LONDON (Reuters Breakingviews) - London’s Old Street gyratory, where Hackney meets the City financial district, has been jammed with traffic for the best part of a year. That’s the unhappy result of refurbishments to the area known as Silicon Roundabout, where young UK technology companies are concentrated. By the time that work is complete – years, at this rate – the domestic startup scene may well be on the wane.
Venture investors, presumably using e-scooters to skip the congestion, poured $13.2 billion into British technology companies in 2019, according to a report by Tech Nation and Dealroom for the government’s Digital Economy Council. That marked a 44% increase on 2018, even as the equivalent figure for the United States plunged 20% to $116 billion. Britain can thank its speciality in financial technology: companies including Greensill, OakNorth, Monzo and Checkout.com accounted for two-fifths of the total money raised last year, and contributed about two-thirds of the overall growth.
The result is that UK startups have all but closed a long-standing funding gap with their American cousins, at least relative to the size of the two economies. Britain’s venture-capital investments last year equalled 0.48% of GDP, double the average of 0.24% from 2014 to 2018. That’s based on Breakingviews calculations comparing Tech Nation and Dealroom figures with International Monetary Fund data. Startups in the United States last year raked in 0.54% of GDP, roughly the same proportion as in Britain, having averaged 0.42% from 2014 to 2018.
Can Britain sustain U.S.-style levels of technology investment? It’s doubtful. Prime Minister Boris Johnson wants to introduce tighter immigration controls after pulling the UK out of the European Union. If he does that ham-fistedly it could cap future growth, since almost two in five directors of tech companies have non-British nationality, according to Tech Nation. Johnson also promised to tilt Britain’s economic growth model away from the capital. Startups may worry, since they tend to benefit from “agglomeration”, or the concentration of skills in one place. Brexit also endangers the UK’s share of EU startup funding.
Meanwhile neighbours like France and Germany are courting entrepreneurs with aggressive state funding, and cuts to taxes and red tape. French venture investments have risen faster than in Britain since 2014. London’s entrepreneurs may find that you can go the wrong way around a roundabout.
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