Brexit and the coronavirus pandemic have brought about new sets of challenges, opportunities and perspectives to the country’s startup and innovation industry in the past few months, with the pace of venture capital funding slowing and virtual technologies accelerating due to lockdown and social distancing. As a result, the 10th GCV Symposium in London will be postponed to 7-8 December 2020 with a Digital Forum held online on 3-4 June.
Britain hosts one of Europe’s top technology ecosystems, and UK’s tech investment increased by 44% to over £10bn in the past year – more than France and Germany combined, according to Tech Nation Report 2020.
The UK’s 193 corporate-backed deals, ranked fifth in the world last year and it came fourth with $5.56bn of deal value, according to GCV Analytics data.
Ben Luckett, founding and managing director of Aviva Ventures, the corporate venture capital (CVC) subsidiary of insurance firm Aviva, said: “From a financial services perspective, the UK is a strong ecosystem and the regulatory landscape is conducive to innovation and new ideas. The UK has a broad and strong legacy of good innovation and London being a financial services centre certainly helps.
Above: Ben Luckett
“The UK has a good history of collaboration among different players such as corporates, VCs and startups. “Some UK schemes – particularly for early-stage investors and tax schemes – give good incentives for supporting early-stage businesses.”
Jonathan Tudor, technology and strategy director of Centrica Innovations, the CVC arm of energy utility Centrica, added: “[The UK ecosystem] tend[s] to have more smaller-capped funds – good for CVCs who do not want to push lots of capital into a company. London is also the finance capital of Europe so easier to get attention here. I have seen a big increase in the number of accelerators emerging – mainly based around Shoreditch [a district in the East End of London]. They all want to matchmake between corporate and startup.”
Tudor added, however, that the rise of startup accelerator schemes did not alter Centrica Innovations’ investment strategy. “We do not need handholding to meet them – many of them have now disappeared like RocketSpace,” he said, referring to the US-headquartered startup co-working space that shut down its UK operations in late 2019.
“I have seen an increased openness to want to work together as corporates, but this, again, does not impact our approach,” Tudor remarked. “We network constantly to make sure we are aware of deals we should know about. Investment banks are important, too, as well as law firms as they act for the companies that we are interested in.”
Above: Jonathan Tudor
Ignacio ‘Nacho’ Giménez, managing director for Europe, the Middle East and Africa (EMEA) at BP Ventures, UK-listed oil and gas supplier BP’s corporate venturing unit, pointed out that diversity is remarkable in the ecosystem, saying: “We know diversity drives performance in business – and startups are no different.
“London is a massive melting pot of cultures, people and ideas. This diversity of thought drives innovation at pace and has huge creative potential in the capital.”
University talent
British universities play an important role in innovation, Giménez added: “Outside London, innovation tends to happen around highly prestigious universities. Cambridge and Oxford have, to an extent, become the model in the UK, but other universities are catching up fast by creating their own innovation cultures and backing spinouts. BP Ventures has invested in two such startups in the last two years: C-Capture, spun out of Leeds University; and Grid Edge, from Aston University.”
Aviva Ventures’ Luckett agreed and added: “There is a good level of talent coming out of the universities – a lot of innovation comes out of places like London, Cambridge and Oxford and beyond – and they also provide a good range of talent that is attracted to the UK more generally that we [corporate VCs], or startups particularly can tap into.”
Aviva Ventures also looks at the university ecosystem for investment opportunities – it has a collaboration on data science with Cambridge University and has invested in Ahren Innovation Capital, a fund whose science partners are largely based in the city.
Alex Kayyal, UK-based partner and head of EMEA for Salesforce Ventures, US-listed enterprise technology group Salesforce, argued the British innovation ecosystem has demonstrated prowess in fields such as financial technology, health technology and artificial intelligence (AI) through its strategic geographical location and cultural links with both continental Europe and North America.
“The UK has key strengths in areas like financial services and healthcare,” Salesforce Ventures’ Kayyal said. “We have the privilege of having five of the top academic institutions in the world that are pushing the boundaries of machine learning and AI – Oxford, Cambridge, Imperial, UCL and Edinburgh – and the UK continues to be a destination that attracts and develops top tech talent.
“Even in view of the current economic uncertainty, we still maintain our position as a bridge between the US and Europe that increasingly flows both ways.
“Finally, there is the relative nascency of the ecosystem. Although we are arguably at the forefront of Europe and the most mature, we are still much younger than places like Silicon Valley meaning there is less competition, rising quality and potentially more opportunity – it is a really exciting time to be involved in UK tech.”
Above: Alex Kayyal
The UK’s fintech sector ranked second in the world after the US, Findexable reported, with investments rising by more than 100% in the last year alone.
GCV Analytics logged 193 corporate-backed deals last year, with a total value of $5.56bn of investment backing. These figures were up from 2018’s 163 deals and $2.99bn, with fintech remaining the strongest sector followed by IT and energy.
BP Ventures’ Giménez said: “The British ecosystem is diverse, not just in terms of people, but also in focus. Fintech seems to be the number one space for startups in the UK, but there is a lot of activity in healthtech, cleantech, consumertech, IT and beyond.”
