As the Tech Nation 2017 report went out yesterday the UK government, startup founders and venture capitalists have once again highlighted the importance of regional "clusters" to help grow the sector across the whole of the UK, and not just in London.
The report, which details the current state of the UK tech industry, shows that new clusters are popping up around the UK, adding to the successes of companies like DeepMind in Cambridge, Skyscanner in Edinburgh, and Sage in Newcastle.
It goes on to say: "The rapid rate of growth of tech sectors in the regions is creating exciting and unexpected concentrations of tech companies. For example Bournemouth and Poole has the highest concentration of high growth firms in terms of annual turnover; while Dundee has seen the highest percentage growth (up 67 percent) in jobs created, second only to London (up 95 percent)."
The report also notes that UK tech workers are paid on average 44 percent more than non-tech workers and that the distribution of these jobs is growing, with salaries in Newcastle, Sheffield and Leeds seeing particularly strong growth, with salaries rising by over 25 percent in the past five years.
In a foreword for the report UK Prime Minister Theresa May noted that it is the responsibility of government to "deliver a high-skilled, high paid Britain where opportunity is spread across every community, not just the traditional areas of London and the South East".
However the idea of a Northern Powerhouse, and that the tech sector is given enough attention outside of the M25, has often led to scepticism. Although the various clusters are growing, London still dominates most metrics. For example, digital turnover in London for 2015 was £56 billion, with the nearest cluster being Reading at £12.5 billion.
What the report does show is that 2016 saw more investment from venture capital and private equity funds going to companies’ from outside of London than within.
Based on data from Pitchbook for all venture capital and private equity deals in 2016, £4.6 billion (68 percent) was invested in companies from regions outside of London, as opposed to £2.2 billion (32 percent) in London-based companies.
Of the regions, Edinburgh-based companies brought in the most investment in 2016 at £159 million, then Cambridge at £153 million, then Bristol and Bath at £109 million.
Karen Bradley, secretary of state for culture, media and sports echoed the party line on the importance of distributing this investment across the UK. Speaking at the launch event for the report yesterday she said: "Money is pouring in from around the world and our task is to spread it around even further."
The UK's Intel moment
Wendy Tan White, who is currently a general partner at Entrepreneur First, takes a positive view of companies like chip designer Arm Holdings being acquired overseas, saying that it could be the UK's "Intel moment".
"That liquidity really pushes investment into the cluster," she said during a panel session yesterday. "There will no doubt be a massive influx of investment now around Cambridge because of that. With Skyscanner in Edinburgh, I know those guys are investing and really holding companies up there. For an ecosystem to work for young startups you need a set of mentors that have existed through every stage."
Saul Klein, a venture capitalist at Index Ventures agreed, stating that "exits create ecosystems". Echoing White's comments regarding an Intel effect, he was referring to the theory that a successful tech company can infuse capital and talent into an ecosystem and create more companies in the long term.
The same effect can be seen more recently in the way that PayPal alumni Elon Musk, Ken Howery, Luke Nosek, Max Levchin and Peter Thiel went on to either build (Tesla and Palantir) or invest in (Facebook) some of the biggest tech companies of the past decade.
The flip side of this though is that a lot of long term value is removed from the UK economy, as these companies profits end up going to US investors. As Giles Palmer, CEO of UK startup Brandwatch said: "I would focus on this idea that we create lots of [intellectual property] IP here and have great researchers but a lot of those guys end up creating value for the shareholders of American companies.
"So I would encourage all of us to think about how we can build UK companies and on being a UK entrepreneur. Let's take IP and talent and create British businesses that retain the IP and value as much as possible for as long as possible."
CEO of Sage Stephen Kelly added: "This is not binary, it is not London and the rest, we want all boats rising. The better London does, the better the UK will do."
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