Despite a general slowdown in market activity, London has continued to draw in funds hoping to launch or expand their global activity. International VCs like Lightspeed Venture Partners, a16z, Sequoia and IVP all have partners on the ground in the UK capital — and more players are following suit.
Ahead of the 2023 Sifted Summit in London — a gathering of Europe’s most innovative founders, investors and operators — we sat down with Latham & Watkins partners Mike Turner and Shing Lo, and managing director of Perella Weinberg Partners’ advisory business Ema Betts, to explore London’s continued role as a major international hub for VC investment.
London is a familiar friend for fundraising
Coming out of the 2008 financial crisis, the UK government saw supporting tech startups as a key part of its emerging economy, and in the following years, saw the potential to shape London as a core global hub for the tech sector.
Trust has been built in the London market
In addition to being a well-capitalised ecosystem, London is also an informed and governed environment. The city helped establish the British Private Equity & Venture Capital Association (BVCA), an industry body and public policy advocate for the private equity and venture capital industry in the UK. Additionally, London is home to a large number of investment banks that can advise international VCs on fundraising.
“London today is as straightforward a place for people to do business as it has been historically,” says Turner. “Trust has been built in the London market. The presence of VC in London is built around familiarity with company operations, ecosystem matters and relationships between founders and VCs.”
This ease of business is reflected in the number of venture capitalists that base themselves in London, Turner adds. According to Beauhurst, there are currently 547 active VC and PE funds in the UK, of which 381 are headquartered in London.
The British government and the European Commission also reached an agreement recently that enables the UK to rejoin the EU’s €95.5bn Horizon Europe programme, opening up access to critical funding.
London connects to the wider European startup ecosystem
Lo says that because London is so well connected to other parts of Europe, international VCs can easily access guidance on deal terms on the continent.
“London is a fantastic bridge for money coming in from the likes of the US and heading towards Europe,” she says. “It’s a pivotal centre for international funds, especially for money looking to invest in the broader European region.”
The rise of London and its interconnectivity with the continent has undoubtedly played a major role in the growth of the European ecosystem. Europe has nearly doubled its share of global VC investment over the past five years, with countries such as France investing significantly in the development of their startup industries.
American VC Lightspeed Venture Partners announced new EU offices in London last year.
“[The] UK is still the largest market in Europe and the regional HQ for VC overall,” says Paul Murphy, a partner at Lightspeed. “But we also opened an office in Germany (Berlin) and France (Paris), staffed with a partner in each location to cover these important markets.”
Turner adds that London as a connection to Europe is more important with more firms going further afield into EMEA [Europe, Middle East and Africa] than ever before. “The startup pie is growing and this is market validation of tech being a terrifically important part of the UK economy.”
Lo adds that London has been quick to establish itself as the crypto capital in Europe. Fintech firms in the UK capital raised a total of US$9.7bn in 2022 — more than any other city globally.
“London has been smart in supporting the crypto market,” she says, adding that crypto-friendly regulations and policymakers in the UK, as well as crypto-related jobs, events and tech, have made London a prime backdrop for VCs in the vertical. Not to mention, Andreessen Horowitz selected London for its office focusing on blockchain and cryptocurrencies.
London is safe
While there has been some commentary about London losing its tech lead (due to relying too heavily on past successes and losing public commitment), Betts says the city’s history provides a safety net.
I can’t think of any reason why London will stop attracting big VC names
“In high levels of uncertainty, whether micro or macro, London has always been a flight to safety,” she says. “It’s a big hub economically, so it represents a safe harbour for people.”
Time to mature has also given startup incubators, government accelerators, R&D labs and financial service providers in London room to develop and strengthen. Betts adds that this ecosystem — along with top universities — draws in talent.
“For VCs in particular, there’s a huge pool of talent in London because it’s a career destination for highly skilled graduates,” she says.
The impact on talent and funding from Brexit is yet to be fully seen, but funds like ICONIQ Growth — the investment firm affiliated with ICONIQ Capital — which managed money for tech billionaires such as Mark Zuckerberg, and General Catalyst, an early-stage VC based in Massachusetts in the US, both set up London headquarters in 2021.
Betts notes that big brand name investors tend to track each other, so more VC firms are likely to follow suit and move to London down the line.
“I’ve not seen anyone say ‘I would have gone to London but for XYZ’,” says Turner. “The city’s pull has recently been validated to an even greater extent, and I can’t think of any reason why London will stop attracting big VC names.”