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Britain’s best tech startups are choosing NYC instead of London for growth funding. Here’s what needs to change

By David Newns, innovator, investor and one of the youngest execs on the FTSE

The largest tech IPO for the past two years was British chip designer, Arm, but its listing wasn’t in London’s City. Instead the tech innovator listed on New York’s Nasdaq exchange. The move added to fears that the U.K. stock market is losing out to New York due to founder-led innovation companies feeling better supported in the US. Will it continue? And if it does, what can we do to make the U.K. a better place for its innovators to build the best businesses in the world? 

For disruptive entrepreneurs in tech, New York is often a more attractive option for scaling up and going public.

If you look at the S&P 500 (the US equivalent of the FTSE), nine of the top 10 companies are tech ones and were started by entrepreneurs. Four have valuations in the trillions, and several of them are still founder-led, for example Meta. Three of America’s biggest firms by market capitalisation were founded after 1990 (Alphabet, Amazon and Tesla).

Compare that to the FTSE top 10; there are no tech companies, instead there are fossil fuel and mining companies. The average age of the five biggest firms with headquarters in Britain (Shell, Linde, hsbc and Rio Tinto) is 135. None is worth over $250bn. They are slow growth incumbent businesses. None of them are disruptive, entrepreneurial or founder-led, but (like most of the FTSE100) led by career CEOs.

Unlike entrepreneurs, they are not disruptive, nor are they changing sectors or progressing their businesses as fast as their S&P equivalents. To build a brighter future and a stronger UK economy, we have to change and get more UK-based, new economy businesses worth more than $250bn.

The London markets have a problem identifying and properly valuing tech firms 

Britain is a great place to start a business. There’s great talent, incredibly experienced entrepreneurs, and capital to get their brilliant new ideas off the ground. 

Indeed, it’s a fabulous place to secure early stage capital, for example “angel”, “seed” once it’s around a million, “Series a” when it’s closer to five million, and so on through the letters until it sells or goes public. At the lower end, private equity is sufficient, but at the higher end, companies typically need to go to the public markets for money. 

As an angel investor I’ve supported companies like tech innovator Super Awesome, which sold to Fortnite maker, Epic Games, and with Fearless Adventures my business partners and I offer venture capital to exciting e-commerce startups. With the latter one we have done an amazing job of supporting female founders in their fast growth entrepreneurial journey. Down the line, how do they raise world-changing amounts of capital? 

British startups raised 14% of the money invested in pre-seed rounds around the world in 2021, and 11% in seed rounds. (For comparison, it accounts for around 3% of global gdp.) When we try to secure growth capital, however, it gets progressively harder. As a recent Economist article found, by the time our brightest and best startups are after $15m or more, the share of global funding has more than halved.

The hostility of the UK public markets to tech’s longer term vision

 America is much more welcoming to growth. According to an analysis by British Patient Capital, a government-owned investor, just 49% of British deep-tech firms reach their second funding round, compared with 63% for American ones.

Disruptive innovation is key to breakthroughs, developing new industries and creating jobs. Oil is running out, so Shell’s oil profits today will also run out. To the UK public markets, frustratingly, that seems to be preferable to finding a British ‘Alphabet’ or supporting an incredible AI or healthtech startup which might require patience - and years of R&D - to get their breakthroughs firing on all cylinders. 

In my own experience, as well as many innovation entrepreneurs that I speak with, tech firms perceive mainstream British asset managers as being indifferent at best. Rather than looking at the promise of growth tomorrow, they insist on investing in earnings today. Jeff Bezos would have struggled to build Amazon with British public markets money, as he famously resisted short term profits, preferring to stick doggedly and patiently to his long-term vision. 

Old guys ‘rule’

Investors backing these FTSE companies are typically (if not exclusively) old white men who arguably are more familiar with mining, but not disruptive tech. Research by Louise Ashley in “Highly Discriminating” has shown the City to favour of a narrow pool of affluent applicants. 

In the US, investors are simply more diverse, and more welcoming of great companies and leaders regardless of their class or creed. So we have a situation for tech and other sectors where the US is progressing and leaving the UK economy behind. 

This has everything to do with The City’s structural problems, and nothing to do with the behaviour of the entrepreneurs leaving the UK to raise money in the US. If it was about the behaviour of founders, we wouldn’t be losing them to successful raises and listing in New York. It's actually about a structural problem in the UK economy. 

When you do get disruptive entrepreneurs listing their business, The City doesn’t support them in the way US markets do.  The HUT Group’s Matt Moulding is a case in point. Entrepreneurs like him want to disrupt, push the economy forward, modernise it and do things that are not business-as-usual. The City, its analysts and the media ecosystem however just eat them for lunch. So they go to New York, where they’re understood, welcomed and well-funded. 

So it has nothing to do with entrepreneur behaviours, and everything to do with long term structural problems in London. At the heart of this is diversity. 

To solve London’s structural problems, we need to improve its diversity 

There are diverse British entrepreneurs capable of transforming sectors with great businesses. Indeed, entrepreneurs come in all shapes and sizes - but ‘the City’ doesn’t. Many characterise it as a bunch of old white men. 

We have done well to improve diversity at the angel, seed and pre-Series A and Series A venture capital stage. I personally have angel invested in UK tech companies like Super Awesome (sold to Epic Games), and co-founded an embedded VC, Fearless Adventures to support fast growth e-commerce companies. With that platform, I’ve invested in more diverse than non-diverse founders, including women, people from lower socio-economic backgrounds, and those from the LGBTQ- community. The problem for founders (including me when it comes to my own start-ups) is scale-up capital. 

That’s where you need to go to The City for money and as a result, your next valuation. And in London, as a disruptive entrepreneur or tech founder, you won’t be able to get the most optimal capital or valuation compared to New York. 

To change that, we need more diverse people funding disruptive tech companies. And not just women (although The City doesn't do too well on that front, either) but diversity of socio economic backgrounds, and diversity of thought. 

We need The City to be able to see the potential of disruptive entrepreneurs and allow them to succeed in the UK economy. We’re not talking about slow growth businesses in finite fossil fuels, but fast growth ones run by people who have strong new visions to create a future we can get excited about.  

As New York stretches ahead, we need a more diverse City that believes in our entrepreneurs and their ability to change the economy in the UK for the better. Generational change won’t be fast enough to stop the UK being left behind, we must speed up the process by making London more diverse now.