Main Highlights:
- Cross-border investments
- The great reset
- Financial independence
- City slickers
- Emergency (Br)exit
- Hire ground
- Remote control
- Future of work
Some companies seem to be bucking the downsizing trend by opening physical offices to accommodate broader expansion plans. Barely a day goes by without news of layoffs emerging from the tech world — from cybersecurity to gaming, no industry is impervious. There is no geographical factor at play, with companies spanning North America, Europe, Asia, Africa and beyond all impacted.
Some believe that companies are turning to London for the same reasons they always did. It’s a major accessible conurbation, and it’s a place where people want to live. A bunch of smaller European tech companies have also extended their reach out across the English Channel with their first U.K. hubs.
Cross-border investments
London has attracted the highest number of foreign direct investments (FDI) into tech from international companies for the past few years, ahead of Singapore, Dubai, and New York. This includes international companies that are establishing a presence for the first time, and those that are expanding an existing footprint.
The capital has the lowest corporation tax rate among G7 countries and offers some of the most competitive research and development tax credits in the world, according to the Office for National Statistics (ONS). This makes it an ideal place for innovative companies to test new technologies, products, and services.
Of the 398 leasing transactions (over 5,000 square ft in size) analyzed in 2021, 59 of these were new businesses setting up for the first time. The report added that this was the highest number it had recorded since it began tracking trends in 2013. Some believe that companies are turning to London for the same reasons they always did — it’s an accessible conurbation.
“Post-pandemic evolution of London’s office market to continue as occupiers focus upon easily accessible, high quality office space surrounded by vibrant amenities,” Cushman & Wakefield’s head of offices U.K. said in June. But this arguably raises more questions than it answers during what can only be described as turbulent times for the world’s economy.
The great reset
The post-pandemic reset is one obvious factor, with some of the companies that benefitted from the world’s retreat succumbing when things returned to normal. Peloton is a good example of this, with the at-home fitness hardware giant skyrocketing through the pandemic before falling back to Earth. In the U.K., virtual events platform Hopin rose from seed-stage upstart to $6 billion juggernaut in just 12 months.
As things transpired, people might prefer to network in-person versus digital breakout rooms.
Some companies adversely impacted by the pandemic have bounced back, such as Airbnb which laid off a significant portion of its global workforce to see it through the worst times. According to startup sacking tracker Layoffs.fyi, there has been more than 150,000 layoffs in the past two years, spanning 1,000 startups.
Other contributing factors include an over-reliance on venture capital funding for businesses that had yet to figure out a robust business model, while the broader economic downturn has forced companies to cut their costs and safeguard their remaining capital amidst a climate of inflation and rising interest rates.
Financial independence
Proton, the Swiss company behind ProtonMail, is opening its first U.K. office in London. The company already has offices in Switzerland, Lithuania, North Macedonia, and Taiwan. Proton does from time-to-time make remote hires, but as a general rule we are an office-centric company. Most of our team works from our offices around the world, Proton CEO Andy Yen said.
The main purpose for the London hub was that it needed somewhere for its U.K.-based workers to call home — despite a broader industrial embrace of remote or hybrid working, Proton is all about the office.
The company’s founder Yen says he believes demand for tech that respects privacy is on the rise, and that more people are willing to pay for something that respects their personal data. Proton, a video-editing startup, has been in existence for nine years, and it’s managed to grow mostly through people paying money for its service. While being tethered to a centralized physical office may or may not hinder Proton’s hiring chances, the fact that it’s in a position to expand at all, as other startups flounder, is worth exploring.
It has taken on very little venture capital (VC) funding in its nine-year history — aside from a small $2 million seed funding round back in 2015 and a $500,000 equity crowdfunder the previous year. CEO Yen: “Our focus on a subscription model allowed us to monetize early, which ensured that we didn’t have to rely on VC investment to scale”.
Proton recently claimed that it passed 70 million accounts, up from 2 million five years ago, though the company doesn’t break out how much of those accounts are actively used, or how many are paying subscribers. The company’s technology pitch is very much in line with the European Union’s thinking on privacy, which has been encapsulated by GDPR. Proton was able to secure a €2 million grant from the EU in 2019, further bolstering its “financial independence”.
City slickers
Climate tech startup Plan A recently revealed plans for its first U.K. office, scheduled to house some 100 employees in the coming years. The five-year-old company offers automation technology to help companies account for their carbon emissions. Its upsizing plans are also consistent with trends elsewhere in the climate tech space, which has been on a perennial upwards trajectory.
Climate-focused companies are still an attractive proposition for investors, with countless dedicated funds continuing to crop up. In 2021, around $40 billion was invested across some 600 climate-focused startups, and this trend is seemingly continuing into 2022. While Plan A targets all manner of industries, the finance sector is a central focus, given that climate change and the global economy are closely intertwined.
