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Manish Madhvani

Managing partner, GP Bullhound

Why hasn’t the UK produced a tech giant yet?

UK tech has done it again – we continue to dominate Europe in creating the greatest number of billion-dollar tech companies.

Our latest Titans of Tech report reveals the extent of the victory. Britain is now home to 27 tech unicorns with a cumulative value of over $80bn, and in the past twelve months alone has added five more to the fray including Monzo, BenevolentAI and Darktrace. Our closest rival Germany hosts a total of eleven and Sweden gives rise to eight tech firms that have gone on to achieve the coveted billion-dollar status.

The UK may lead in generating the most billion-dollar firms – yet, Europe’s first tech ‘titan’, a business to exceed a valuation of over $50bn, is set to be found on the mainland. In fact, none of the top five European companies expected to make the very first cohort of titans are from the UK. The two frontrunners to cross the finish line we expect to be Spotify and Adyen, from Sweden and the Netherlands respectively – the numbers suggest that if they continue to accelerating at their current pace, they’ll get there in just two years.

Why then is Britain not challenging at the top and threatening poll position with a tech company that can compete on the world stage alongside offerings from China and the US – joining the elite club with Facebook, Uber, Baidu?

Britain has proved exceptionally adept at fostering a vibrant investment ecosystem and attracting the greatest volume of inbound tech investment in Europe. London’s deep-rooted banking and finance institutions have embraced the unprecedented growth of digital businesses in their capacity to dominate global markets – getting ahead of the curve and helping to sponsor an attractive environment for overseas investors. The capital is clearly there to underpin growth and to drive businesses in achieving billion-dollar valuations. Cash alone may not be king then.

Daniel Ek founded Spotify back in 2006, as a challenger that would fundamentally transform an industry and alter the way we consume music. This wasn’t simply progressive technology but a product reliant on changing the model, altering behaviours and doing it first. The appetite for risk was certainly there from the team and their investors alike to go on that journey. We have to pose the question: do UK funders at large have the same willingness to take on risks of that proportion with a long-term view and aspirations to scale technology from the early-stage – from an idea – all the way through to tech “titan”? In Britain, there has been a prevailing behaviour which historically has sacrificed top-line growth in the pursuit of short-term profits, and that clearly changes how the ecosystem responds to early stage tech businesses like Spotify.

We must also look to the public markets and the halo effects that both Adyen and Spotify’s successful listings generated throughout Europe. The music streaming site is the benchmark for tech companies looking to raise capital publicly; the business made headway almost immediately and continues to trade strongly. The timing of going public is critical and none more so for a tech company that attracts a large valuation, heavy speculation and is scaling rapidly. In the UK we are seeing businesses holding off going public as they close yet larger and larger funding rounds. Whilst, this is absolutely no bad thing – the ambition to IPO and to reach that level of size and scale is vital – Spotify and Adyen have laid down a path for which several of the unicorns in Europe are treading at speed as they make their way towards achieving a $50bn valuation.

UK tech founders must recognise when the time is right and what the best options are for raising capital as they move through the rounds. The correct decision to IPO could help seed Britain’s first tech company in truly competing with the world’s highest valuations.

On the continent, we have also witnessed the positive ramifications of a strategic acquisition, that comes to accelerate growth. Spotify’s move to purchase both Gimlet and Anchor was a smart one – podcasts represent much higher margin content than music which has supported margin expansion in years to come. These are the kinds of decisions that act to open up important revenue streams for businesses that stretch beyond the original offering and help to snowball a tech company towards titan status.

The UK has the global connections, enterprise ecosystem, provision of capital, talent and regulatory framework to allow domestic tech companies to scale and achieve valuations that exceed the $50bn mark and put them in the global standings with the US and China. Yet there are lessons to be learned from Europe in creating the blueprint that will take these firms to the next level.

Manish Madhvani is managing partner at GP Bullhound