Unicorns thriving in their London Ranch
I was sitting enjoying the last rays of the evening sun last weekend when I heard news of a Toxic cloud enveloping parts of Sussex, near where we reside. I rushed inside, shut all the windows and waited and waited. Nothing appeared as the light breeze didn’t carry it far enough inland to affect us. The next day there was much speculation as to whether it was a ship or a plane discharging waste or indeed a French factory belting out poisonous fumes on a Sunday evening. My money, naturally being English, is on that it was a toxic cloud from France which would align nicely with the toxic gesturing towards Great Britain emanating from M Barnier and the rest of Europe’s elite, but unelected, leaders.
If one believed the majority of the media, be it social ,TV or press, England is rapidly declining and will soon become a total basket case both economically and politically, indeed a Banana republic without the Bananas. Sadly what is not reported, because it doesn’t fit the doom and gloom narrative, is that the UK is still a magnet for new businesses and in particular Fintech. Indeed there are 18, so called Unicorn, companies valued at $1bln in the UK compared to just one in France. Just to put this into perspective London has four Fintech Unicorns whereas the rest of Europe combined hosts two. To finish my allegory a cloud of toxic rhetoric hangs over the UK and is covering the great strides that the UK is making going forward. Europe, in particular Germany and France, has designs on taking industry away from the UK and are making no bones about it and if you believed the press they are succeeding. Well simply put, sorry but they are not.
A report from UK Fintech said that industry investment has increased by over 50% each year since 2008. There are, of course other hubs in the UK such as Cambridge and Edinburgh but London is the leader. There is twice as much growth in the UK as in the Silicon Valley, which houses some of the world’s largest technology companies and Brexit hasn’t materially affected it. Abdul Haseeb Basit, the Innovative Finance’s chief financial officer, had this to say about Brexit: “We saw a period of uncertainty over the summer last year but I would say that by around the third quarter, things were starting to recover,”
Fintech covers a wide gamut of products many of which are true innovation as well as some which are a few old bits of technology cobbled together to produce a new product. The challenger banks such as Monzo and Starling seem to be growing from London and seek to serve a definite need whilst clever apps that bridge the gap between social media and banking are also present in one form or another. Apps such as Transferwise have gained huge publicity and valuations which when one looks at the advertising spend is hardly surprising. A cynic would say that they are an old idea that has been presented brilliantly but none the less it was nurtured in London. More innovative businesses such as Moneymailme see the advantage of having a sales office in London. 3M ( Moneymailme) is an app that links sending money with socialising – sort of Whatsapp meets Transferwise – is also interesting in that it secured a senior figure from the retail currency markets ,Mark Bolsom ex Travelex , to head up its London office . I asked Mark why they had chosen London and he told me it was “because of London’s unique position as a dynamic, cosmopolitan city but also as financial and technological hub. Over 30% of people living in London come from overseas and Moneymailme can naturally help when it comes to sending or receiving money with friends and family back home. London is also the place to be when it comes to exciting developments in Fintech, sourcing partners and also securing investment. London remains the place to do business.” He added , when asked why he had switched to an app based business that “Moneymailme was the first app that I saw that understands the social role that money plays in everyday life and makes it easy to share both money and the experience.”
The U.K. and London in particular, have unique attractions for Fintech companies and the fact that in the first half of 2017, £433 million had been put into Fintech in the UK leaves the U.K. only behind China and Silicon Valley for inward investment. The government now prioritises Fintech which already employs 60,000 people and creates £9bln for the economy. The attractions of London can be split into two distinct parts that dovetail neatly and produce a hotbed of creativity. The UK tax regime is, despite my many personal complaints, in truth a pretty benign regime and has very generous tax breaks for Research and development (roughly companies can claim 33% of development expenditure back from the government) and when combined with business friendly labour laws it is understandable that London is the European centre for Fintech. The second main influence is historical. London has been, and remains, the preeminent financial centre in Europe due to a mixture of language, a culture of innovation, experience and sensible regulation. The FCA (The UK regulator) is also business friendly and helps test new ideas within a “sandbox” with real consumers, an idea now being copied by the Swiss authorities in an attempt to compete. In short the infrastructure is present and it is no coincidence that the Fintech hub, Silicon Roundabout in Clerkenwell, is based on the edge of the financial district where the all needed facilities are located. Whether its high speed broadband capacity, lawyers, banks or staff they are all on the doorstep and all used to dealing with innovation in the financial markets.
London is nearly always the European centre through which funds are raised and distributed into industry and in this instance into new technological ideas. There are good tax breaks for UK investors through enterprise investment schemes and London is also at the forefront of crowdfunding. In conclusion one would think it’s all looking very rosy for these new businesses. I do however want to sound a slight note of caution to investors because, unsurprisingly, investing in an idea is risky and having seen some angel funding at very close quarters it certainly was not rigorous enough in its due diligence. Secondly some of the valuations are , in my opinion, optimistic and with Transferwise being valued at £1bln a comment I made to my granddaughter Poppy comes to my mind , just be careful when you buy a Unicorn and certainly don’t try leapfrogging one.