London is Europe’s leading tech hub. Globally, it is only trumped by Silicon Valley. The city known for Big Ben, double-decker buses and breathtaking parks has seen its tech ecosystem flourish over the past decade.
This growth has reached new heights over the last three years, with the UK capital’s tech scene smashing record after record. In 2021, for example, London tech startups raised a record $25.5bn, making it the fourth-highest city for VC investment globally. By this metric, it’s only beaten by San Francisco, New York and Greater Boston.
This has helped propel the UK tech industry as a whole to a $1tn valuation, a landmark milestone that has previously only been reached by the US and China.
In a sign of both Britain’s maturing tech ecosystem and the pull of London, three out of four of the UK’s tech unicorns – a privately held startup with a value of $1bn or more – are based in the capital.
They include drug discovery company BenevolentAI, events platform Hopin and insurtech Marshmallow.
Among the more recent additions to the club which now stands at more than 40 unicorns are Multiverse, the Euan Blair-founded edtech startup, and payments provider Paddle.
It’s not just investment and unicorns that have made London a top tech hub. London also ranks highly for connectivity, talent, infrastructure and knowledge. Using these metrics, London’s startup ecosystem ranks behind only Silicon Valley and has done so since 2020, according to a Startup Genome report.
“London’s tech sector continues to show phenomenal resilience in the face of economic uncertainty,” says Russ Shaw CBE, founder of Tech London Advocates and Global Tech Advocates. “Time and again, the capital attracts entrepreneurs and investors who see London as a global city and recognise that it is a fantastic place to start, grow and scale a business.”
But where did it all begin? And what makes London one of the world’s leading tech hubs?
Rewind back to 2010 and many of today’s well-known British tech companies – Deliveroo, Revolut and Monzo, to name a few – did not yet exist.
Tech innovation during this period was shaped by the rise of the smartphone, the launch of the iPad and the creation of new American social media companies such as Instagram and Snapchat.
However, much of this tech innovation was taking place across the Atlantic – something that did not go unnoticed by then-Prime Minister David Cameron.
Digital technology companies had been forming around the Old Street Roundabout in Shoreditch from the late 2000s. But from the start of the following decade the area underwent rapid growth as a technology hub, boosted by Cameron’s plan to help East London become a British Silicon Valley.
The creation of the Tech City Investment Organisation brought policy changes such as investment incentives and upgrades to the area’s digital connectivity.
According to Lloyds Bank’s UK Business Digital Index, 86% of small businesses in London now have high digital capacity – the highest rate in the country.
Throughout the 2010s tech companies large and small flocked to the area. Investment flowed in. Today, tech entrepreneurship has spread from the area dubbed Silicon Roundabout across the whole of London.
East London’s Olympic Park is home to innovation centre Plexal – located at the Here East tech hub – where some 800 startup entrepreneurs work, study and collaborate.
Less than four miles directly south, business district Canary Wharf hosts one of Europe’s largest fintech and cybersecurity accelerators, Level39.
The US’ biggest tech giants have all invested in making London their home. Google’s “landscraper” – its £1bn headquarters that’s as long as the Shard is tall – is set to open in King’s Cross in 2024.
Nearby, Microsoft’s office is located in Paddington while in the south-east Apple is leading the regeneration at Battersea Power Station.
Networking and infrastructure
US tech giants and British scaleups all choose London for the same reasons. The cosmopolitan city has access to a world-class talent pool, high-quality public transport infrastructure, access to six international airports and a vibrant business culture.
These favourable conditions enhance the same network effect principle that drives value in social media companies. The more skilled tech workers in London, the more valuable that network becomes and so more people and startups locate in the city.
This is also true for capital, with London home to nearly 70% of the UK’s private equity and venture capital investors.
Further boosting the ecosystem are London’s prestigious universities, with the likes of Imperial College London strong in science, engineering and business. Academic institutions provide both a flow of talent to the city and ideas, which often materialise in the form of university spinouts.
Greasing the wheels of this is a progressive regulatory landscape, with the London-headquartered Financial Conduct Authority’s regulatory sandbox creating a favourable environment for innovation.
While London attracts startups hailing from all sectors, there is one that dominates: fintech.
Fintech, or financial technology, is a broad church that includes everything from digital banks to payment infrastructure.
More than 2,000 fintech companies are located in the capital, and, according to Beauhurst data, 71% of London’s high-growth startups were fintechs in 2021.
All 21 of the UK’s fintech unicorns – GoCardless, Wise and Revolut to name a few – are based in London, which is widely considered one of the world’s leading fintech hubs. Why?
Some 300 of the world’s banking headquarters are based in London. Shoreditch lies in close proximity to London’s financial district, creating a free-flowing environment to share talent and ideas.
“For centuries London has been the centre of global finance, thanks to its trusted banking and insurance institutions,” says Steve Harris, UK head of technology for SME and mid corporates at Lloyds Bank. “When you add entrepreneurs and digital innovation to this environment, it’s only natural that financial technology leads the way.”
The UK is the highest net exporter of financial services. With the likes of London-based buy now, pay later company Zilch and others expanding to the US and beyond, fintech is in a strong position to ensure the UK continues to lead the way for financial service exports.
London tech hub challenges
For all London’s strengths, its status as Europe’s pre-eminent tech hub is not guaranteed. It has continued to attract record levels of tech investments post-Brexit but losing access to foreign talent has exacerbated the country’s digital skills shortage.
Startups have grown frustrated with recruiting high-skilled workers since Britain left the EU. The government’s recently announced scaleup visa, designed to make it easier for companies to hire individuals working in roles such as software development and engineering, have been welcomed by the industry.
But with the rise of remote working giving more flexibility to startups, London may see competition increase with the UK’s rapidly growing regional tech hubs in the battle to attract the country’s top companies and workers.
London’s tech industry needs continued support from the public and private sectors to “continue its trajectory”, says Shaw, adding that they “must work in congruence to create a mutually supportive environment that is ripe for growth”.
He adds: “London’s digital economy is in dire need of a digital workforce to fill the multitude of tech vacancies in the capital.
“As such, the government and private sector need to provide quality skills training, so people are equipped with the skills necessary for the jobs of the future.”
Eleanor Cox, area director, SME head of TMT, transport and construction at Lloyds Bank, says the digitial sector is “an important part of economic growth and innovation” and in some instances transforms people’s lives and the way business operates.”
She adds: “It’s critical we consider how we can support that growth and help fuel tech growth across all sub-sectors. Whilst fintechs has been a dominant industry in London, there is great potential for other tech sectors also: for example, we are only just scratching the surface of what tech can do to deliver great public service.”