Why tech investors are eyeing opportunities outside London
John Rosenberg, general partner at TCV, explains startups founded outside the main tech hubs are also within a chance of success.
It’s time to dispel the myth that the most successful technology startups are only born out of major cities such as London, San Francisco, New York, Berlin, Stockholm or Tel Aviv.
It is true that the well-known technology ecosystems in those larger cities benefit from serial entrepreneurship and command a concentration of venture capital investment – fostering growth and prosperity and creating a virtuous cycle. But behind all the headlines about billion-dollar valuations and monster exits, one can often miss a growing trend.
The trend I’m referring to is that successful startups are now being founded in ever greater numbers outside of the major UK cities. Take Basingstoke-based NewVoiceMedia, Durham-based Atom Bank or Yorkshire-founded Anaplan.
Cities located outside of major technology hubs are a great breeding ground for companies on the path to sustainable growth and profitability.
Here are a few reasons why:
1. Scarcity is the mother of durability
Startups based off the beaten path attract less venture capital interest and investment and are therefore forced to focus on building durable business models from the outset.
They often operate much further down the cost curve allowing more time and space to refine both their product strategy and go-to-market model. And if the funding spigot isn’t flowing, entrepreneurs will find creative ways to lower their operating costs and drive increased profitability with each subsequent customer interaction.
2. Talent, talent, talent
Talent acquisition and retention is also a growing advantage for startups operating in these areas.
Large cities no longer have a monopoly on the best engineering talent, as universities outside of city centres produce more and more enterprise-ready engineers each year.
Startups no longer need to co-locate near larger established technology companies that historically had served as the training grounds for the scarce DBAs, systems and network administrators or enterprise architects.
Smaller cities have lower costs of living and less competition, which can otherwise feed a mercenary culture among top engineers. A talented engineer no longer needs to pay London’s eye-watering rents to work at an exciting startup.
3. A level playing field
Thanks to the incredibly disruptive and low-cost capabilities of the cloud infrastructure providers it is now easier and cheaper than ever before to start a technology business from just about anywhere.
Those companies have democratized access to the knowledge, computing power and distribution networks required to compete on a global scale.
I believe that London, Manchester, and other major cities in the UK will continue to grow in stature as increasingly important centres of innovation and entrepreneurship in the global technology community and expect that trend to continue.
However, I also anticipate that an increasing number of the best companies will continue to be located outside of those areas and all you have to do is look a little harder to find them.