This article originally appeared on The Next Web
Jay Patani is an analyst at EC1 Capital, a London-based early stage, Web technology focused venture capital company. Email him at jay(at)ec1capital.com.
The UK government has been keen to champion the UK as a hub for technology and innovation. Announced in late 2013, the Future Fifty, a selection of the finest 50 tech companies the UK has to offer, is a government initiative to create a “solid pipeline of British tech IPOs”.
Whilst exact details remain unclear, Tech City declared that companies on the program have access to a team of leading investors, accounting firms and business leaders for ongoing advice and support.
Household appliance retailer AO World, one of the Future Fifty, was the first-past-the-IPO-post with a valuation of £1.2bn. More recently, online takeaway ordering service Just Eat made an impressive £1.5bn debut on the London Stock Exchange’s new High Growth Segment. These are all signs of a healthy IPO queue forming at the doors of the London Stock Exchange.
The initial PR buzz surrounding the initiative has now faded to a light simmer but it is worth taking a glance at the 50 companies and spot any patterns or trends emerging in the country’s tech scene.
The most popular business model among the 50 high growth companies is perhaps unsurprisingly e-commerce. The UK’s thirst for Internet shopping is laid bare in the fact that UK spends more online per head than any other nation (with Australia trailing behind in second place).
This expanding online demand has been quenched by equally impressive supply from high-growth UK-based companies, which are taking centre stage in the world of commerce.
A plethora of choices await today’s e-commerce business when it comes to monetization. Online homewares retailer Achica and travel package provider Secret Escapes have successful made use of Flash Sales as a vehicle to attract consumers.
Going against the grain of conventional wisdom, both companies have shown that Flash Sales has not faltered as a lucrative business model; it has merely altered. Instead of mass Groupon-style mass discounts, the two companies have opted for focusing on a particular vertical and made use of carefully curated content to enhance user experience.
E-commerce meets experience
With consumers no longer satisfied with a quick-but-clinical online shopping experience, companies are now attempting to blur the lines between the physical and the virtual Fashion brand aggregator, Lyst, is a case in point. In collaboration with PayPal, the company has planned a rollout of beacon technology to provide real-time information to Lyst users in-store with participating retailers.
Another trend disrupting the era of purely frictionless shopping is social e-commerce. Future Fifty member Green Man Gaming demonstrates this by providing a social platform for gamers in addition to a marketplace. The company also leverages the power of social data to drive its commercial decision making, setting it apart from its competitors.
Fashion and Fintech
Future Fifty companies by industry vertical
In an industry breakdown of the Future Fifty, fashion and FinTech – arguably at polar ends of the commercial spectrum – come out on top. A recent Accenture report reveals that over half of Europe’s FinTech deals took place in the UK or Ireland. London’s well-established financial institutions and infrastructure make it an environment rife for financial innovation.
The eight FinTech members of the Future Fifty are diverse in the range of problems they are addressing. Peer-to-peer finance remains a UK asset with both Zopa and Funding circle connecting lenders and borrowers online.
Directly contributing £26 billion to the UK economy (Oxford Economics 2014), fashion retail surfaces seven times on the Future Fifty list.
Why is the UK’s online fashion industry prospering? The annual London Fashion Week, fresh talent from world-leading art schools and a healthy local appetite to shop online all play a part. However, the risks taken by entrepreneurs in the early 2000s also had an important role in setting a strong commercial precedent for future fashion success stories in the UK.
More than a decade ago in the age of frustrating dial-up internet, Natalie Massenet was busy creating designer retailer Net-A-Porter, which may now be valued as much as £2 billion.
Also launched in 2000, clothing retailer ASOS has leapt into global prominence in recent years. The company now boasts the accolade of most visited fashion website in the world among 18-34 year olds with over 30m unique monthly visitors and around £1 billion in sales in 2013.
The future ‘Future Fifty’
Looking further into the distance, it is worth musing on what a future intake of the Future Fifty would look like as Tech City matures. Despite the UK’s numerous strengths, there are a few gaps in its tech repertoire. The country still hasn’t had its blockbuster hit along the lines of Facebook and Twitter.
The USA’s population (and therefore immediate market) dwarfs that of the UK by a factor of five, putting the UK at an instant disadvantage when it comes to all-important user acquisition. But perhaps investor attitude and appetite needs to change – placing greater priority on truly disruptive technologies rather than the instantly monetizable.
It is easy to forget that London is still finding its feet compared to Silicon Valley with its decades of experience in financing technology companies from the early seed stage to later-stage growth capital. In the coming years, the tap of UK venture capital needs to not only keep running but also flow evenly to companies at different stages in their life cycle.
The UK needs its own Stanford
Stanford University’s contribution to the technological landscape of the US is immense. The California-based university was a breeding ground for founders of Google, Snapchat and Instagram among many other tech giants.
The UK, certainly not lacking in world-leading universities, should emulate the US model and infuse purely academic education with a flavor of innovation and entrepreneurship.
UK Universities have recently started catching on and are increasingly promoting entrepreneurship both within the syllabus and extra-curricular. University startup incubators have also recently sprouted across the UK’s university landscape, which allow student entrepreneurs to develop and commercialize their ideas.
The Oxford University’s ISIS software incubator’s spin-out company, Natural Motion, was notably acquired by games-maker Zynga for a substantial $527m in January.
Attracting the right talent
Vast improvements also need to be made in attracting talent to growing companies. Many members of the tech community believe that a skills shortage is looming over the UK. In order to continue its growth, the country’s tech ecosystem needs to be a well-oiled machine, sourcing the best talent both from abroad and locally.
Firstly, the UK government needs to demystify and relax controls on the inflow of tech talent. The Entrepreneur Visa, which allows overseas entrepreneurs to move to the UK, is an important step in the right direction. However, the visa application process is still cumbersome with prohibitive red tape hurdles, long waiting times and caseworkers that cannot adequately assess an entrepreneur’s situation.
Secondly, the UK needs domestic reform in education. Wealth creation arising from the proliferation of digital companies in Tech City’s home in East London has largely failed to create opportunities for much of its populace.
Both youth unemployment and child poverty remain high in the area. Tech companies need to show deeper commitment to engaging with local young people and informing them of career paths within the digital industries.
Centre for London, a UK think tank, is currently working to improve this with its Connecting Tech City campaign – a digital platform to connect young people with digital companies.
There is, however, no quick fix for a local skill shortage. Schooling, from primary through to secondary, needs to equip pupils with basic digital literacy skills and encourage students to pursue further education in STEM (science, technology, engineering and maths) subjects.
The UK is undoubtedly one of Europe’s technology success stories. The Future Fifty are testament to the country’s ability to foster innovation and the government’s willingness to support it.
The coming years will be pivotal in seeing how the technology ecosystem evolves and unfolds.