The City of Spires (and Startups) A look at how London is holding its own among global startup hubs

Ever wondered what makes London a magnet for startups?

Hint: it's more than just tea and the Big Ben!

The UK capital has emerged as the country's most valuable tech hub, with a US$621.5 billion valuation in 2023, up from $70 billion in 2014, according to Startup Genome's Global Startup Ecosystem Ranking 2024. London also holds its own among global tech giants, standing shoulder to shoulder with New York, and trailing only behind Silicon Valley.

The Tech Nation Report 2024 also highlights London's dominance, with it especially noting that of the 1,800 venture capital (VC)-backed artificial intelligence (AI) startups and scaleups in the UK, 66% are based in the capital. Coupled with 103 unicorns and an 800% jump in venture capital investment over the past decade, what is it about the big smoke?

Entrepreneur UK chats to a few dynamic businesses that chose London, exploring their motivations for setting up shop in the city.

THE PERFECT LAUNCHPAD

Based in Brick Lane, Anything World is transforming interactive 3D experiences, enabling developers to create them 40% faster than competitors.

With their user base nearly doubling to 25,000 in 2023, while also clinching a 2024 Webby Award for Technical Achievement, how much of Anything World's success can be attributed to London's prime location?

For co-founder and CEO Gordon Midwood, the capital was the perfect launchpad.

"London is one of the best places to run a startup in Europe," he says. "Crucially for us as a deep tech startup, access to highly skilled 3D and machine learning talent is excellent."

Plus, "it's an excellent and vibrant place to live and work too, which helps," Midwood adds.

However, Midwood pinpoints price as a potentially debilitating factor, acknowledging the significant costs associated with hiring a workforce and maintaining a studio in London.

"Those are genuine challenges for a startup, especially in those early days," he says.

He suggests that London needs to step up its game to stay competitive with other places offering similar benefits for less—a key point of interest for entrepreneurs weighing their options.

"Clearly, infrastructure needs to be world-class, but even more key is talent and access to world-class education," he says. "London needs to invest even more heavily in cutting-edge education facilities with a particular focus on AI."

After all, in today's knowledge economy, having top-tier expertise in AI is crucial for staying ahead and maintaining a competitive edge.

CENTRE OF ATTENTION

It might have seemed like like an obvious choice to have Boku, a US-based company, listed on the Nasdaq stock exchange in New York.

However, Stuart Neal, CEO of the innovative, mobile-focused payment method (and recipient of the PayTech Company of the Year Award at the Fintech Awards London 2023), admitted that Nasdaq wasn't conducive to smaller tech firms.

Explaining his rationale for choosing London, he says it's great to be on the Nasdaq when you are "big tech," but not necessarily when you're "small tech."

"In contrast, we thought the London market, with fewer growth companies, provided us with ample opportunity to attract more attention," Neal adds.

He also credits London's lighter regulatory framework in helping Boku establish and grow without heavy administrative burdens.

"London is far less onerous than the US from a regulatory and reporting perspective," he points out. "We only have to report semi-annually instead of quarterly, and we aren't subjected to stringent regulations such as the Sarbanes-Oxley Act," he says.

And while he acknowledges that London is not the largest market in terms of funds, Neal admits that the capital offers numerous pathways to reach investors—namely through analyst coverage.

"If your numbers are strong, analyst coverage is readily available, which has been beneficial for us in attracting investor interest and funding opportunities," he reveals.

He also credits London for its unique advantage in providing greater visibility as well as a larger share of voice, thanks to fewer competing tech companies compared to Nasdaq, which offers ample opportunities to attract attention. For startups considering where to establish themselves, Neal's advice is to have a clear and detailed plan about how you can generate revenue and grow.

"It's crucial to understand the mix of investors in the market and their investment theses—whether they are seeking long- term growth, or short-term profits," he adds.

CLOSE TO (ALL) THE ACTION

Hoxton Farms, a London based biotech startup, grows real animal fat–but without the animals.

Co-founded in 2020 by Max Jamilly and Ed Steele, Hoxton Farms are a team of 45 based in London, who believe that food should be made in the city, not the countryside.

"We grow cultivated fat in a converted office block, just minutes away from where it will be eaten and enjoyed," Jamilly says.

A highly interdisciplinary team is required to power Hoxton Farms, which include chefs, food scientists, synthetic biologists, cell culture scientists, machine learning engineers, software developers and operations specialists.

"There are very few cities that have the diversity of talent to enable us to fill all these positions," Jamilly says. "We're lucky London is one of them."

According to Jamilly, early-stage startups thrive on talent, and London's vibrant atmosphere attracts top scientists and experts, offering a diverse talent pool in biotech, cellular agriculture, and bio-manufacturing.

