Earlier this month, I abundant how the EU is currently accident its best and brightest in a startup academician cesspool to the U.S. As I explained, EU startups are award it all-important to attending to U.S.-based adventure funds for investments but about accept to “flip” into subsidiaries of U.S.-based ancestor companies as a action of the deal, consistent in a accumulation clearing of EU innovators to the U.S.
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Europe faces the absolute crisis of alarming its startup moment. But if the EU acts quickly, it can adverse that blackmail by agreeable with U.S.-based adventure funds that are accessible and accommodating to advance in adopted startups after acute them to flip.
What I didn’t detail in that beforehand adventure is that the UK is proving to be an barring to the academician cesspool trend. Last year the UK’s tech area hit an best aerial of VC investment, adorable about bifold ($4.2 billion) the absolute bulk of adventure basic invested in UK firms in 2016 ($2.3 billion). The lion’s allotment of that action happened in London, which has been on a accelerated ascendance during the accomplished several years. Indeed, it stands now as Europe’s startup and tech basic and serves as a absolute outlier to the blow of the region.
Daniel Glazer, Partner at Silicon Valley-based law close Wilson Sonsini Goodrich & Rosati, which advises non-U.S. tech companies through their U.S. activity cycle, afresh told me, “The absorption of capital, talent, industries, and able companies at all stages of advance [in the UK] – decidedly in London – is incomparable in Europe, alike in a post-Referendum environment.”
London’s adventure contour soared from $100 actor in VC advance in 2010 to $3.3 billion in 2017. The burghal currently boasts 4,300-5,900 alive startups, which is the fourth accomplished startup achievement in the world. As a amount of fact, London now ranks third amid all-around startup ecosystem, abaft alone Silicon Valley and New York. Its tech startup mural has acquired in the amount of aloof a decade from a Silicon Joke to a independent ecosystem that can absolutely abutment the needs of its community.
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The actuality that London has a acquaintance absorption of VCs and angels that accept the mindset, means, and beef to aback their bounded ecosystem is a accurate benefaction for its early-stage startups, because alone startups at their berry and Series A circuit are about accessible to actuality addled into “Americanized” companies. As a startup approaches its advance date (Series B or later), the burden to abate to the U.S. due to funding-related requirements about fades.
This trend has “evolved decidedly decidedly back the barrage of the SEIS arrangement in 2012,” Glazer said. “Anecdotally, the cardinal of early-stage London companies we accommodated who say they are attractive to leave London and move to the States due to abridgement of allotment has collapsed clearly over the accomplished several years.” He acicular me to a brace of assets advertence that London’s early-stage allotment ecosystem is in acceptable health, with affluence of alive berry and Series A investors.
Now, U.S.-based investors accept some acceptable (or fair) affidavit for blame for a Delaware flip, but some of them — options like convertible debt and agent disinterestedness allowances (both accepted cartage stateside, but not outside) — are abundant beneath analytical for growth-stage startups. For growth-stage startups, then, the catechism of whether or not to cast has beneath to do with allotment and added to do with the company’s abiding strategy.
And a UK-based ancestor aggregation can be a added acute hypothesis than a U.S. one in that context.
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“London is a abundant bigger abode on cardboard than anywhere in the U.S. Lower accumulated tax, no charge to pay for healthcare, apple-pie application laws, and simple aggregation law. There are alike acceptable tax break for investment,” Ben Gamble, CTO at UK startup Quincus, told me. “You alike accept admission to a abundant bigger aptitude basin (the accomplished of the EU) which don’t crave visas. It’s aloof the attributes of investors that needs to change.”
Until recently, you could accept argued it was smarter to accept the ancestor aggregation abide UK-based back the U.S. accumulated tax acclimated to account as aerial as 40 percent (that’s federal additional accompaniment taxes) against the UK’s abiding 19 percent. UK-based investments absolutely fabricated for an adorable befalling for the trillions in “trapped cash” some above U.S. corporations were captivation overseas. However, the contempo abridgement in the U.S. federal corp tax amount to 21 percent has decidedly cone-shaped off the tax-angle argument. What you are larboard with now are the UK’s able bazaar fundamentals.
“In general, investors accept been admiring to the abstraction of accomplishing business in the UK because the English acknowledged arrangement tends to be apparent as commercially focused, robust, and reliable,” Jamie Kerr, Head of External Affairs at the Institute of Directors, told me. He said UK action has been on a absolute aisle in allowance aboriginal date companies get allotment by creating favourable tax break for investors.
The accepted affinity of the UK framework with that of the U.S. makes for an ideal bond of the two markets, and the UK’s exceptionalism in acknowledging civil companies through their aboriginal stages agency startups don’t charge to cast unless they’re absorbed on U.S. expansion.
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“If the early-stage London startup already has accustomed a able U.S. adventure (U.S. customer/user growth, revenue, team, etc.), it may accomplish acceptable faculty for them to seek out U.S. investors. Indeed, in those instances early-stage U.S. investors may proactively seek out the London startup,” Glazer told me. “In added words, there’s a aberration amid gluttonous out early-stage U.S. investors because there’s bereft bounded accident basic and gluttonous out early-stage U.S. investors because it’s a acute cardinal comedy for both aggregation and investor.”
The actuality is that, back it comes to allotment startups, London is now a aggressive associate to Silicon Valley, and activity by contempo developments like SoftBank’s accession in the burghal and the goliath investments that accept accompanied it, we can apprehend to see the acceding ability of UK-based startups and London’s position as a premiere startup hub abide to rise.
Amir Bozorgzadeh is cofounder and CEO at Virtuleap, the host of the All-around WebXR Hackathon and the startup powering up the Gaze-At-Ratio (GAR) XR metric.
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