Why the UK can't produce billion dollar companies
As Apple and Amazon break the trillion dollar valuation mark, Computing speaks to Tony Pepper, CEO of Egress, to find out what it's like to scale up a successful business in the UK's culture and environment
In the last month both Apple and Amazon have broken the trillion dollar valuation threshold. At the same time, the UK struggles to produce firms valued anywhere near even $100 million, despite a world class higher education system, and thriving tech hubs in London's East End, Cambridge and Bristol.
So what is it about the UK's culture and environment that prevents firms hitting the big time?
Tony Pepper, CEO of security firm Egress, has taken his firm from startup to scale-up, and expects to employ around 200 people by the end of 2018, with large projected revenue growth in 2019 and beyond.
He believes the reticence of the UK venture capitalist (VC) market is at least partly responsible for the lack of a UK firm to rival the US giants.
"If you look at every UK business, it's only a matter of time until they look to get US-based VC money. UK VCs don't believe firms can grow to get $100 milion in revenue, and they're not prepared to invest at the level of valuation comparable with US firms.
"That's why all the talent goes to the US, because the ambition of the UK VC community needs to be bigger. UK VCs are fundamentally risk averse."
Pepper added that founders sometimes suffer from a similar lack of ambition, and sell out too early, a theory shared by Vin Murria, founder and former CEO of Advanced Computer Software, who knows a thing or two about business growth.
"Entrepreneurs get [their firms] to £5m-£10m, they pay off the mortgage, and they're happy with that. There's nothing wrong with that, but in the States, that wouldn't count as started," Murria told Computing in 2014.
"People make some money, say £3m-£5m and they think that's a huge amount, and then they become a non-executive director instead of moving onto the next start-up. In itself that creates opportunities for people like me.
"We found a small business [education software specialist Compass Computer Consultants, bought by ACS for £14.5m in February 2014] with a great team, a great product, and their customers adore them.
"But they got to a certain level and didn't want to take it forward. I was in awe of what they achieved, but it could have been worth 10 times what it was."
In Murria's view the problem is cultural. "In the UK if you fail once they don't trust you. The motto in the US is you have to fail three times before you become a billionaire."
Besides potential lack of ambition amongst VCs and cultural issues, firms need to enter the US market because that's where most of the money is, according to Pepper.
He argued that UK firms need access to the US market in order to achieve significant growth. He used the story of security firm Mimecast to illustrate his point.
"Mimecast is fantastic story, but what did they do? They're a Nasdaq business. Their founders are South African, but they built the bedrock of their business in the UK. However their hyper sucess came from the US.
"The reality is you can't get to those $50-100 million revenue numbers without breaking the US as a market. You have to invest heavily in that market to make it. And you'll need US VC money to help make that happen, partly because you'll need people who understand the pitfalls of that market."
So if the US is such an expensive market to enter, why not seek to conquer Europe or Asia first?
"Some of my peers look to move to Asia, but it's an even tougher market than the US. The US market is intensely competitive, very noisy and incredibly sophisticated, but it's still fundamentally easier to enter than going into Europe or Asia.
"Europe is a great financial opportunity, but you can't view it holistically. Each country has its own language barriers, product localisation issues and route to market issues.
"There's no repeatable use case you can roll out, you need to tackle Germany, France, Spain, Middle East, Nordics, Netherlands and the rest all in isolation. That's a high cost of sale and higher risk.
So businesses naturally look to the US," he concluded.