The continuing surge of Silicon Valley giants gobbling up Tech City start-ups has led some to question whether London will ever be able to produce its own billion-dollar tech company that it craves so badly.
Towards the end of last week, Menlo Park-based Facebook agreed to buy certain assets of Monoidics for an undisclosed fee, allowing the social media giant to identify bugs on mobile apps and websites with the start-up’s code-checking software.
Monoidics, founded in 2009 by Italian entrepreneur Dino Distefano, will move its engineering team into Facebook’s London office once the deal has fully closed.
“Right away we knew this was our chance to take what we’ve built to the next level. Joining the Facebook team opens up a world of new opportunity for our technology and for our individual and collective scientific expertise,” said Monoidics on its website.
Meanwhile, Palo Alto-based Cloudera purchased Google Campus based machine learning and data mining start-up Myrrix at the beginning of last week.
Other London-based companies to have been snapped up by Silicon Valley giants recently include Summly and TweetDeck, which were bought by Yahoo and Twitter for £30m and £25m respectively.
While the start-ups cash in on these deals and see it as a positive move, there are concerns that some of the best tech companies are failing to reach their full potential by selling out too quickly.
Richard Holway, chairman of analyst firm TechMarketView, told Techworld: “I would really love to see a billion pound UK tech company listing on the London Stock Exchange but history indicates this is unlikely.”
Most UK start-ups would consider selling for £100m or even £10m as a ‘major success’, while some founders turn into serial entrepreneurs, said Holway.
Holway claimed that many companies set up with the intention of being bought by global players and start-ups openly say this to VCs.
“Even when we are in sight of a $1bn IPO it is likely to be a NASDAQ float rather than in London,” said Holway, claiming that Shazam, King, Markit and Sophos will probably opt for NASDAQ over the London Stock Exchange.
“The London stock market is just not attractive for larger floats. They need an infrastructure of lawyers, PR people, reporting accountants, analysts, knowledgeable press etc. The US has these in spade loads. We don’t…anymore.”
Start-ups need support from both the public and private sectors if they are to flourish in the UK and become tech giants.
However, earlier this year, MPs on the Science and Technology Committee found that the government is failing technology entrepreneurs and does not have a coherent strategy to support the commercialisation of technology innovation.
The Select Committee’s report found that a lack of funding and the inability to foster long-term SME growth was stifling the UK’s tech scene.
“The UK’s university and science sector is a global success, but the challenge for government is how that world class academic research can be translated into commercial activity,” said Chair of the Select Committee, MP Andrew Miller, following the release of the report in March.
“Whilst we are encouraged by the work of the Technology Strategy Board (TSB) and the Catapults, British entrepreneurs are being badly let down by a lack of access to financial support and a system that often forces them to sell out to private equity investors or larger foreign companies to get ideas off the ground.”
Benjamin Southworth, Tech City deputy CEO, told Techworld that Silicon Valley has been buying start-ups across the world for the past 15 years and the recent acquisitions reflect the high calibre of London’s start-ups, which have benefited from a number of recently introduced initiatives.
The government-led initiatives, such as the Entrepreneur Visa and the Seed Enterprise Investment Scheme (SEED EIS), were introduced to help start-ups access the talent and funding they need at an early stage.
“All this means that London is now a highly attractive proposition for companies at every stage of their growth trajectory,” said Southworth.
Meanwhile, the High Growth Segment was recently created by the London Stock Exchange to give high-growth companies a new route to a UK market listing.
However, Holway argues that the High Growth Segment has had little impact. “If it had, we would be seeing some IPOs by now and those like Shazam and Sophos wouldn't be thinking NASDAQ,” he said.
A report out last week found that London’s Tech City start-up cluster became home to more than 15,000 new businesses over the past year.
Founder of Seedrs – the a UK based online platform for investing in start-ups – Jeff Lynn, told Techworld: “Sure the Silicon Valley guys will gobble up some of them, but in this robust ecosystem, many others will grow to substantial scale.
“Much as we’d all like to promote the British start-up scene for the principle of it, ultimately every founder is responsible to his or her investors and team. Where the best thing for the company – due to scale, synergies or otherwise – is to sell, then there is nothing wrong with it.”
However, Lynn believes that the UK is going to see an increasing number of businesses decide that acquisition isn’t the right path and that they’re better to grow naturally.
Consequences of selling up
When a company sells up, the surrounding community may be concerned that talent, IP and other assets will be relocated, leaving things worse than they were before.
However, it can put money into the pockets of entrepreneurs who can then go on to become business angels and help feed the local ecosystem or set up more businesses themselves.
But what do entrepreneurs need to do in order to create a billion-dollar company?
Robbie Hughes, CEO of clinical management software company, Qinec, told Techworld that British people need to change their attitude if the country wants to contend with the US.
“We start businesses to solve a problem while Americans create a company to change the world,” he said.“ We simply don't think big enough. Perhaps if British companies aimed higher then we would stop underselling ourselves and in the future it would be UK companies taking over US ones.”
Many of the founders who cash in are likely to be entrepreneurs who start other businesses in the UK.
The UK’s IPOckets
There are pockets of the UK where billion-dollar tech companies exist, such as Cambridge, where there are 12 companies with turnovers over 12 billion sollars.
Billion-dollar IPOs that have occurred in Cambridge include CSR and ARM, but neither of them are on the scale of Google or Cisco.
One UK start-up that has been tipped as a billion-dollar company is Cambridge-based RealVNC.
“There are plenty of companies here who are going for the big-time and who are not interested in acquisition,” RealVNC founder and CEO Andy Harter told Techworld.