"Another key factor is easy access to investors and regulators," Jamilly adds. "London is a hub for venture capital firms. Whitehall, home to politicians, policy-makers and regulators, is a short journey from our office. We're defining a new category in food; so, we need to be close to the action."

He credits being based in London as a key enabler for Hoxton Farms' rapid growth over the past four years, building strong commercial relationships with key industry players who are headquartered here.

"The availability of capital in London is also unmatched. By being based here, we've been able to more easily fundraise, raising financing early on from top UK funds such Systemiq Capital, Backed VC, and more," he says.

However, no location is perfect. London-based companies like Hoxton Farms often have to seek growth-stage VC funding in the US or Asia due to a lack of such financing opportunities in London. Plus, according to Jamilly, regulatory processes could be improved, having gone through them himself when Hoxton Farms' cultivated fat was designated a novel ingredient by the UK's Food Standards Agency (FSA).

"After Brexit, we inherited a system that is not designed with innovation in mind," Jamillly notes. That said, he believes "we now have an opportunity to adapt it, to enable the UK to become a world leader in food tech, and the FSA has shown great willingness to collaborate."

However, Jamillly admits that despite such challenges, the benefits of being in London far outweigh them, making it the ideal location for Hoxton Farms.

THE BEST OF ALL WORLDS

As an American from Silicon Valley, Nina Mohanty, CEO at Bloom Money, found building a tech startup in London offered the best of all worlds.

"London has the financial sector and energy of New York City, the proximity to regulators and government of Washington D.C., the art and creativity of Los Angeles, and incredible ideas and problem solvers to rival Silicon Valley—all with better public transport," she says.

According to Mohanty, building a fintech company in London was a no-brainer, with London's tech ecosystem growth making hiring a dream come true for any founder.

"Importantly, London is a hub for more established industry players, be it financial institutions or multi-national conglomerates which makes it an exciting place to pursue partnerships for startups."

Mohanty acknowledges that London and Europe more broadly are often lambasted as being more risk-averse than the US, and therefore comparatively, the UK's tech ecosystem is quite nascent.

"This can make fundraising difficult for founders tackling large, hairy problems," she says. "Access to capital is improving, but the willingness to bet big will take more exits and longevity to secure London as the true jewel in the European crown of tech."

NOT EVERY STARTUP'S DREAM DESTINATION

London was a no-go for Meetfreed, the app incentivizing plant-based eating.

Patrick Huang, founder of Meetfreed, cited costs, marketing budgets, and a crowded market as reasons for bypassing the capital.

"Starting outside of London let us scale thoughtfully, and make sure our mission to inspire more plant-based living reaches diverse communities across the UK," he reveals.

Manchester's vibrant and less saturated food scene, coupled with its substantial student population, proved an ideal location for the ambitious startup. Collaborating closely with local eateries, Huang believes they can effectively promote plant-based options.

"It's tough to stand out in such a saturated market, and we thought it might slow down our initial growth," he says

With over 400,000 university students within an hour's drive, Manchester offers a sizable user base, which was better aligned with Meetfreed's target demographic.

OPPORTUNITY KNOCKS

London still has a lot going for it though.

With over 20 years of experience in equity capital markets (ECM), Simon Olsen, a Partner at Deloitte's ECM division, emphasizes that a London listing for a UK startup offers significant opportunities to raise growth capital during an initial public offering (IPO) and subsequent funding rounds.

"A startup would also benefit from a liquidity platform for existing shareholders, a potential enhancement in its brand and reputation, and a liquid currency for mergers and acquisitions (M&A) as well as employee remuneration," he adds.

However, Olsen notes that businesses must ensure these benefits outweigh the incremental costs and time involved in the IPO process, and maintaining the listing.

"London's Alternative Investment Market (AIM) offers these benefits in a market intended for growth companies, with lower costs and less regulation than London's main market," he reveals.

Commenting on the current state of play, Olsen says IPO markets are re-opening, driven by improving macroeconomic conditions.

"These include less uncertain geopolitics, pent-up demand, the need for private equity to exit, and the impact of higher interest rates making alternative funding options less attractive," he points out.

Given the advantages of a London listing, the resurgence of IPO markets, and the increasing difficulty in securing private investment, now may be an opportune moment for early-stage, high-growth businesses to contemplate a London listing.

A BEACON OF RESILIENCE

London navigates the complex balance between innovation, affordability, regulatory agility and growth opportunities, maintaining its leadership, despite the IPO choices of giants like Arm, CRH and Flutter.

With UK tech professionals and founders feeling optimistic (64% and 84%, respectively, are confident about the future of the sector, as per the Tech Nation AI Report), London looks set to solidify its role as a global tech leader in 2024 and beyond.