Archive for the ‘Entrepreneurship’ Category
Now that the dust has settled on last weeks’ referendum, it’s becoming increasingly apparent that Brexit will actually happen, raising the question of what the implications are for London’s tech startup sector. Some are saying that Berlin, often cited as London’s biggest rival for the title of Europe’s startup capital, stands to benefit from Britain’s withdrawal from the EU.
Others reckon that, to paraphrase Marc Andreessen, free from EU red tape, it’s entirely possible that Brexit will make the UK a more attractive place to build and finance new technology companies. It certainly seems likely that the regulatory burden on businesses in the UK will be reduced considerably, and the absence of the UK’s moderating influence may well mean that businesses within the EU will be subject to more regulation than they would have been if the UK remained.
However, this impact isn’t likely to be felt for at least several years after the UK leaves the EU (which is unlikely to happen before October 2018). For me, the two key factors in the short to medium term are access to talent and London’s status as Europe’s financial capital.
As part of the EU, London has been able to draw on a huge pool of talent from across the continent. Young, tech-savvy talent has been able to move to London without having to worry about visas or immigration restrictions. Dissatisfaction with the level of net migration into the UK (and, in particular, the pressure this has placed on the UK’s public services) was a key factor in the referendum result, so it seems likely that restrictions on immigration will be put in place after the UK leaves the EU. The greatest restrictions are likely to be imposed upon unskilled migrants.
However, the UK government has long recognised the importance of being able to attract skilled talent, as evidenced by its inclusion of “digital technology” amongst the areas of expertise that are eligible for the Tier 1 (Exceptional Talent) visa. Therefore, it seems highly likely that a system will be put in place to maintain London’s attractiveness as a destination for graduates and other suitably skilled talent from the EU. Critically, the current visa scheme does not require that the applicant has a job offer, meaning that successful applicants can work for themselves or start a new company.
If the application process can be simplified, streamlined, and made less expensive (ideally, it should be as simple as applying for an ESTA to visit the US), there’s no reason why London shouldn’t continue to attract talent from across Europe.
London’s success as a financial capital might appear orthogonal to its success as a tech startup hub. Some view the financial sector as a source of competition for tech talent but the truth is more nuanced. A lot of talent is attracted to London because of the financial sector, adding to London’s talent pool. Many tech startups recruit people who have worked for banks or brokerages. It also provides a safety net for tech talent whose startup is unsuccessful. The perceived risk of starting a new company (or taking a role with a startup) is lower if you can be confident of being able to find contract work in the City if it doesn’t work out. This effect is obviously strongest in the fintech sector but I believe it applies across the wider tech sector.
As a financial capital, London is also a nexus for investment capital. Many VC funds are based here, and the UK has spearheaded equity crowdfunding, with a permissive regulatory environment and tax breaks for individuals investing in early stage startups. If London’s financial institutions are forced to move part of their operations to Europe, London’s economy will take a hit (probably similar in scale to – but lancer-lasting than – the post-2008 economic downturn) and there will be less capital available for early-stage companies. Large banks have already begun making contingency plans to relocate jobs and functions to Dublin, Paris or Frankfurt. The key determinant will be the extent to which the UK retains access to the single market for financial services after it leaves the EU and, in particular, whether UK institutions will retain the “passporting” rights that allow them to offer services across the EU from a UK base.
On the one hand, it seems unlikely that the EU will offer such a concession. The French in particular have long been disgruntled that London remained Europe’s financial capital, despite being outside the Eurozone. However, for the UK government, minimising the impact to the City of London will be a top priority, as the employment and tax revenues it generates make an important contribution to both the UK economy and the UK’s public finances.
Fortunately, the UK has a strong hand to play in the negotiations that will follow the activation of Article 50. The UK imports far more from the EU than it exports to the EU. The German and Dutch economies would take a major hit if trade barriers were erected between the UK and the EU. Therefore, it seems likely that the UK government will seek to negotiate a deal that allows UK financial institutions to retain full access to the EU market, in exchange for allowing European exporters to retain access to the UK market. If such a deal is struck, the impact on London’s financial sector will be minimal.
Many other factors that have contributed to London’s success as a tech hub won’t be impacted by Brexit at all. Whether or not we’re in the EU, the UK is still one of the largest economies in the world. London will remain one of the great cities of the world, with the attendant economies of scope. London’s universities will continue to rank among the best in the world, contributing an endless stream of graduates to the city’s talent pool. London will remain a welcoming and cosmopolitan city, and English will remain one of the world’s most widely-spoken languages.
