London, no longer the half pint of startup hubs

I’ve spent the last 5 days in London exploring the local startup ecosystem. Over the last few years I’ve been hearing great things about the burgeoning tech community over here so I was excited to check it out for myself. Overall, London feels a lot like NYC 5 years ago, which seems to match up with with the numbers as London startups raised $1B last year, similar to NYC in 2009. Per the below, London VC investments has seen rapid growth over the last 5 years.

Beyond the numbers, there are a few factors that feel the same between the London and NYC startups scenes.

· Both cities are leaders in many other industries outside of tech including media, fashion, entertainment, retail and especially finance. I met a bunch entrepreneurs focused on startups that touch those industries.

· I heard very similar complaints from entrepreneurs that I used to hear in NYC: not enough early stage investors and the ones who do invest in early stuff tend to be much more focused on revenue than their silicon valley counterparts.

· There seems to be a real concerted effort by the local government to encourage startups, similar to the Bloomberg administration.

· There’s a palpable vibe that startups are the cool thing to do versus finance, consulting and other career paths top students historically did. Much like MIT and Penn, students now join start ups in SF and NYC instead of going to Wall Street, newly minted Cambridge grads are ditching The City for start ups in East London.

One aspect of London that was pretty unique is how international it is. Only 15% of the entrepreneurs I met where British, the rest were mainly entrepreneurs with technical backgrounds from other European countries. I’d approximate that a bit over half of the entrepreneurs we fund in SF and NYC are from the US (a good portion of those are children of immigrants but that’s a subject for another post). The fact that London seems to be drawing so many talented entrepreneurs and engineers from the rest of Europe is an especially exciting driver of its development.

Another exciting vibe I got from London entrepreneurs is that they generally seem to be “going big”. The knock on many “emerging” tech ecosystems is that the entrepreneurs aren’t ambitious enough. This is not the feeling I got over the last week. In terms of the size of the opportunities they were going after, I could have easily been talking to teams in SF instead of London. I found this super exciting!

From an investment point of view, there seems to be a major gap at the seed level or at least what we call seed in in the US. In London, there is a healthy angel ecosystem, driven by the tax credit individuals receive for investing in startups. There are also some great incubators like Seedcamp and Techstars London. On the other side, there’s a relatively established Series A ecosystem made up of folks like Index, Accel, Balterton, Mosaic, Octopus and others. The problem lies in the lack of investors who focus in between on the $1M-$2.5M rounds that Eniac and many other seed funds in the US invest in. Many entrepreneurs complained to me that there are few institutional investors who specialize in helping companies get from their angel rounds to Series A. In my opinion, the London ecosystem would greatly benefit from additional investors who help fill this gap.

I love London as a city so it was especially enjoyable to spend this week getting to know its startup ecosystem. I’m confident it will continue to grow and become a real player in the global tech sector. I look forward to spending more time here meeting great entrepreneurs and hopefully future Eniac portfolio companies.