Aviva Ventures’ Luckett added: “We have seen a lot more corporate innovation coming into the UK investment space since I started Aviva Ventures back in 2015. There has been an explosion of activity in the insurtech [space] – it has grown significantly since 2015.”
Giménez noted that today’s UK-based entrepreneurs are much more aware of VC practices, saying: “Over the last few years, we have seen the industry become much more standardised and adopt a common language.
“Until just a few years ago we had to go through term sheets in minute detail with prospective startups. Today, people understand far more about VC terminology and how VCs operate. This has made it much more efficient to negotiate, align interests and close transactions, giving us more time to work with start-ups on generating value.”
Salesforce Ventures’ Kayyal also said: “The ecosystem has definitely matured. Years ago it was difficult to even start a business, but the government has done a great job over the years in supporting this sector and the ecosystem at a grassroots level – whether in terms of investment through schemes like EIS [Enterprise Investment Scheme] or talent via the Tech Nation visa and these initiatives have really borne fruit.
“Combined with success stories from the US, a growing number of local unicorns and the increasing popularity of working in tech, it has fuelled peoples’ desire to be an innovator and the ecosystem has developed to support this. In addition, the UK has also had the opportunity to see what has worked well elsewhere and brought the best ideas back to the UK.”
Exits achieved by corporate-backed companies went down from 2018’s nine to 2019’s seven transactions, with the exit value decreasing from $1.48bn to $90m. This may be due to an increase in exits that are mergers and acquisitions of undisclosed size, according to GCV Analytics head Kaloyan Andonov.
Aviva Ventures’ Luckett added: “There is a good underlying infrastructure in place [from the government perspective], as we have seen with the recent package for startups – the matching scheme. Governmental institutions not only support the entrepreneurs but also act as an ecosystem link to the broader business economy.”
Covid-19 support
The British government will provide up to £1bn ($1.25bn) in a bid to support the UK-based startup companies affected by the Covid-19 pandemic.
More specifically, the scheme includes the £250m Future Fund initiative – convertible debt sized between £125,000 and £5m to match private investment – and an additional £750m of grants and loans through government agency Innovate UK targeting small and medium-sized enterprises focused on research and development.
UK-based entrepreneurs have matured in terms of starting up a company in recent years, according to Kayyal, who noted: “Overall there seems to be a better understanding of what it takes to successfully launch a business. These days we have accelerators and incubators that have produced hundreds of companies, and universities and large businesses are using the same models to create their own innovation in-house.
“Additionally, new waves of entrepreneurs are coming out of companies that were once startups themselves or from big tech giants that have local offices, so the overall expertise, quality and chance of success in the ecosystem have risen. We have also seen shifts towards specialism as people and companies realise that some sectors favour specific business models and where deep expertise is needed.
“The impact on investment has been profound. On our end, the UK has been one of our most active markets, with investments in leading companies like Onfido, Privitar, GoCardless, Snyk, WhiteHat, Aforza and Snoop to name a few. The investment ecosystem continues to mature, as we are seeing more and more US-based funds invest in the UK. This is great for entrepreneurs who now increasingly have more choice. Our goal is to invest in the best software companies globally, and we are proud to support the most ambitious UK-based companies as they look to build enduring, global companies.”
Works well with others
Collaboration with other ecosystem players is crucial for BP Ventures’ Giménez, who said: “BP Ventures has co-invested with over 250 VCs and CVCs; collaboration is a big focus for us, and it is at the core of what we do. We collaborate to join complementary skills and pull resources together. It is very difficult to change the world on your own, but you can achieve so much more with like-minded partners and friends.
“For example, we invested in Grid Edge with Goldacre, the VC unit of the Noé Group. The Noé Group has huge experience in real estate and BP has extensive experience in the energy sector; both sets of skills are now available to Grid Edge, who provide energy management services to commercial landlords – it feels the right collaboration for the company we are both backing.”
“One of the biggest collaborations we have set up is the Oil & Gas Climate Initiative (OGCI), where 12 of the biggest oil and gas companies are working together to tackle climate change. The OGCI has created a $1bn fund to invest in technologies that can help their LPs reduce emissions. Again, this shows our thinking in creating collaborations that have the right ingredients to reimagine our energy system, and help the world get to net zero.”
Kayyal added: “We have, and continue to work closely with all of [the ecosystem participants] – Salesforce Ventures is just one of a larger number of broader initiatives from Salesforce focused on supporting the ecosystem and encouraging companies to work with us. Whether it is through funding or partnership opportunities, we work closely with all these parties to fund, invest and support companies that could be a partner to Salesforce. And our mandate at Salesforce Ventures is to
co-invest with other firms, so we really believe in a rising tide across the industry.”
Aviva Ventures’ Luckett concluded: “The level of investment and the number of startups have grown dramatically, especially between 2017 and 2019. We have seen the emergence of good collaboration between CVCs and other funds including VCs, accelerators and incubators.
“We work with other corporates who can bring strategic value to an investment, and we like balancing that with VCs when we do later-stage deals.”
