Why London is the growth capital of Europe

When TransferWise, a platform to help people all over the world move money across borders without the bank fees, completed its $280 million series E funding round in 2017, it was a triumph for the (then) six year old fintech firm. But it was also a validation of TransferWise’s home city: London.

Today, London is without doubt Europe’s primary destination for start-ups. According to information agency London & Partners, UK tech firms attracted £2.99 billion in venture capital funding in 2017. That’s more than any other European country.  And London-based firms accounted for 80 per cent of it (£2.4 billion).

Companies clearly want to move to London, and so do people. Indeed, when the Boston Consulting Group polled 200,000 people in 189 countries about where they would like to work, London came top. 16 per cent said they’d move to the city, ahead of New York (12.2 per cent).

The reasons for this are varied: financial, cultural, geographical, social. The story of TransferWise contains them all.

For example, the company’s founders Taavet Hinrikus and Kristo Kaarmann are Estonians, but were attracted to London’s enterprise-friendly environment.

They chose a base in East London – close to the contacts and expertise housed in the world’s largest and oldest financial centre. And in 2012, they won a competition to be part of an accelerator run by SeedCamp.

Of course, TransferWise is just one success story among many. In 2017 alone, other notable London-based funding rounds included Improbable (£391m), Deliveroo (£364m), Truphone (£364m) and many more.

So why is London such a magnet for entrepreneurs? What makes it a good location for starting a business? Here are ten reasons:

1. Historic strength in key industries

Over the centuries, London has emerged as a world leader in a number of vertical markets. The obvious one is financial services. The aforementioned London & Partners study said that London firms accounted for 90 per cent of all money raised by UK fintech in 2017 (£1.34 billion). Prominent companies include Zopa, Funding Circle, Monzo and Revolut.

Further evidence of London’s lead in fintech comes from Deloitte, which ranked it joint first (with Singapore) of 44 global hubs in a 2017 report.

Beyond fintech, start-ups in a variety of verticals set up in London knowing they will have potential access to a network of support and mentors.

2. Geographical and linguistic advantages

London’s physical proximity to the European continent makes it a convenient destination for international firms. However, one could say the same of Paris or Berlin. What gives London the edge is its existing links, not just with Europe, but also with growing Commonwealth markets such as India, Ghana, South Africa, Nigeria and Canada.

It also has the transport infrastructure to support these connections. The channel tunnel is two hours away and Heathrow is the world’s second busiest airport (for international travel). Flights travel to 800 destinations from Heathrow.

London ‘speaks’ English, of course. It’s perhaps an unfair advantage, but still a significant one since English is the world’s business language.

Needless to say, all of these advantages will remain after Brexit. No one can be sure how London will change after Britain leaves the EU. However, history shows that the city has proved remarkably adaptable over the centuries. There’s good reason to believe it will continue to prosper.

3. The home of world class university education

London is a city full of talent and new graduates. In 2015/16 there were 370,000 students in London, of which 107,200 came from overseas.

Universities such as UCL, Imperial and Brunel are world famous centres of scientific research. Institutions such as these have helped to make London a leader in new verticals such as artificial intelligence. Indeed, UK AI companies raised a record £488m in 2017, which was double that of 2016 (£232m).

London’s cultural and social qualities – as well as its educational resources – saw it ranked ‘best city in the world for university students’ by QS higher education data analysts in 2018.

4. Access to funding

London’s VC sector is the largest in Europe. Most of the big US funds are present (Index, Accel, etc.) and there are many homegrown investors making waves, such as Octopus, Notion and DN Capital. Pitchbook data shows that private and VC funds invested £6.7bn in London tech firms in 2016.

5. Access to support networks

At the earlier stage of the funding funnel, London has plentiful incubators and accelerators to assist founders. Nesta identified 205 incubators and 163 accelerators in the UK, with most in London. Well-known organisations to have entered the space include Telefonica (Wayra incubator) and John Lewis (JL Labs).

6. An enterprise-friendly tax and regulatory environment

The UK as a whole offers many incentives for start-ups. There are tax schemes such as SEIS, through which individuals can receive up to 50 per cent tax relief on investments of up to £100,000, and EIS, which gives tax relief on investments of up to £2m. There’s also an Entrepreneur Visa that makes it easier for immigrants (with more than £50,000 in investment funds) to relocate.

London’s local government has also launched schemes such as TechInvest to maintain its status as Europe’s leading hub for start-ups.

7. Opportunities to network

London is famed for its nightlife and pub culture. It may seem trivial, but the capital’s sociability plays a major role in its success by giving founders a chance to make new connections. London hosts numerous informal meet-ups such as Technopreneurs (with 10,000 members) and drop-in mixers such as Silicon Drinkabout.

8. Affordable co-working spaces

London is famously expensive to live and work in. However, this has been mitigated somewhat by the capital’s growing number of co-working spaces. According to the LSE, there are now more than 156 co-working spaces in London alone.

9. Proximity to professional expertise

As start-ups become established, they need to access services such as legal advice, accountancy, advertising, PR and recruitment. Not only does London have a vast network of companies offering such support, many offer unique multi-jurisdictional expertise.

10. A growing class of successful ‘graduate’ companies

Any founder with drive and good ideas can easily find London-based examples to provide inspiration. There have been stellar successes in every vertical: Deep Mind and Improbable in AI; Last FM and Shazam in music; GoCardless and Monzo in fintech; Asos in fashion; Just Eat in hospitality. The list is very long.

There’s no doubt that London is now Europe’s leading destination for entrepreneurs – and one that can challenge Silicon Valley, New York, Singapore and other centres.

The rising level of VC investment proves it. In 2017, VCs invested £2.5 billion to help London-based founders entrepreneurs take up the challenge of growing world-class companies.

With all London’s cultural, fiscal and linguistic benefits in place, they are well placed to succeed.

Of course, every start-up needs legal guidance in its journey from idea to exit. Memery Crystal has helped many London-based founders since opening for business in the capital in 1978. We are commercially aware, entrepreneurial in spirit, and international in outlook.