Launching a Startup in Buttoned-up London
Here's what you need to know about the global financial center's startup ecosystem.
In 2014, I was living and working in London as a software engineer for a large tech company when I realized there wasn't a central place for me to do PDF tasks; not a single decent online PDF editor existed. There was a gap in the market for a great PDF SaaS application and I had the specialized skills needed to build one. The idea for my startup, PDF Pro, was born.
Getting started in London
Given the high costs of living in London and the need to bootstrap my venture, I couldn't afford to quit my day job to develop my product full-time. So, when I wasn't working my full-time trade as a software engineer, I spent nights and weekends building my online pdf editor from scratch.
As I built my product, I immersed myself in the London tech scene, becoming familiar with the nuances of London culture and the acute differences that set this global financial center apart in the ecosystem of technology and startups.
In the world of entrepreneurship, it's key that we share our experiences with other members of our community to build a stronger ecosystem. And if there's one thing I want to share, it's that geography matters. So, I've compiled my most important observations from my days as a budding entrepreneur and here's what you need to know about launching a startup in London:
London is a global financial center.
London has many natural strengths. Beyond its reputation as a global financial center, the city is the clear world leader in specific areas such as foreign exchange trading, bond trading, cross-border bank lending and international insurance. It's surprising to many that more dollars are traded in the U.K. than in the U.S. More international bonds are issued in the U.K. than anywhere else in the world, totaling $2.9 trillion as of Q1 2017.
London is ripe for financial technology startups.
Given London's incredible strengths in financial services, it comes as no surprise that fintech startups have flourished. Many fintech startups in London now command unicorn ($1 billion or more) valuations. Current fintech unicorns include TransferWise (foreign exchange), Revolut (foreign exchange), Funding Circle (lending), Monzo (banking) and OakNorth Bank (banking).
London wants to succeed.
Traditionally, the home for U.K. startups has been London, which initially emerged as a tech hub in 2010 when then-prime minister David Cameron announced that the coalition government wanted to create its very own Silicon Valley.
London is risk averse.
As London's startup scene is still coming into its own, the biggest contrast between London culture and other global cities is a stronger fear of failure, yielding a hesitancy toward unproven innovation and a more timid approach than that found in Silicon Valley culture.
While raising venture capital in Europe is a challenge for startups, there's also a smaller proportion of entrepreneurs. In sum total, this means that entrepreneurs are relatively more risk averse as the cost of failure here is much higher.
At the genesis of PDF Pro, traffic to the service measured 10 visitors a day and generated a revenue of around $100 a month. To the casual observer, my efforts in building a PDF editing service designed for thousands of users appeared misguided and needlessly high-risk.
London is still buttoned-up.
During the early days of entrepreneurship, I found it difficult to relate to others in London on the common struggles startup founders experience. Those in more traditional career paths struggled to understand my journey. In fact, I still get questions regarding my future and whether I will consider re-joining the formal workforce one day. Even communicating those struggles in native startup lingo was a hurdle. While startup language is commonplace in Silicon Valley and other U.S. tech hubs, one must translate startup struggles into corporate lingo to convey oneself in London.
London is still expensive.
While London has clear strengths in financial services, the city has significant drawbacks. Looking at data from Numbeo, London is one of the 25 most expensive cities in the world based on the combined total cost of living and rent. As most startup founders don't draw salaries, managing day-to-day expenses is no easy feat. High operating costs are a detractor when it comes to the city courting potential startups. And while coworking spaces are on the rise, the high cost of living is still a problem.
Beyond high costs, London fares poorly in terms of local purchasing power. And as a result of low after-tax income (especially when compared to the U.S.), many London residents lack financial stability. Based on recent data, Numbeo ranks London No. 238 (out of 536) for local purchasing power.
The future of London's startup scene
While plenty of scary statistics are available to dissuade many from taking the plunge into entrepreneurship, the good news is that the London startup ecosystem has made significant strides in recent years. This is especially true for early stage financing, or angel investing, when an affluent individual provides capital for a business startup in exchange for convertible debt or ownership equity. According to the U.K. Business Angels Association, 41 percent of angel investors increased their investment totals last year, with nearly 70 percent of angels investing in between one and five companies. Angel Investors are becoming more savvy, with half of all angel investors claiming more than five years of business experience.
So, while London still has a ways to go before it's the perfect startup hub, the city has certainly come a long way in fostering the dreams of innovators and techies alike.