London is the perfect place to grow a deep-tech startup. But with Britain’s withdrawal from the European Union fast approaching, is there a danger its sprawling, frenetic capital may lose its belt among the continent’s AI heavyweights?
Europe is enjoying an AI boom. Since 2015, deep-tech investment has grown faster on the continent than that of B2C startups. VC injections into the UK’s deep-tech firms has grown sixfold since 2014. Last year they totaled $1.3 billion. According to Tech Nation, an industry network, last year British AI companies raised more than those from the rest of Europe combined.
Forty of the UK’s top 50 AI startups are based in London, the country’s combustive, chaotic capital home to over eight million people, almost an eighth of its nation’s entire population. Among London’s AI big hitters, companies like $600m-backed Improbable, recent unicorn BenevolentAI and Alphabet-owned algorithm-builder DeepMind have won huge amounts of interest worldwide. But London is home to over 600 companies engaged in some form of artificial intelligence. It is Britain’s undisputed king of finance, fashion, media, law, politics and tech. To that it has undoubtedly added AI.
That is good news for the country’s economy, considering almost a quarter of European VC money is pumped into AI and deep-tech, a global industry reckoned by Gartner to be worth $1.2 trillion. But Brexit, Britain’s imminent departure from the European Union, has prompted fears that London’s tech dominance in the field may slip – despite zealous investment by the same government, which promises to remove the UK from its closest and biggest trading partner.
London has been a melting pot for millennia. Its ancient, palimpsest streets stand testament to centuries of cultural, architectural and scientific co-operation. That same hotchpotch is what many experts agree gives it an edge in the deep-tech industry. Where other tech hubs, like Berlin or Paris, may sit many hours from their countries’ financial, manufacturing or media homes, in London banks, builders, designers and entrepreneurs work literally side-by-side. Finding datasets, customers or mentorship is no big deal.
“It’s a critical mass thing,” Professor Nick Jennings, vice provost of research and enterprise at Imperial College London, tells Red Herring. “There are so many entrepreneurs, so many people with bright ideas. London is of course a big city, but it’s not that big a city. And all the ingredients you need really do rub up against one another…that ecosystem and critical mass that you have here puts you on a virtuous circle. It’s harder to do it elsewhere.”
“London is a much better place to do this than Silicon Valley – because San Francisco is totally dominated by the technology industry,” wrote London workspace Second Home co-founder Rohan Silva recently. “Our city is the total opposite – the centre of more industries than any other metropolis, from media and politics to fashion and advertising.”
Nick Jennings’ colleagues at Imperial have played a key role is tightening the relationship between London’s renowned academic institutions and industry. Alongside UCL it is one of two “great universities” in the city, Jennings adds–in addition to dozens of highly respected ones–churning out talented STEM graduates each year.
“Although the number of STEM graduates is too low, they’re very strong,” says Richard Anton, co-founder and partner at London VC Oxx. “And London’s a natural place to come and work when you’re a graduate.”
Imperial was the location the British government chose to launch its “AI Sector Deal” last April, a huge plan to draw 50 leading tech companies to invest $1.3bn in the domestic AI industry, and to create 1,000 new AI PhDs by 2025. Last November London mayor Sadiq Khan followed suit by announcing his own dedicated scheme to empower AI development.
“London has a burgeoning tech scene, from artificial intelligence to virtual reality and cybersecurity – and through our new tech initiative, we are determined to ensure that small businesses can tap into the benefits that these new technologies offer,” said Khan.
The private sector is flooding to London too. Facebook opened its LDN_LAB in the city in November 2018. It hopes to attract AI talent. Leading bank Barclays launched its own “venture builder”, called Conception X, alongside UCL. Japanese VC Global Brain has announced plans to open a European office in London, and promises to invest $48m in the local AI economy.
Among the sectors in which London’s AI startups are flying the flag for the capital, two stand out. The city is Britain’s, and Europe’s, fiscal heart: finance contributed $155bn, or 6.5% of total economic output, in 2017. Funds, banks and other companies continue to flock to the ever-expanding City of London, its ancient, Roman kernel – and that means a roll-call of rich and willing customers for young AI firms.
“The best checks startups can get are not from investors, they’re from customers,” says Anton. “You need visionary customers…ones that have a real pain point, that are willing to adopt products from a small company, even though they come with all the disadvantages that small companies have.
“You need bleeding-edge customers, with money,” he adds. “And what better industry than financial services in London.”
Britain’s huge, public healthcare system, the National Health Service (NHS), is another idiosyncrasy that aids innovation in AI. The service, by most accounts the world’s fifth-largest employer with 1.7m staff, deals with over a million patients every 36 hours and a yearly budget of $158bn. In Britain doctors are rewarded for patient outcomes, whereas American doctors are rewarded primarily for treatment volume.
“With value-based healthcare, the managers of hospitals and consortiums are constantly thinking, ‘How can we deliver the better outcomes to more people at a lower cost?’” says Kamil Meiczakowski, an associate at Notion Capital, a Series A fund half of whose portfolio is in the UK, and half on mainland Europe. “And that’s when you’re thinking of innovation, automation…value-based healthcare tends to drive better technological innovation, and the NHS has been very receptive. It’s still a very slow-moving machine, but you have to be in healthcare.”
Perhaps realizing this, Westminster recently made $638m available to the NHS for tech investment. But there’s a huge elephant in the room, wearing a Union Jack top hat and waving a British flag, and it’s called Brexit. At time of going to print, the terms on which Britain will depart the European Union are yet to be determined. Working them out has already stretched Parliament’s lawmaking capabilities to their limits. Whatever happens, Brexit will have huge repercussions across London.
Mieczakowski admits that some startups now ask whether to set up in the UK or another European country. He says, “Obviously we’re massively against Brexit and we don’t like that it’s happening. And it definitely causes a lot of uncertainty.”
Few sectors will be hit harder than academia, where universities are not only reliant on foreign students arriving in Britain, but in long-established exchange programs, like Erasmus, that foment vital partnerships across Europe. “Brexit is clearly going to affect us all, whichever shape or form it comes in,” says Jennings. “From Imperial there’s a disproportionate number of staff and students from overseas (who found companies). So if that’s damaged, that’s harder to make.
Brexit is by no means a fatal blow to London’s academic institutions, Jennings adds. But he and others have been busy lobbying the government for “post-study visas for entrepreneurs and things like that, because we think it’s so important.”
AI is a particular industry that leans heavily on regulation. If Britain exits the Union without a deal, it may have to redraw its laws regarding data and other aspects of AI altogether. “It just adds to the complexity if we end up having different rules to EU rules on data,” says Anton.
Ultimately, however, money continues to flow into the British capital despite Brexit’s confusion. Groups like the Turing Institute and a huge number of coworking and incubator spaces ensure a pathway from university to profit. And while many insiders fear an exodus of financial and other companies, the reality appears to be that the vast majority of firms will stick around beyond Britain’s messy divorce from Brussels.
“This talent will still be here,” says Mieczakowski. “And there are ways to still work with Europe, and we still have this attractive market, and ecosystem.” When it comes to Britain’s blooming AI industry, the message is clear: Keep calm and code on.