This article first appeared in The Daily Telegraph.
Not too long ago, technology in businesses meant little more than bulky desktop computers and ink jet printers that were costly and expensive to maintain. It was IT departments, death by PowerPoint, and the first line on a company’s budget to be cut.
If that picture seems a little trite, it is worth stating just how much has changed in recent years.
Software engineers make up the largest part of the workforce at most global firms. This includes tractor manufacturer John Deere and Goldman Sachs, which employs more engineers than Facebook, Twitter or LinkedIn. Roughly a third of the investment bank’s 33,000 employees are engineers or programmers.
Over the last decade, technology – software, hardware and the platforms they enable – has created global transformation on an unprecedented scale. It has forced change and challenged ways of working, disrupting incumbents, empowering the innovators and entrepreneurs who dared to think bigger.
British companies have played a major part in this story and the UK firms that have emerged during this period continue to redefine the wider economy. Take Arm, whose chips and processors are used in virtually every phone, tablet and computer the world over. Or DeepMind, which is setting the global standard for AI.
But the benefits to the economy run deeper than individual success stories. Recent research from Tech Nation found that the tech sector is expanding 2.6 times faster than the rest of the UK economy and worth nearly £184bn.
But it is not the size of the tech ecosystem that is most remarkable, but the rate at which it has changed. A decade ago the industry was having a dry spell – no UK tech companies went public in 2008 or 2009. Fast forward to 2018 and Avast’s recent £2.4bn London listing stands as one of the biggest European floats of all time.
As investors, we’re often asked what’s behind this transformation. There’s no doubt that Silicon Valley still retains its leadership position, but it no longer has a monopoly on scale, expertise or know-how. Entrepreneurs can now access the talent, advice and resources they need remotely.
Galvanised by Government support, our start-up community has blossomed and more than measures up to the likes of Berlin, New York and Tel Aviv. One of the most obvious catalysts is the volume of capital now available to UK businesses. A combination of government schemes (SEIS and EIS) drawing in a greater number of angel investors, as well as a growing number of credible, experienced early stage venture capital investors has been transformative, giving entrepreneurs more choice than ever before. According to Pitchbook, British digital tech companies raised £4.5bn last year, almost double what was raised the previous year.
At the same time, venture capital has become more global in its outlook. Last year alone 230 US investment firms partook in at least one investment round in Europe.
The passage of time has also made a massive difference. We’re reaping the benefits of the serial entrepreneurs – individuals who have succeeded as entrepreneurs, exited, and gone on to establish further companies. We often refer to these entrepreneurs as the “Lovefilm generation”, a nod to the continued success of the Lovefilm co-founders that went on to establish Zoopla, Graze and Tails.com, and work closely with or invest in several other businesses such as Secret Escapes.
Serial entrepreneurs follow a cycle. Successful ventures grow and get acquired. When the entrepreneur leaves the business, they take experience and knowledge on to the next business. It’s the same with investors. We gain confidence from successful founders who have proven their ability, but we also learn from the collective experience. A good investor does far more than sign cheques; they are hands on, advising on everything from growth strategy to product development. With this in mind, serial investors make for better investors, using this experience to help shape and guide today’s generation of founders. Barriers to new start-ups are also much lower than in previous years. What defines today’s leading tech hubs is their ability to attract sizeable funds and retain expertise.
The modern internet ecosystem means that the next big thing could be started anywhere and for a fraction of the cost, removing restrictions that once hindered entrepreneurs. The development of cloud technology has allowed storage via the web rather than traditional servers, and online payment systems have enabled instant transfers. Cheap and easy access to these services allows the earliest-stage businesses to be operational on a much smaller budget than in the past.
Where next for UK tech? With valuations of tech firms today reaching billions, my belief is we’ve only scratched the surface of what can be achieved. But the next generation of ambitious tech entrepreneurs will have its own challenges.
More tech firms are facing scrutiny for a lack of diversity, and instances of poor corporate governance, which has left people questioning the social impact of tech disrupters.
As we’ve seen with Cambridge Analytica, interrogating the wider implications of unchecked growth will be a new and necessary checkpoint for emerging tech that may slow down some innovators. But I am optimistic. The past decade has seen a huge shift in the mentality and fortunes for British tech and we won’t let it go now.
For journalists in their professional capacity only. Personal opinions may change and should not be seen as advice or a recommendation. We do not offer investment or tax advice. Issued by Octopus Investments. Octopus Ventures is part of Octopus Investments Limited, which is authorised and regulated by the Financial Conduct Authority. Registered office: 33 Holborn, London, EC1N 2HT. Registered in England and Wales No. 03942880. Issued: June 2018.