San Francisco-based NextWorld Capital is edging closer to making its first ever investment in the UK tech scene. The venture capital firm – which has invested in groups such as US-based Customer Relationship Management system provider ProsperWorks and data firm GoodData – says it is actively looking for British firms to invest in as part of its expanding European portfolio.

Talent pool

“Europe, and the UK in particular, is very attractive for us and other Silicon Valley investors,” explains Frederic Halley, operating partner at NextWorld Capital. “London has been the tech capital of Europe for many years now. In terms of start-up numbers, it has been significantly ahead of Paris and Berlin. For US companies, it has a special pull because of the similar language, legal systems and ease of doing business. These fundamentals are very important.”

However, he believes the number one driver is the UK’s deep tech talent pool. “The quality of British universities such as Oxford, Cambridge and Imperial are developing some tremendous engineering talent,” he says. “It is also easier to build a fully European team in London. UK firms can attract the best European talent from Poland, France, Germany and Holland and that in itself helps a company develop its international potential going forward.” NextWorld is not alone.

Leading destination

According to recent data from London & Partners¹ the Mayor of London’s promotional agency, the UK is the leading European destination for Silicon Valley investors. Indeed, over the last five years, UK tech companies have received more venture capital investment from investors based in the US tech hub than France, Germany and Ireland combined.

In 2017 alone, according to London & Partners, Silicon Valley investors pumped a record $1.13bn into UK tech firms. London businesses have received the majority of venture capital investment from the Bay area, accounting for over 90% of the total. Over the last five years, they raised $2.5bn in capital, overtaking Stockholm with $1.4bn, Berlin with $641m and Paris with $500m.

“It is no surprise to see that British tech firms continue to attract more venture capital investment from the Bay area than any other European country,” says Sherry Couto, co-founder of London & Partners group SVC2UK.

“Brexit has not had an impact. London will continue to be a diverse, outward looking city.” Recent examples of investment include Andreessen Horowitz putting $20m into virtual reality group Improbable in 2015² and challenger bank Monzo³ receiving backing from Goodwater Capital this November.

Brexit impact

Halley does have some Brexit related concerns however. “It is still difficult to understand exactly what Brexit will mean, but we will continue to find growing companies and talent in the UK. That cultural symmetry with the US will remain, as will the strong research coming out of the universities,” he states.

“Where we might see change is in the area of attracting European talent to the UK. That depends on the visa situation. Will start-ups put the effort into sorting out and managing the correct visas for employees? If they need to bring in a German head of sales for instance they will probably say it is too much work and won’t do it.” He says that this could mean other European countries will no longer be seen as satellites of the UK.

AI advantage

“The quality of companies coming out of Paris and Berlin is getting better and venture capital firms from Silicon Valley will likely look more intensely in these cities for opportunities,” he adds. “But things will change gradually and funds like ours will not be making any drastic moves.

“There are some very exciting start-ups here particularly in the areas of deep tech, artificial (AI) intelligence and the ‘Internet of Things’,” he says. “The UK has a clear advantage in these areas compared with the rest of Europe.”