The UK Startup Scene as a whole
London’s startup scene exists in the context of a broader United Kingdom economy showing strong potential for rebound and growth in 2022, despite the obvious challenges that the entire global economy faces. The Organization for Economic Cooperation and Development (OECD) issued an Economic Forecast Summary in May of 2021. It projects GDP growth of 5.5% in 2022. While Brexit continues to exact a toll on the economy, strong vaccination trends portend, and another expected pullback in restrictions allowing for usual economic activity to resume.
London Startup Scene, Specifically
The Greater London Authority publishes an annual update on the state of – and forecast for – the London economy. The output outlook for 2022 remains remarkably optimistic, forecasted to grow at 6.9% in that year.
The same report indicates that London employment is expected to grow at a rate of 2.9% in 2022 and 4.2% in 2023.
That said, the report authors are careful to point out that there is a great deal of additional uncertainty associated with these projections, over and above the already significant unpredictability of these sorts of forecasts. The ongoing Covid-19 pandemic and Brexit, in particular, are unique historical events that will certainly have unanticipated effects.
Startups, even more specifically
The Global Startup Ecosystem Report 2021 by Startup Genome paints an extraordinarily positive picture of the London, England startup scene. Coming in as the number two destination of startup investment – behind Silicon Valley, California, USA – London also lands in the Top 5 worldwide sources of talent and experience and in the Top 10 for startup performance in the world.
Especially critical to the growth of the London startup scene are the EdTech and FinTech industries. As of September 22, 2021, the date of publication of the GSER 2021, London played host to over 2100 FinTech companies. This is an even larger number than either New York or San Francisco.
Companies like Wise (formerly TransferWise) have taken advantage of an average early-stage investment that is nearly twice the global average to grow and succeed. A total of 2.7 billion British pounds flows into the London FinTech industry in the form of investment every year.
Similarly EdTech in London is booming. It’s value is estimated by Startup Genome to exceed $3.4 billion in 2021 and it’s only expected to grow.
According to that same report by Startup Genome, London startup owners can take advantage of a wide variety of tax incentives, including 24 Enterprise Zones in which businesses are 100% tax exempt for up to 5 years (to a maximum of 275,000 pounds). Entrepreneurs can also get some assistance from several startup-related organizations and accelerators, including Tech Nation, Techstars London, and Microsoft Ventures.
Why Economic Development Organizations Should Care?
London’s success incubating a vibrant and extraordinary startup scene should catch the eye of Economic Development Organization professionals for a couple reasons. First, notice the policies that the city put in place. From designated Enterprise Zones to the availability of startup-related assistance organizations and tax incentives, the policymakers in London have done everything they can to make their city a friendly environment for tech startups.
More importantly, though, as with any tech hub – including Silicon Valley – when a city gets crowded enough with startups all hustling for money from the same VCs and investors, they start to look for greener pastures. London may have reached that point, with some startups willing to leave the bustling capital.
Finally, as pointed out by Time, many of the startups arising out of London, and the UK in general, have a different attitude to health and wellness than startups from Silicon Valley:
Many U.K. founders have worked to ensure that ‘wellness and mental health are built in at the core of new startups’…
This is an important consideration for EDOs looking to attract business to their cities, towns, and regions. Health and wellness can sometimes be seen as an optional “nice to have” by some organizations more focused on landing their next round of funding or making their quarterly targets. But the communities in which startups make their homes can benefit significantly from companies that put health and wellness at the forefront of what they do. The benefits can trickle down to their employees, their partners, their suppliers, and more.
One Last Thing: What About That Whole Brexit Deal?
When the UK voted to leave the European Union in 2016 in a referendum with razor-thin margins (the vote was about 51 to 48, “Leave” to “Stay”), the United Kingdom was faced with a number of difficult challenges. The logistics of extracting one of the world’s major economies from the world’s largest international economic bloc were daunting.
Concerns were particularly marked in the London fintech scene, with uncertainty surrounding the changing regulatory environment. However, from the aforementioned Time article:
Many in the London-based fintech industry were concerned about how Brexit might change the legal framework that the City operates within. The U.K. ultimately left the bloc last January, but Burbidge says that there has been no doomsday scenario so far: “We certainly haven’t seen the big asset managers or banks clear out of London. Perhaps that’s because it’s been the home of traditional financial-services institutions for so long—there’s still a draw. – Time Magazine
The article also says:
U.S. investors haven’t been scared off by Brexit—and in fact have helped to power the U.K.’s fintech industry to greater heights. –Time Magazine
Snapshot of High-Growth Companies in London.
Not all cities that seek to attract startup activity succeed in their goals. London, however, seems to have struck on that magic combination of incentives, talent, infrastructure, and regulatory environment that brings in exciting companies from all around the world. Get the full list here.
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