There’s also the prospect that leaving the EU will open up a host of other opportunities for the UK and London. Less red tape seems likely to reduce the cost of doing business here. Freedom from EU constraints will allow the UK to negotiate bi-lateral deals with other, emerging economies. We could even see the UK joining NAFTA to form a North Atlantic Free Trade Association. What we currently perceive as a crisis may well prove to be the source of endless opportunity.
In the short-term, we’ll probably hear more anecdotes about spooked VCs withdrawing investment offers to UK startups but as things settle down over the coming weeks, I expect we’ll return to business as usual. So, to quote Hussein Kanji, keep calm and carry on.
Time was, Silicon Valley was the place to found a tech startup. British tech entrepreneurs would up sticks, move to Silicon Valley and never look back. Today, things are different. Increased competition for talent and rising real estate costs have reduced the Bay Area’s competitiveness, while the UK has developed its own tech eco-system. Lanyrd and Songkick both returned to London after graduating from Y Combinator, whereas ten years ago, they may well have opted to stay in the Bay Area.
At the same time, the cost of international air travel has declined and new technologies have emerged that make it easier for geographically-distributed teams to work together. The end result is that it’s no longer an “either/or” choice. Startups can have the best of both worlds – access to both the Silicon Valley eco-system and the UK talent pool (which, thanks to the UK’s membership of the EU, extends across 28 countries, with a combined population of over 500m).
Huddle’s senior management team moved to San Francisco but the product and technology team remains in London. David Richards, CEO of WANdisco, opted to establish dual headquarters right from the beginning:
“It’s very difficult to hire lots of java programmers in Silicon Valley,” he explains. “They cost a lot and there are companies like Google and Facebook who have significant presence in the Bay area.”
We’re also seeing US-based players starting to take notice and recognise the importance of the UK. Last year Y Combinator decided to run a Startup School in London, while Techstars expanded into the UK and is now attracting FinTech startups from the US to take part in the Barclays Accelerator.
I believe that what we’re seeing is the growth of a trans-Atlantic startup eco-system. Founders should no longer be thinking about London versus Silicon Valley – they should be thinking about how they can take advantage of the best resources, opportunities and talent in both London and Silicon Valley.
This is one of the reasons I founded LDN2SFO – I think that one of the best ways to help London-based entrepreneurs is to expose them to the Silicon Valley eco-system so they can both learn about the culture that has made it so successful, and make connections with their peers there (and, in doing so, strengthen the links between the London and Silicon Valley eco-systems).
Our next trip takes place from April 27th to May 1st. If you want to join us, apply now.
Rather than reinvent the wheel, I’ve put together some key quotes from – and links to – relevant articles by people who are far more knowledgable and qualified about the topic than I.
Hot on the heels of last week’s fin.tech-themed Digital Sizzle, two important (and welcome) pieces of news from the regulators regarding the UK financial services.
Firstly, the FSA and the Bank of England have released their review of the barriers to entry into the UK banking sector. The key changes being introduced as a result of that review are a relaxation of the capital and liquidity requirements for new banks, and a reduction in the timetable for achieving authorisation, to six months.
As I wrote last week, the lack of innovation in the UK banking sector is the result of a lack of competition. Making it easier for new entrants to achieve the authorisation they need to start offering banking services should lead to greater competition and, indirectly, to more innovation, as the new entrants create service offerings that have a better product/market fit than the incumbent banks. For example, there’s a clear opportunity here for the creation of a new “branch-less” bank targeting SMEs who don’t need to handle physical cash or cheques. Once you remove the physical component from a bank’s business model, the cost structure changes drastically.
Secondly, HM Treasury has launched a consultation on “Opening up UK payments“, soliciting feedback on the government’s proposals for a “new competition-focused, utility-style regulator for retail payment systems”.
The brass ring for payments would be the introduction of a regulatory regime that makes it significantly easier for new payments schemes to plug directly into the UK payments infrastructure (i.e. Bacs, Faster Payments, the LINK ATM network), in the same way that the regulations supporting liberalisation of the telecoms market in the 1990s required that BT interconnect with new telcos, thereby attracting a slew of new entrants and spurring both competition and the development of new business models (e.g. Freeserve’s dispensation of the tradition subscription-based model for dial-up Internet access in favour of a model based on interconnect revenue). Such a move would create opportunities for companies like Transferwise and Droplet to reduce the friction caused by the “air-gap” between their services and their customers’ bank accounts.