Despite Brexit, London is still a global financial powerhouse, and is currently the only European city in the top 10 of the Global Financial Centers Index (GFCI). “We see great potential in this location as London is both one of the world’s largest financial and business hubs and has a vibrant tech, service, and IT ecosystem,” CEO Lubomila Jordanova said.
“The financial system is the backbone of our economy — through loans, investments, and the controlling of global cash flows, it is the most important vehicle when it comes to sustainably transforming our economy,” Lubomila Jordanova, Plan A’s cofounder and CEO said.
Emergency (Br)exit
Businesses seeking more liquidity, or favorable conditions for going public, often prefer to look elsewhere. It would be somewhat remiss to paint the U.K. as the land of milk and honey though — there are plenty of other options. And there is the thorny Brexit elephant in the room to contend with, too.
Atlassian is “exploring” the possibility of relocating its main parent company from the UK to the U.S. The company has only ever been a U.K.-domiciled company on paper, but its global headquarters have always been in Australia. It said earlier this year that it wanted to access more capital and a broader set of investors by moving its corporate entity across the Atlantic.
SoftBank-owned U.K. chip giant ARM is reportedly favoring an IPO in the U.S. Eigen Technologies, a seven-year-old AI startup backed by Goldman Sachs, moved its headquarters from London to New York last year. The company cited the UK’s exit from the EU bloc as a driving force behind the move.
“Brexit has significantly undermined the benefits of the U.K. as a home market for us,” he said in a statement at the time.
Eigen has retained a strong presence in London, and it still serves as home for its technical leadership and command center for the EMEA and APAC regions. Similar to the Big Apple, Liu acknowledged that London remains a major draw as an international player. “We reflect the unique international outlook of New York and London, the global cities that Eigen is rooted in,” Liu said.
Hire ground
Startups with a focus on solving real problems may be better positioned to weather the current storm. But that doesn’t mean purely in terms of attracting large enterprise customers or big-name VCs. A lot of this will come down to which companies are working on solving big, important technical or societal challenges.
Companies that have secured enough capital to see them through this downturn are likely to be more resilient during this turbulence, according to Hynes. “Those that have found go-to-market fit will be very cautious, but they will be hiring to build out the commercial arms of those teams,” he says. Those that have product-market-fit and are still in the early stages of development will be doubling down on hiring engineering, design and product talent.
With much of big tech trimming their workforce or curtailing their hiring, this could also help startups with fewer financial resources to access talent. Or, where other startups have had to scale back, this serves to enrichen the broader talent pool for other companies. Europe has had deep pools of talent, across all business functions, for a number of years now with direct experience of scaling at all levels.
Remote control
Sales and marketing software giant HubSpot announced its first U.K. office in London last September, with plans for 70 new jobs in England, Scotland, and Wales. The company already had around 1,500 employees across Europe, with hubs in Berlin, Dublin, Ghent, and Paris. It’s now the company’s second biggest market globally (and largest in Europe), claiming more than 10,000 paying customers last year.
More than two-thirds of HubSpot’s U.K. team is planning to work remotely long term, while the rest prefer to work from the office some or most of the time. It’s worth noting that its new London office only houses 20 people, so it’s not expecting everyone to relocate to the capital.
The office of the future is evolving in-line with the growth of remote working. Kong, an API and microservices platform, opened a new London office in May. The company wanted a hub that was easier to access for its U.K. workforce. A survey by HubSpot found that 52% of its employees would prefer to work from home all the time.
Kong’s new office currently has a capacity for just 20 people, though its arrangement allows it to scale up quickly as its headcount in the region grows. In May, Monday.com expanded into a new office located in Fitzrovia, revealing plans to grow its existing 60 headcount to as much as 150 in the coming years. Monday.com has opened a new office in London and encourages employees to embrace both in-person and remote work models. During the pandemic, the company’s entire global organization adopted a remote-first work model. As it becomes safer to open back up, Monday.com is transitioning back to an office-first approach. Some companies want workers in the office more than others, but for the most part, they will need to offer a degree of flexibility.
Future of work
In the wake of the recent pandemic and the economic downturn, many companies are shifting their center of gravity away from the Bay Area and closer to their global centers of operations. The benefits of decentralization may outweigh the bumps, as they create opportunities for entrepreneurs and technology workers. In Austin, Tesla’s new HQ is less than five minutes from the airport, 15 minutes from Downtown, and more accessible for workers. London has long lain in the shadows of tech holylands such as Silicon Valley, but it has suffered similar problems on a smaller scale. In 2017, Shoreditch was named the world’s most expensive technology district in terms of office real estate. And more recently, housing development in west London could be curtailed due to the high concentration of data centers in Slough.
Silicon Valley VC Andreessen Horowitz announced it was shifting its center of gravity away from the Bay Area in response to the world’s newfound love affair with remote working. It initially committed to three new offices in Miami, New York, and Santa Monica, in addition to its existing hubs in San Francisco and Menlo Park. It’s also planning more physical offices around the world.