A decade after the mistakes of Boo.com, Britain’s tech scene is booming once again
Lead photo: Catwalker / Shutterstock.com
Ernst Malmsten’s life was fuelled by three C’s – caviar, champagne and Concorde. It was the late 1990s, and the founder of Boo.com and his business partner Kajsa Leander were riding high on the dotcom wave. Boo.com – an online fashion retailer – was seen as the darling of the UK’s burgeoning tech scene, and venture-capital cash was pouring in from all corners of the world.
But just a year after launching in 1999, Boo.com failed spectacularly, having haemorrhaged $135 million of investors’ money. At the same time, several other dotcom businesses were collapsing as investors took fright over the long-term sustainability of the new internet economy.
“Boo.com became a symbol of the excesses and craziness of the dotcom boom.”
After the dotcom crash, there was much lamenting about flash in the pans and one-hit wonders. Boo.com became a symbol of the excesses and craziness of the dotcom boom, and for many years afterwards, investors and city analysts were wary about the same mistakes being repeated.
Now the world is going through another tech boom. Only this time, there appears to be more substance behind the rapid growth. Startups are proving there is the potential to make money out of the internet – and lots of it.
The most famous examples include social-media giants such as Twitter, YouTube and Facebook. Mark Zuckerberg’s Facebook reported revenues of $12.46 billion in 2014, a 58% rise on the year before, with profits of $2.94 billion. The California-based company, started in 2004, is the largest social network in the world and now has 1.4 billion monthly active users – more than the population of China. Through its acquisitions of Instagram and WhatsApp, it’s also ramped up its share of the time people spend on mobile apps.
“Shazam, Candy Crush creator King and TransferWise are among a handful of homegrown successes.”
Back across the pond, Britain is giving Silicon Valley a run for its money. Companies including music-discovery app Shazam, Candy Crush creator King and money-transfer firm TransferWise are among a handful of astonishing homegrown successes; and these are just three of the new billion-dollar tech companies to have emerged in the UK in the past few years.
Britain’s digital economy is one of the few areas that is far outpacing the sluggish growth seen across the UK in general. Investment in Britain’s tech sector is growing at the rate of 11% per year, and the internet economy is expected to be worth £221 billion by 2016.
UK-based tech companies attracted $2.1 billion in venture-capital (VC) funding in 2014, almost double the $1.1 billion raised in 2013, says CB Insights, a data company that tracks VC investments.
Major deals last year included peer-to-peer lender Funding Circle raising $65 million in July, and online-payment specialist Powa Technologies raising $80 million in November.
This year, new records are expected to be set again, as London’s tech sector attracted more VC financing than in any previous quarter, the data company estimates. Major deals so far this year include Silicon Valley firm Andreessen Horowitz investing $58 million in online-payments company TransferWise and $20 million in virtual-worlds creator Improbable. Augmented-reality advertising company Blippar and fashion retailer Farfetch also both recently raised tens of millions of dollars.
George Spencer, founder and chief executive of London-based online property-management company Rentify, says there’s never been a better environment for raising capital in the UK.
He says the risk for inexpert investors putting money into technology companies is heavily mitigated by the benefits of the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS) – two government initiatives designed to support small, early stage companies looking to raise equity finance. “The European private equity scene is also starting to loosen up, with sizeable venture deals showing that appetite for pan-European investments is significant.”
He adds that many startups place a high value on the importance of hiring good people, which often leads to better relationships with customers.
“My first thought is always towards our customers and our people. A startup is a group of people relentlessly pursuing a scalable and sustainable business model, and building a terrific product and shareholder value go hand in hand.”
Photo: AC Manley / Shutterstock.com
“Digital companies in Greater Manchester reported a 70% growth between 2010 and 2013.”
Many tech startups are based in Shoreditch, just to the north of London’s finance sector in the City. However, there are thriving tech hubs across the UK in cities such as Cambridge, Birmingham and Edinburgh. Digital companies in Greater Manchester reported a 70% growth between 2010 and 2013, and the city is being tipped as the next city to watch. Around 12,000 businesses are set up in Manchester each year, and this is steadily increasing.
“Britain is turning into a digital powerhouse. The tech economy will keep growing, there’s no doubt about that,” said Baroness Joanna Shields, chair of Tech City UK and digital adviser to prime minister David Cameron. Shields was herself an internet pioneer, having co-founded the popular teenage social-networking site Bebo, which she sold to AOL in 2008 for $850 million.
The UK’s geographical location between the US and Asia makes it an ideal base for companies with an eye on international expansion. Data company Telecity, which runs high-speed data centres for the likes of Spotify and Facebook, was recently taken over by US firm Equinix for £2.35 billion. The American software giant said it made the offer because of Telecity’s access to growing markets in Ireland and Northern and Eastern Europe.
Mind Candy – a poster child of the Shoreditch tech scene – is another company that proves the UK is punching high when it comes to creating new concepts. Its popular children’s game Moshi Monsters has over 90 million subscribers across more than 150 countries, and the company is now focusing its efforts on boosting mobile revenue.
Mind Candy, alongside games companies such as King and Rockstar North of the Grand Theft Auto Franchise, have enjoyed a level of success that has attracted other games entrepreneurs to the UK.
John Earner, co-founder of mobile social-gaming startup Space Ape, moved from San Francisco to central London to take advantage of the talented developers and deep expertise found in the capital. Today Space Ape’s most popular game, Samurai Siege, has clocked up more than ten million downloads since being launched two years ago.
It’s not only digital-service companies that are driving the UK’s second-wave tech boom. Moo, a company that produces bespoke business cards, is another success story. Despite the rapid growth of the web, Moo’s launch in 2004 proved there’s still demand for the oldest business aide in the world – business cards. Yet while being a printing firm, Moo is still very much an internet company.
Its founder, Richard Moross, realised early on that he had to invest in the best digital software in order to make the site user-friendly. “I don’t think of us as an internet company. We happen to sell by the internet… But I’m extremely proud of being a printing business,” he said soon after the business launched.
Of course, a decade is a long time in the fast-moving internet world, and mistakes can be easily forgotten after a period of time. Last year, Manchester-based Boohoo floated on London’s AIM market with a valuation of more than £500 million.
The business, which was founded in 2006 by Mahmud Kamani and Carol Kane, has no relation to Boo.com.
There are similarities between the two businesses, however. Like Boo.com, Boohoo is an online retailer with a focus on affordable fashion. The major difference between the two is that Boo.com was too early to market, and tried to do too much too quickly.
Malmsten himself recovered from the Boo.com debacle, and in 2011 became chief executive of London-based luxury-goods company Lara Bohinc. This time he had learnt from his costly previous mistakes. “We spent maybe £10,000 on the website. Back in the Boo days, I’m a bit embarrassed to say, we spent £30 million.”