STARTING UP IN LONDON: WHAT’S IN STORE?

--Priyamvada Lonial, Legal Specialist

INTRODUCTION

London is one of the most well-known start-up destinations in the world, ranking behind only Silicon Valley and New York City. Additionally, it is the biggest start-up hub on the European continent. The top start-up sectors in the city include fintech, clean-tech, and AI & analytics. If we talk particularly about fintech, London is the most sought after destination globally, with six of the top ten fintech companies being headquartered in the British capital. The UK as a whole has more than 3200 fintech start-ups, out of which 1600 are located in London alone. Other up-and-coming destinations for the fintech sector in the UK include Manchester, Edinburgh, Belfast, Bristol, Cardiff, Leeds and Newcastle.

WHY LONDON?

London’s start-up ecosystem is valued at an estimated $621 billion, and is the second most popular destination globally with regards to fintech, following New York City. London also has 52 unicorns, out of which 21 specialise in the domain of fintech. Another interesting observation in this regard is that on an average, each fintech start-up in London receives around $650,000 in early stage funding.

Moving on to other factors, the United Kingdom is well known for its world class universities, which in turn provide a skilled talent pool to the start-up ecosystem, particularly in fintech. Moreover, the fintech sector is subject to a supportive regulatory system, including players such as the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA), which ensure that there remains a competitive and innovation-friendly environment. London’s ecosystem also offers excellent linkages to major financial hubs like Singapore, South Korea, China, Hong Kong and Australia by virtue of the UK’s bridge agreements with them. The fintech sector provides employment to around 3 million people, which accounts for roughly 9% of the total British workforce; along with multiple incubators and accelerators, including Barclays Accelerator, JP Morgan & Goldman Sachs. Another point which must be highlighted herein is that it is relatively easier to attract funding due to support by the government, and schemes such as SEIS and EIS, which have been discussed at a later stage. Lastly, London also hosts multiple fintech events including Fintech week, Fintech Talents Festival, and Fintech Connect, among many others, which provides an excellent opportunity to start-up founders to network and build connections with incubators, accelerators and investors.

GOVERNMENT INCENTIVES

The British government has put in place a variety of incentives and initiatives like venture capital schemes to support start-ups. But before we take a look at the schemes, there are certain conditions which must be met in order to be considered eligible to participate, which include:

Having a permanent establishment in the UK
Carrying out a qualifying trade
Planning on spending the investment on a qualifying trade
Not being listed on a stock exchange at the time of receipt of investment
Not being controlled by another company

The schemes and support programs, catered particularly to fintech start-ups based in the city of London are as follows:

Seed Enterprise Investment Scheme (SEIS)

One of the most popular venture capital schemes, the SEIS is a viable option for start-ups which are looking to raise money when the entity is about to start trading. It also provides tax relief to individual investors who will buy new shares in the company. The maximum aid amount provided herein is £250,000 including any de minimis state aid received in the 3 years, up to and including the date of the investment. This amount will also count towards any limits for later investments through any other venture capital scheme. The beneficiary must ensure that their company and any of its subsidiaries do not have gross assets worth more than £350,000 at the time of shares being issued, should not be member(s) to a partnership, and must have less than 25 full time equivalent employees in total when the shares are issued.

Enterprise Investment Scheme (EIS)

In a fashion similar to the SEIS, the EIS offers tax relief to individual investors who buy new shares in the beneficiary’s company. It eventually helps the company raise money and grow its business. Under the EIS, the beneficiary can receive up to £5 million each year, and a maximum of £12 million in the company’s lifetime. The said limit applies to amounts received from other venture capital schemes wherein the initial investment is made within 7 years of the company’s first commercial sale. Apart from the general conditions which are needed to be met, the applicant must ensure that their company does not intend on closing after completing a project or a series of projects. The company and its qualifying subsidiaries must not have gross assets exceeding £15 million before the issuance of any share, and not more than £16 million immediately afterwards. Lastly, the company shall not have more than 250 full time employees at the time of issuance of shares.

FCA Regulatory Sandbox

This scheme is targeted at firms which have a minimum viable product and wish to test it live in a controlled environment. It is not limited to start-ups that may need to seek authorization in the future, and is also open to authorized firms which may wish to conduct trials for new products and services, as well as technology companies which may want to assist regulated firms meet their obligations in a more efficient manner. The Sandbox program facilitates a restricted authorization, and can be applied to at any given point in the year.

Global Financial Innovation Network (GFIN)

The GFIN is an initiative started by the FCA, based on the latter’s proposal to build a global sandbox in 2018. Simply put, it is a global network of more than 70 organizations working towards supporting financial innovations. Its primary functions include:

To act as a network of regulators, so as to collaborate and share the experience of innovation in respective markets, including emerging technologies and business models, and to provide accessible regulatory contact information for firms.
To provide a forum for joint regulatory-technological work, and collaborative knowledge sharing
To provide firms with an environment wherein they can conduct trials on cross-border solutions.

IS THERE A START-UP VISA?

While the UK no longer has a start-up visa, start-up founders looking to set base in the country can utilise two options to their benefit, namely the Innovator Founder Visa which is valid for a period of 3 years, or the Global Talent Visa which is valid for a period of 5 years at one stretch. But what are the respective eligibility criteria for the said visas? Let us find out.

Innovator Founder Visa

The business must be innovative, viable & scalable, and something which is different from anything else in the market
The business idea should be endorsed by an approved body, which is also known as an endorsing body
Proficiency in the English language at B2 level

Global Talent Visa

You must be over 18, and a leader or potential leader in academia or research, arts and culture, or digital technology.
Your business idea must be endorsed by an endorsing body.

Our readers may find this surprising, but both the visas have astoundingly high success rates, with the global talent visa having a 90% approval rate, and the innovator founder visa having an average approval rate of 87.8% between 2019 and 2022. What’s more impressive is that in 2021, a total of 322 innovator founder visas were granted to entrepreneurs in 2021, which accounted for 82% of the total applications that year.

At SUO Consulting GmbH, we are well aware of the complexities and legalities that arise with immigration. Rest assured, our team of senior advocates, immigration lawyers, and mobility experts will guide you throughout the way, from visa application process to settling in.

CONCLUSION

All in all, it can surely be said that London is a great option for start-up founders, particularly for those who want to develop products and solutions in the domain of fintech. A supportive environment, coupled with numerous governmental incentives and ease in attracting funding provides scope for exponential growth. Compared to ecosystems like New York City and Silicon Valley, it might be easier for start-up founders not just to relocate and settle down in London, but also grow their venture at a rapid pace. Though setting base in London may come with its own issues like moderate success rates for start-ups, you can make it big in the city provided that you are backed by sound legal and business advice.

Thank you for checking out this article on the start-up ecosystem of London. If you wish to know more, do not hesitate contacting us at SUO Consulting GmbH, your one-stop shop for all things international business and mobility.