Britain is in danger of selling its tech future short
Joe Wright, 17 June 2015
London is widely regarded as the tech capital of Europe with very good reason. It has seen a phenomenal boom of activity over the past decade. According to Douglas McWilliam’s book, The Flat White Economy, which details the rise of tech start-ups alongside London’s advertising and media sectors, more than 32,000 new businesses have been generated in the postcode EC1V in the past two years alone. That is more than Manchester and Newcastle put together and the fastest rate ever recorded in a single postcode. They have also created many well paid and productive jobs, which other sectors have struggled to produce since the financial crash. TechCityUK estimates there are now double the number of tech jobs in London as there are in New York. The future looks brighter still. McWilliams calculates that ‘about a third of the UK’s GDP by 2025 will depend in some way on the digital economy, either upstream or downstream (and nearly 100% will be using it of course)’.
It is little wonder then that East London has attracted more international tech investment projects than any other European capital. Money is being poured in by venture capitalists. London & Partners estimate digital groups secured funding of $682m in the first three months of 2015. The sector also benefits from an unending supply of talent due to the large amounts of skilled migrants being drawn to the capital. With all of these components, plus the British people’s love of all things digital, it is easy to see why McWilliams believes the UK’s future will increasingly be shaped by the digital economy.
But one question continues to nag those who watch the industry with interest: why, despite having all of the components needed, is the UK yet to produce at truly great home grown tech company?
There are a number of large companies which specialise in specific services, but none which could be considered a second or third tier company, let alone a rival to the Silicon giants Apple, google or Facebook.
A significant problem remains ensuring companies have the room to grow. A raft of huge deals in the past few years has undermined Britain’s potential in a number of markets. US giant HP paid £7.1 billion for the innovative British software company Autonomy in 2011. Logica, inventor of the text message, was bought by the Canadian firm CGI in 2012. Alex Brummer reports in This is Money that the ‘£2.35billion takeover of Telecity by US data centre Equinix means that Britain and Europe’s foothold in computer hosting and the cloud is weakened.’ US tech firms have immense buying power and the attraction of UK tech companies is not helped by the fact there is a whole industry of financial services and lawyers quick to encourage big deals.
Mergers and acquisitions have their place. Sometimes they create genuine value, but all too often they end up costing the UK in the long run ─ in skills and productivity ─ and leave little room for businesses with potential to become great companies in their own right.
Google and Facebook famously employed dual class share systems to ensure their founders maintained control throughout the companies’ early years. These shares gave them extra voting rights, allowing them to tap the markets for liquidity without losing control. Dual class shares are not allowed in the UK. But if Britain wants to capitalise on its success so far, perhaps it is time they should be.
Joe Wright is a co-author of Civitas’ recent publication ‘Losing Control: A study of mergers and acquisitions in the British aerospace supply chain’. You can follow him @JoeWtweets