mix in UK technology. In 2021, that proportion has dropped to 4.8%. So I think whilst also whilst we’re seeing bigger rounds of funding, the Number of these Stage deals has been almost flat or or growing very slowly. So obviously, you know, we’re, you know, we’re keen to see much more capital going into these early stage companies or we run the risk of not seeing the next wave of big companies coming through like we have seen over the last 10 years. So, it is a concern. It is being it is being acknowledged and it is being addressed, which is why we’d like to see the government perhaps think about whether the caps on seed enterprise investment scheme. This is the the scheme that was introduced over 10 years ago for giving early stage investors, tax relief. So we’d like to see those caps go up so that we can see more capital going into these early stage companies. Charlie Conchie 10:28 I think one of the interesting trends we’ve been covering a bit recently, actually is is the way that corporate venture capital flowing into the space, I think you look at some of the rounds we’ve covered recently for climate tech firms, particularly, it’s been big oil and gas majors leading the rounds and their venture capital arms. Is that is that making up a big portion of investment into the space? Is that something you’re seeing as well? Gerard Grech 10:51 100%? I think, look, I think the UK economy was one of the first major economies to enshrine into law, to get to net zero by 2050, that will clearly drive a lot of innovation across multiple sectors, not just in the technology sector, but obviously the utilisation of technology into oil and gas, energy, all sorts of sectors, so that so that it’s innovating. And obviously, I, as I said earlier, I’m just seeing so much more investment going into these types of companies. So for example, if you take in, it’s quite wide ranging, I should say. So companies looking at reducing carbon emissions, or companies looking at autonomous vehicle software, or companies looking at vertical farming software, based in Bristol. I mean, you’ve got quite a lot of quite a lot of companies looking at this from various angles. So I am not just in London, by the way, it’s right across the UK. So we’re really excited to see a lot more capital going into this space. Charlie Conchie 12:07 That yeah, that point interesting as well, on the regional breakdown. Where are the real hubs that we’re seeing in UK for these, particularly climate tech? Or is there sort of certain areas where there might be really good food tech firms starting up? What are the trends you’re seeing across the country? Are we Gerard Grech 12:21 without obviously being, you know, without trying to sort of pick out specific cities and what they’re known for? Because Because obviously, innovation is happening everywhere. And talent is everywhere, opportunities not and we’re trying to make sure as tech nation, were increasing access to opportunity for everybody. But we’re, you know, we’re clearly seeing, you know, there’s a lot of cybersecurity. Strength in in Northern Ireland, in Belfast, specifically, climate tech generally is, comes from all over the UK, there’s no one specific hub at the moment. Clearly, Manchester is very well known for its ecommerce History and development. And obviously, with the HUD group, having recently listed on the London Stock Exchange, and that obviously creates a ripple effect. Edinburgh is very good at data analytics, the university has invested quite significantly in data analytics and data science, Glasgow is as obviously got quite a strong FinTech hub, because of quite a lot of big banks being based there. at Bristol, you would think, you know, being in in the West Country, it’s actually known for a number of things, including gaming, and also for chip design, when you think about it, graph core is quite a significant up and coming scale up that looks at chip design. And I think it has the opportunity to be quite a big company a bit like arm actually, which is obviously based in Cambridge and other parts of the world. And so you’ve got Oxford, Cambridge, London, which is obviously that triangle, where I think you’re seeing a lot of growth in all forms of industries, from biotech, to artificial intelligence. So it’s quite spread out. And I think the economist did a very good piece on the fact that Britain seems to be very good at nurturing and developing companies, outside capital cities. There are over 20 cities now in the UK that have a tech unicorn, which compared to other European countries, it’s less than five. So I think that just gives you a sense of the fact that innovation can truly come from anywhere. And the idea is to make sure that there is support in place to help companies go from startup to IPO. Do or a major liquidity event like a merger or an acquisition. So I’m really excited the team’s really excited to see more and more companies come through. And even when we look at our own growth programmes, we as a tech nation provide a number of growth programmes at every single stage of company development. You know, over 50% of the companies that we’ve seen graduate from our programmes are outside London, and over the last eight years, just to give your listeners some context, you know, we’ve supported or seen over 1000 companies graduate from 41 growth programmes, which have included 30% of the UK is 122 tech unicorns ever created in UK Tech history, as well as 42% of the UK is 12, DECA corns, these are companies valued at over $10 billion. So I’m extremely hopeful. I’m extremely excited for the future. Clearly, there are some headwinds at the moment that we’re kind of keeping a close eye on. But again, you know, really looking forward to the next 10 years. Charlie Conchie 16:03 So looking forward, I think one of the interesting debates we’ve been covering a bit this week is the comments from the HSBC is responsible investing chief looking at sort of attitudes around responsible investment, I think that was, you know, covering everything that sort of falls under a so called ESG banner. But I wonder whether there’s, you know, a slight groundswell of movement in the current economic environment, when against investing in sustainability in against investing in these climate led tech solutions, that sort of thing. You worry that there might be a sort of movement against this direction of travel that we seem to have been in for the last few years. Are we moving away from climate investment? Gerard Grech 16:42 I think, look, I think there are some market jitters obviously, at the moment, I think that is short term, although, as I said, I think, you know, we have enshrined into law, the fact that we need to reach that net zero by 2050. So I think you will see a lot more direction of investment going into impact companies that are extremely passionate about changing the planet, I think, I think I think the three piece keeps coming up. And in the companies that I talked to, you know, people, obviously, profits and planet. And I think they’re just there’s just so much more awareness of building companies responsibly. And this is particularly noticeable. The early stage where you’re looking to attract the best and brightest talent you can find. And we’re seeing that people are very much attracted by a company’s mission, and what it’s doing more sustainably. And that is a competitive, it’s increasingly a competitive advantage for a company. So funding is one thing. But clearly, when investors are looking at companies and what what kind of companies to invest, they want to invest in companies, where the founders or the founding leading team is extremely visionary about how they’re going to attract the best talent. And I think being sustainable, being responsible, being thoughtful about how you’re going to treat employees is now becoming a major competitive advantage. So yes, I am thinking about this all the time. But I am also very positive about how there is a changing narrative in the in the technology ecosystem. Charlie Conchie 18:22 Gerard, thank you very much joining us. Thank you so much for your time. Host 18:28 Okay, that’s all we have for today. Thanks to Gerard Grech for coming on the podcast and we’ll see you all next week. Bye for now.