24 Britain The EconomistMarch 14th 2020
1A
s a derivatives trader with Credit
Suisse, Nikolay Storonsky was used to
gambling, but his riskiest bet was to quit
the markets in 2013 and set up Revolut, a
fintech startup. It paid off. Last month Re-
volut raised $500m, becoming Europe’s
most highly valued fintech company, with
a valuation of $5.5bn.
Revolut’s rise mirrors Britain’s unicorn
scene. A unicorn is defined as a privately
held startup valued at more than $1bn in a
financing round, initial public offering or
acquisition. According to Dealroom.co, a
data-analytics firm, Britain has created 63
such companies in the past ten years. That
is still far behind the giants, America and
China, which have added 820 and 224 re-
spectively, but it is more than twice as
many as Germany’s 29 and almost five
times as many as France’s 13 (see chart).
More interesting than these numbers is
a step-change in the rate of growth. Be-
tween 2009 and 2013, Britain averaged
about two new unicorns a year. Since then
the figure has quadrupled. Part of that may
be down to overall market optimism in re-
cent years around anything tech-related.
But investors may also have worked out
how to navigate the “valley of death”, in
which promising innovations would ei-
ther disappear without being commercial-
ised, or end up being swallowed by dra-
gons. That was the fate of DeepMind, an
artificial-intelligence startup, when Goo-
gle bought it in 2014.
A few British unicorns, such as Graph-
core, which designs specialised chips for
artificial intelligence, are pure tech compa-
nies. But for most, computing is not the
product, even if tech is central to the pro-
cess. Finance, making up nearly a third of
Britain’s unicorns, is the biggest sector,
with companies like Revolut, Monzo and
OakNorth (all upstart banks) and Transfer-
Wise (a money-transfer service). Retail,
with ten unicorns (such as, Deliveroo and
Ocado, which deliver cooked and super-
market food, respectively) and health
(such as Oxford Nanopore, a gene-
sequencing company) are also success sto-
ries. Some, such as BrewDog, a beer-maker,
have nothing to do with technology at all.
The financial crisis may have been
partly responsible for the uptick in unicorn
production, particularly in finance, be-
cause it pushed talent out of established
City banks and into entrepreneurship.
When Zar Amrolia and Alex Gerko, twomaths phds at Deutsche Bank, realised the
bank’s spending on compliance would
dwarf that on research, they left. In 2015
they set up xtxmarkets, an algorithmic
foreign-exchange company that is now the
first non-bank to make the list of the ten
largest currency houses by trading volume.
Mr Storonsky decided to give up the trading
floor to start Revolut because it “just wasn’t
as fun as it used to be”. In 2013 tech overtook
finance as the preferred destination of mba
graduates from London Business School.
The government has tried to help as
well. David Cameron, prime minister from
2010 to 2016, was keen to increase incen-
tives and cut regulatory burdens for start-
ups. The enterprise investment scheme
(eis), which was introduced in 1994 to give
startup investors tax rebates and loss re-
liefs if investments fail, was extended from
companies with fewer than 50 employees
to those with fewer than 250, and from in-
vestments of £2m ($2.6m) to £10m. A new
seed eisoffered larger tax relief for smaller
companies. Nick Jenkins, founder of
Moonpig, an online greeting-card firm,
says the eisincentives served as a catalyst,
getting enough startups going to persuade
venture-capital firms to pay attention to
what was going on in Britain. In 2019 firms
in London received $9.7bn in venture-capi-
tal funding, more than Berlin, Paris, Am-
sterdam and Madrid combined.
It was also Mr Cameron who called the
referendum that led to Britain’s decision to
leave the European Union. That dismayed
many startups, since the eu’s freedom-of-
movement rules make it easy to attract
workers from across the continent.
Techuk, a trade body, has given a cautious
welcome to the government’s plans for a
new, “points-based” system, announced
last month and due to launch next year.
Ministers hope it will maintain Britain’s at-
tractiveness to the sorts of skilled workers
that startups need. Tech firms also worry
that vital data flows between Britain and
Europe could be hampered if a trade deal is
not negotiated by the end of the year.
There are other clouds on the horizon.Even before the covid-19 outbreak crashed
the markets, investors had been cooling on
unicorns, many of which have posted per-
sistent losses as they have tried to boost
customer numbers. Financial startups in
particular could suddenly find life much
harder if any of the big incumbent banks
can manage to create similarly slick ser-
vices or apps.
One question is how large British start-
ups can become. In “The Social Network”, a
film depicting the rise of Facebook, Sean
Parker, Facebook’s first president, tells the
site’s founder, Mark Zuckerberg, that “a
million dollars isn’t cool—you know
what’s cool?” The answer is a billion dol-
lars. That was ten years ago. Today, quite a
lot of British unicorns are billion-dollar
cool. But America’s and China’s home-
grown champions are bigger still (Airbnb,
for instance, was valued at $35bn in 2019;
Didi Chuxing, a Chinese ride-hailing ser-
vice, hit $62bn in the same year).
Britain has a long way to go before it can
boast of any startups approaching that size.
But the past five years have demonstrated
that the country can indeed breed uni-
corns. The next challenge is to turn them
into dragons—and to keep other dragons
from gobbling them all up. 7Britain is ahead of many of its
competitors in technology startupsTechnology startupsUnicorn lead
Tech ranksSources: dealroom.co; The EconomistUnicorns set up
Jan 2011-Mar 2020
0 200 400 600 800
United StatesChinaBritainIndiaGermanyFrancePer 1m population2.490.160.930.030.350.19A
s every english child knows, the
Sheriff of Nottingham is always the
baddie. His tyrannical rule is tempered
only by Robin Hood, with a little help from
his band of merry men. These days, Not-
tinghamshire’s law-and-order supremo is
up for election every four years. And Paddy
Tipping—properly known as the county’s
police and crime commissioner (pcc)—can
hardly be said to possess overweening am-
bition. One of his innovations is a “pen-
sion” for police dogs, so that their handlers
do not pick up vet’s bills when the mutts
are too old to work. “I can’t tell people what
to do, by any means,” says the 70-year-old,
an ex-Labour mpfor Sherwood. “But I can
change things.”
That is what David Cameron hoped. The
then prime minister introduced pccs in
2012 as part of his attempt to shake up the
police, which he saw as the “last great unre-
formed public service”. Instead of answer-
ing to police authorities (bodies of council-
lors and other local worthies), the chief
constables of most of the 43 police forces in
England and Wales would be held to ac-Police commissioners are not living up
to their promisePolicing the policeWatchdogs
without bite