Investment

British tech raises a record $3.6bn, but VCs say this isn’t a bubble

By Oliver Smith 6 January 2016
Funding Circle Founders Samir Desi 
James Meekings ( blond)  and Andrew Mullinger  at there offices London Oct 13 

Photograph © vicki couchman
 07957226911
 vicki@vickicouchman.com
Funding Circle co-founders Samir Desai, James Meekings and Andrew Mullinger raised $150m last year.
Summary

Businesses like Deliveroo & Funding Circle raised huge amounts of cash last year, but venture capitalists don't think that's a sign of a bubble.

A huge $3.6bn of cash flowed into Britain’s technology sector last year as investors raced to back hot financial technology (FinTech) businesses like Funding Circle.

Indeed the excitement was so much that the figures from last year are up 70% from those of 2014, so maybe it’s not surprising that some have labelled the huge wave of investment as part of a bubble.

Damien Lane, partner at venture capital firm Episode 1, told The Times that the figures were a sign of: “too much money chasing too few assets… There is too much exuberance. It is not a fully fledged bubble yet, but we are heading that way.”

As the newly crowned capital of FinTech, London businesses alone scooped up $2.28bn in venture capital, according to figures from London & Partners, that’s up 75% on 2014’s figures.

Bubblicious?

So is British technology really in a precarious bubble, one which could burst at any moment and leave thousands of people without a job and billions of dollars in investment wasted?

“The numbers are increasing dramatically, naturally some people are concerned that we’re getting ahead of ourselves and seeing the start of a bubble,” Suranga Chandratillake, partner at Balderton Capital (the third largest investor in London tech businesses last year), told The Memo.

“But I think there are plenty of very strong arguments that we are nowhere near a bubble.

“These numbers are still tiny compared to what happens in the US, in the San Francisco Bay Area alone, let alone the rest of the US.”

Hussein Kanji, partner of Hoxton Ventures (the fifth largest investor in London tech last year), said: “By comparison, New York (a city, we’re a country) raised $7.3bn in 2015. We’re still short of venture capital in the UK, particularly in the early stage.”

Chandratillake also explained: “Europe being Europe means that talent moves freely… a lot of the well known UK startups, a lot of them have founders or founding team members who are not Brits, but have come here.”

Because of this Chandratillake argues that the figures should instead be seen in a broader European context and says it remains a good sign that nearly a third of the money invested in London tech firms came from the US.

“I don’t think anyone would doubt that Silicon Valley continues to be the bar that everyone looks at for tech, investors and exits, so if those investors feel confident in investing in European companies then that’s a very good sign.”

But with the skyrocketing valuations of American tech groups like Uber ($50bn) and Airbnb ($24bn), and over $40bn of venture capital flooding into Silicon Valley’s tech sector alone every year, Britain still has a long way to go before it catches up with the US.