The tech startup scene in London is booming. Research from British accountancy firm UHY Hacker Young found that from 2013 to 2014, London’s so-called Silicon Roundabout (a play on California’s much more famous valley) saw the creation of 15,620 new tech businesses.
And this is just one area of the city – there are many other districts with their own growing number of tech startup communities.
Canary Wharf is one such district. Arguably, London’s financial center, Canary Wharf, is home to the headquarters of numerous banks and accountancy firms. Increasingly, it seems, Canary Wharf is becoming the home of the UK’s FinTech – shorthand for financial technology – startup sector.
As it stands, the UK FinTech market is now worth approximately $30.6 billion (around £20 billion) every year, according to Big Four accountancy firm EY and UK Trade and Investment (UKTI), a government body. Much of it is centered in, or near, London. UK chancellor George Osborne made it clear in 2014 in an address to Level 39, Europe’s largest FinTech incubator, that it was his aim to turn the UK into FinTech’s global capital.
The health of the FinTech sector is a good indicator of how the wider startup community is faring, with other notable areas concerning the professional services sector. The services sector (both professional and financial) form a huge chunk of the UK economy as a whole, with some estimates suggesting the sector accounts for around 78% of national GDP.
Lexoo is one such professional services startup. The platform helps people and businesses looking for affordable legal advice by connecting them with pre-approved lawyers. For Lexoo, London was the location of choice to set up shop because of the proximity of other startups and investors.
“There is simply a lot more finance available in London, more than anywhere else in Europe,” explained Daniel van Binsbergen, Lexoo’s Founder and CEO. “The UK also has a very favorable tax climate for investors,” Binsbergen told Sociable.
Binsbergen, who worked as a lawyer with De Brauw Blackstone Westbroek, a law firm with offices in London, got the idea for Lexoo when his friends outside of work struggled to find legal advice they could easily afford.
“Startups – here as much as everywhere – need to focus on solving a big problem,” he said, advising would-be entrepreneurs that does not necessarily mean filling a niche. “A risk of being too niche is that your business is simply not viable in the marketplace,” Binsbergen added.
But it’s not all about FinTech or professional services startups. As in any case, variety is essential to market health, and the UK’s vibrant startup scene is no different. Take Colin Pyle and his coffee start up CRU Kafe, as an example. Before heading up CRU – producers of the UK’s first premium coffee capsules – alongside three other co-founders, Pyle was part of a successful Forex-broking startup in Toronto, a business he helped sell in 2008.
“The UK startup scene is one of the fastest growing in the world,” Pyle told Sociable, adding, “as a seed stage company it’s a phenomenal place to start up a business, from good space, great talent and access to capital. The scene is quickening as early stage companies are growing up and we’re starting to see some larger movements that are fueling this ecosystem in terms of talent and capital.”
Pyle stressed that London and the UK’s global position makes it unique. “The UK sits between Asia and North America and is in Europe,” he explained. “From a human resources perspective, being part of the EU and tapping into the diverse talent pool is extremely beneficial. Having the right time zone is also a huge bonus.”
However, there remain challenges for startups in the city. High rents mean that popular districts, including the above mentioned areas, are simply becoming too expensive to work in. Additionally, current UK legislation means that while first round funding for seed businesses is readily available, proceeding to the second round can prove more difficult. This is something that both Pyle and Binsbergen attest to.
“Currently in London it’s relatively difficult to raise a series A round,” Pyle says, referring to the first round of venture capital (VC) funding. “The climate is still relatively young and it’s hugely skewed to early seed companies all competing for a limited amount of VC money. This will slowly get better as exits happen and helps fuel the environment.”
Pyle explained that compared to the US market, the UK market is very small. While this provides space for innovation – the market is less congested – it also means that to become a $1B startup (known as unicorns), businesses often seek more fertile ground elsewhere.
“For companies to really scale up they need to expand into other European territories, or Asia, which pose language and cultural difficulties,” said Pyle. “In general we see UK companies heading to the US or, as is often the case, they are bought early.”
Mostly, though, London is experiencing a healthy transition from being a fertile ground for brick and mortar businesses to a place for nurturing tech startups. With additional cuts to corporation tax planned over the coming years, reducing rates to 18%, access to finance will only increase. This can only add value to the city’s unique international position.