These are significant steps forward for the UK and should ignite even more interest in the fin.tech space.
Finance and technology have been inextricably linked – and entrepreneurs have been exploiting that link – since the introduction of the telegraph in the 19th century. Until 1851, news was carried between England and the Continent by ships. That year, however, a telegraph cable was laid across the English channel. A German-born entrepreneur named Paul Reuter (who had previously used homing pigeons to bridge a hundred-mile gap in the telegraph links between Paris and Berlin) opened a “Submarine Telegraph” office in London and negotiated a deal with the London Stock Exchange to provide stock prices from European exchanges, in return for access to the London prices, which he then sold to stockbrokers in Paris. Over the next 150 years, London grew to become one of the world’s top financial centres and the company Reuter founded grew along with it. By the time it was acquired by Canada’s Thomson Group in 2008, the Reuters Group was worth $17.6bn.
For decades, the phrase “financial technology” referred to the institutional finance sector that deals with the capital markets – broker-dealing, sales and trading of shares, bonds and derivatives. Many large, established companies started out as fin.tech startups.
In 1981, Michael Bloomberg (now the mayor of New York) was made redundant from the investment bank Salomon Brothers. He used his severance package to found a company called Innovative Market Systems to provide market information to Treasury bond dealers. In 1986, it was renamed Bloomberg LLP and by 2008 it was worth over $20bn. Also in 1981, a company called Intercom Data Systems was founded in London. It later changed its name to Fidessa and by 2008, 70% of equity trades in London were being processed through trading systems built on Fidessa software. Today, Fidessa is listed on the London Stock Exchange, with a market capitalisation of over £700m.
By the late ’90s, investment banks were embracing Internet technologies and incubating startups. Tradeweb, an online platform for trading government bonds, was founded in 1996 by a group of dealer-brokers, led by Credit Suisse First Boston. It was acquired in 2004 by Thomson Financial (now Thomson Reuters) for $385m in cash, plus an earn-out of up to $150m. Three years later, a group of investment banks reinvested in a deal that valued the company at over $1bn. MarketAxess, a platform for trading corporate bonds, was incubated by JP Morgan and spun out as an independent company in 2000. It went public in 2004 and is worth $1.5bn today.
11th April 2013 Update – Foursquare have finally announced a $41m round of debt and/or convertible debt. Union Square Ventures’ Fred Wilson has blogged about the round.
Keith Rabois appears to be enjoying his birthday. After a Twitter tête-à-tête with Foursquare founder/CEO Dennis Crowley (which was amusingly misreported by Business Insider as “Square-bashing”), Rabois referred to “another down round” (emphasis mine) at Foursquare, which intrigued me, so I asked the obvious question:
The three most over-used, yet misunderstood, words in the business vocabulary are: innovation, disruption and leadership. It’s incredible how many people throw these terms around without being clear on what they actually mean.
Leadership, in particular, can play a massively important role in determining an enterprise’s success or failure, so it’s critical to understand it properly.
The most experienced and consistent practitioners of the art of leadership are the military, who operate in situations where lives (and victory) depend on the willingness of men to follow orders. As a result, business has much to learn from the armed forces, not least an accurate and concise definition of leadership.
Discussion of leadership is so often overloaded with vague but emotive ideas that one is hard put to it to nail the concept down. To cut through the panoply of such quasi-moral and unexceptionable associations as “patriotism”, “play up and play the game”, the ever-asking-your-men-do-something-you-wouldn’t-do-yourself” formula, “not giving in (or up)”, the “square-jaw-frank-eyes-steadfast-gaze” formula, and the “if… you’ll be a man” recipe, one comes to the simple truth that leadership is no more than exercising such an influence upon others that they tend to act in concert towards achieving a goal which they might not have achieved so readily had they been left to their own devices.
– Norman Dixon, On the Psychology of Military Incompetence (1975)
Or, to express it more simply:
Leadership is the phenomenon that occurs when the influence of A (the leader) causes B (the group) to perform C (goal-directed behavior) when B would not have performed C had it not been for the influence of A.
– William Darryl Henderson, Cohesion: The Human Element in Combat (1985)