First published in the Sunday Times on 21st June 2015.
I made my annual pilgrimage to the Founders Forum, the European tech celebration hosted by Brent Hoberman and Jonnie Goodwin, last week. It was the 10th anniversary; the event is bigger and more confident than ever, just like the digital revolution. It is impossible to leave the presentations and networking without feeling hugely invigorated by the ambition, ideas, money and sheer technical advances at work.
Indeed, there is a strong argument to say that technology is the ultimate form of entrepreneurial activity. No other industry is faster-growing, more disruptive, innovative, profitable or volatile. All of us should spend some time working in the sector: because every tech company must reinvent itself every so often, or die. In the digital world, pivoting is a way of life. Yesterday’s super-profitable heroes, such as BlackBerry or Nokia, suddenly become today’s lame ducks. Apple calls any product more than five years old “vintage”.
Tech’s industrial cycles are on speed compared with any other. It feels as if nothing endures, and everything is possible. Just look how China’s Xiaomi has gone from zero in 2011 to selling 60m smartphones last year — all online, making just 3% net margins — and a valuation of almost $50bn (£31bn).
In the tech world, huge corporates are regularly usurped by brilliant upstarts that have found a quicker, cheaper, more productive way to do things. The whole business is a giant research and development cauldron. Valuations bear no resemblance to those that prevail across any other field; the amount of capital put on huge risks is exhilarating and terrifying. It is very hard not to believe that there is an enormous tech asset bubble. With so few unicorns (billion-dollar tech start-ups) going public, it is difficult to know how authentic their private market valuations are, since few, if any, such plays make profits or enjoy positive cashflows. But which other sphere offers the potential for such extraordinary returns? If I were 21 again, I would have no hesitation but to focus all my energies on the tech sector.
As the digital commentator Tom Goodwin has pointed out, many of the big winners in digital are almost asset-free. So Uber, the world’s biggest taxi company, owns no cars; Airbnb, the world’s biggest provider of accommodation, owns no buildings; and Facebook and Google, the world’s most popular media companies, create no content. This permits such models to scale up much more quickly, and on less capital. How resilient these e-platforms will be remains to be seen — just look at Twitter’s problems. The barriers to entry for such non-hardware companies may be lower than investors believe. By its very nature, tech investing is momentum investing: timing is everything.
While the tech transformation is thrilling, it has its dark side. Automation and computerisation generally eliminate jobs: the hope is that new ones are created alongside the machines. The new book How Music Got Free by Stephen Witt describes how the record industry was demolished by the technologists. Occasionally the entrepreneurs behind such shifts strike me a little like Robert Oppenheimer, creator of the atomic bomb, who misquoted a Hindu poem and said: “I am become death, destroyer of worlds.” Such dislocations spurred by challengers are the essence of capitalism, which is why technology always feels like the cutting edge of business.
We do not measure properly the real contribution to the British economy of digital technology and life sciences. In America, tech is smaller than financial services, energy, healthcare or retail, but growing faster. Of course, tech is reinventing established segments, from media to retail to travel to financial services to medicine, so their added value is included under other categories. As a nation we have real strength in areas such as fintech, medtech and even edtech. Tech City reports that venture capitalists invested £459m in London’s digital sector in the first quarter of this year alone, an increase of 66% over the same period last year. Meanwhile, the number of digital businesses located in Tech City has grown from 250 to more than 3,000; they and other tech companies employ 350,000 in London. Incubators and accelerators are proliferating, producing hundreds of start-ups. Many fail; but I hope a few turn out to be the next champions. According to the advisory firm GP Bullhound, Britain now has 17 unicorn companies, an increase of eight in the past 12 months alone.
London has embraced entrepreneurial culture more than any other European hub, and we attract extraordinary amounts of capital and talent, while many corporates make their homes here. Increasingly, large companies are looking to partner tech start-ups to benefit from their inventiveness. Many of us over 40 need a greater sense of urgency about adapting to the digital onslaught. Before our markets are stolen and companies made redundant by tech, we should re-educate ourselves, and renew our businesses.