A strong 2015 for the UK’s tech sector
According to a report published earlier this month by the UK investment bank, GP Bullhound, the number of ‘unicorns’ (technology start-ups that are currently valued at $1bn or more) that are based in Europe has risen to 47; and the UK is leading the way with 18.
The combined value of such entities across the continent now stands at $130bn, with companies such as Blippar (a UK-founded augmented reality start-up), Hello Fresh (an international food company) and Anaplan (business planning software makers) joining the elite rankings this year.
Stockholm-based Spotify overtook Skype to become the most valuable tech unicorn in Europe, with a valuation of $8.5bn in 2015, bringing Sweden into second place with seven ‘billion-dollar’ tech companies. Germany and France follow suit with six and three respectively.
In the investment bank’s publication, GP Bullhound managing partner Manish Madhvani commented: “I firmly believe that the right ecosystem exists for one of the companies highlighted in this report to push forward and reach a $10bn valuation in the next few years, and over time a $100bn valuation”.
Whilst the US produced 30 unicorns in 2015 and raised nearly twice the amount of capital compared to their European counterparts in that period, the average revenue of European unicorns is almost three times as high as their US counterparts - $315m compared to $129m – leading Madhvani to comment “what we lack in quantity, we more than make up for in terms of quality”.
Higher barriers to entry for European start-ups, prudent investing and less speculative valuations are highlighted as reasons why many $1bn tech start-ups are flourishing this side of the Atlantic. The average European unicorn is valued at 18 times its revenue whilst in America, the figure is 46. However, 40% of European unicorns have yet to become profitable, including Spotify and Funding Circle, suggesting that there is still some way to go to rewarding their investors’ initial faith.
A bright future for the UK as a hi-tech hotspot?
It remains to be seen how the UK’s unicorns will fare in light of Brexit, and quite rightly, there has been much debate and speculation over the past few days.
The BBC’s Rory Cellan-Jones commented on 27 June, “the UK - and London in particular - remains an attractive location for anyone looking to start a technology business”.
Admittedly, he points out that “Berlin, Dublin and other European cities are already making encouraging noises to anxious companies thinking of moving” but he highlights an interesting alternative – start-ups may opt to stay in the UK but apply to Estonia for e-residency allowing entrepreneurs to run their businesses from inside the EU.
According to the BBC, the e-Estonia organisation marketing this service has seen almost a tenfold increase in visits to their website from the UK in the days following the referendum.
Cellan-Jones therefore observes “perhaps a virtual bridge is being built between London and Tallinn that means trade will prosper whatever the UK's relationship with the EU”.
The Financial Times also hinted at a bright future, commenting on Sunday “the UK’s exit from the EU will create the need for a new national IT infrastructure as the country turns its back on the dream of a more integrated European data economy, according to American technology companies that already have their eyes on the work”.
Whilst the future is uncertain, there are many reasons to be optimistic. The UK’s tech sector has solid grounding to compete internationally and on the whole, favours sustainable growth rather than being the subject of speculative valuations (as seen across the Atlantic). Moreover, the UK and the rest of Europe are likely to continue to be close trading partners (in some form or another) particularly in a growing sector with more virtual than physical borders. Our Corporate and Technology and Media teams are actively following the latest legal and political developments and would be pleased to assist with any particular business risks or opportunities you may have.
If you would like to discuss the topics raised in this article, please contact James Whistler, Associate in the Corporate team at Stevens & Bolton LLP, or your usual contact at the firm.