The article is a case study in playing with statistics to give the message you want. A different, and simpler, way of saying the same headline is that it’s much harder for ideas to get investment in the UK.
While the “unicorns per dollar invested” stat looks good the “good ideas killed off because someone didn’t invest” stat looks really bad.
The US market doesn’t pride itself purely on unicorns created, but on the fact that it’s a vibrant ecosystem that invests in ideas even if they might not become a unicorn. That fact seems lost on the meaning of the headline.
If you’re investing, this is a solid argument you should consider a UK VC over a US one.
Same data, different perspective and probably more the angle they were going for. Obviously ROI is ultimately what matters but risk tolerance is a thing.
> but on the fact that it’s a vibrant ecosystem that invests in ideas even if they might not become a unicorn
Most venture capitalism in the U.S. is basically snake oil. Companies with tenous ideas at best get pumped and pumped until they're dumped and the VCs move on to the next grift. Most recently, it was self-driving cars, then blockchains and cryptocurrencies, and now AI. I'm sure they'll move onto something next soon.
> The US market doesn’t pride itself purely on unicorns created, but on the fact that it’s a vibrant ecosystem that invests in ideas even if they might not become a unicorn. That fact seems lost on the meaning of the headline
That just seems like spin on what is essentially burning cash. I don't think it's a morally superior posture to invest in things that fail. I assure you VC's are turning down plenty of things because they don't seem like unicorns.
I mean Sequoia invested with SBF while he was playing league of legends in his pitch meeting. We're not dealing with geniuses here.
2 british blokes in a shed doing what an entire team of corporate engineers cant is an incredibly strong part of British culture. They strive to be scrappy. They dont like making a show of things. They dont like to ask for more.
Essentially they draw a hell of a lot of national pride from this 'doing more with less' attribute. It came about out of necessity during ww2.
Is it really surprising that this culture produces companies that manage to do more with less? No.
Germany has a strong safety and reliable robust engineering culture of ensuring things are always done perfectly to spec. Is it surprising their companies have a reputation for making reliable machines? No.
Does British scrappiness and pride in their modesty mean they're somehow better than other cultures that prefer to go all out about things? No.
Sometimes you just cannot do something with 2 brits in a shed taking pride in their modesty and NEED that american exceptionalism and balls to the wall with everything attitude to get things done.
Thats one reason that i believe america produces more unicorns at a faster rate relative to population than the UK, Americans believe in themselves harder and go big or go home more often with less reservations.
As an investor it shouldn't make you consider the UK any less risky, as Brits may go modest and go home just as often as any American company can goes big then home.
> Essentially they draw a hell of a lot of national pride from this 'doing more with less' attribute. It came about out of necessity during ww2.
Two of my best success stories are along those lines, and I thought might hit favorable "10x" and "startup agility and resourcefulness" notes.
But in the US, I think the stories often land with the unspoken reaction of, "strange flex, bro: if that company were better, it would have raised more, and had rapid growth of headcount, on the way to a successful exit."
This might be a good application of LLM to large text corpus: label instances of US startup people of the past 2 decades (i.e., ZIRP, followed by crypto and AI gold rushes) speaking of how much they raised, and also label instances of them speaking of how scrappy they were with limited resources. Compare.
Yep, as a brit abroad I tend to think the brits end up on the side of excessive tightfistedness too often for their own good. Their approach also does not scale up well, since they optimize at too small a size.
One big upside of UK business culture that I don't see much of anywhere else is once your proverbial two guys in a shed are making something useful then people do come out of the woodwork to help. The US seems to do that through investments, but the UK it's often customers deliberately paying more than they might strictly have to. I think everyone that has seen success of this form has stories of customers showing up and writing cheques bigger than the amounts asked for.
There's more than an element of truth to this, we do not always dream big enough or take enough risk. We are efficient and frugal sometimes to a fault.
However it's not the whole story, there are actually people who want to swing for the fences, but who cannot and ultimately end up either scaling back, failing, or moving to the US. There isn't good access to early-stage funding here, and there is no real ecosystem either.
We have absolutely obscene amounts of untapped potential, it's infuriating.
They pretty clearly state their metric for performance is "unicorns per $1bn" (3.08 vs 1.22).
They're suggesting dollars invested in UK startups are more likely to create a unicorn than those same dollars put into us startups, hence higher performance.
Quite typically the highest return investments are picked first; as such there is a diseconomy of scale, it should be of no surprise that the ROI decreases as investment scales. Perhaps instead of thinking of it as a sign of efficiency it should be thought of as an underdeveloped market with the UK foolishly leaving money on the table.
Also it is not measuring average returns per $ but returns split by company then a vector operation of ceiling (1bn) divided by my 1bn then aggregated.
Thats a dumb metric. It is like saying conditioned on a doctor saw you, how many people were saved. You gotta count folks who died because they did not see the doctor too.
Some of the unicorns could be simply rent seekers making money by colluding with government people. Investors saw them sure shot and hence invested. That model is neither scalable not healthy.
Well, yeah. Presumably the way they achieve a good ratio is by being more discerning with their investments. If you try to scale that you get the US's numbers as you throw money at anyone with a pitch deck.
The thing is, the US model is still better in aggregate as it basically results in every single unicorn being birthed (in theory, there’s simply no lack of funding for plausibly good ideas). Focusing on a conversion metric is a vanity exercise when absolute value creation is available.
We would all rather own a huge low margin business than a tiny high margin business. Eg, 5% margin on $1B of sales is better than 80% margin on $10M sales.
I know nothing about UK investment culture, but I have been building startups for 15 years, volunteered for multiple accelerators, made angel investments and rubbed shoulders with many US VCs.
My impression of the US VC industry, especially near the end of the zirp era and even more especially during covid, the amount of VC capital being deployed far surpassed the number of competent VCs or startup founders.
Many VCs were making decisions based on factors that were NOT correlated with future venture success. Many VCs in fact probably biased companies away from future success, because they didn't understand what they were doing and their instincts from prior industries or investment regimes were directly the opposite of what was needed for an early stage startup.
In other words, there is risk aversion, and there is foolishness. I know for a fact there was a lot of foolishness going on in us VC investing (I even participated in some of it, learned from it, and I know better now).
I'm not just talking about VCs throwing money at anyone with a pitch deck. I'm talking about VCs having a backwards understanding of what makes startups successful and actively pressuring startups that could have worked into doing the wrong things.
There is a core of US VCs that are the world leaders in what they do, exceptionally aware of what makes startups successful and have the track record to prove it - this minority is overwhelming responsible for the industry's ROI. There is also a massive graveyard of fools who tried to replicate that success and failed for a variety of reasons.
Also if the UK investor says "we'd love to invest, can do the whole round, want you to send us your current cap table, we need to get the deal done before April because we have capital to deploy before end of the current financial year" don't actually expect the funds.
I had the misfortune to be pitching to VCs in the UK, the money was so expensive that it’s just not worth it, much better off moving to the US if you can.
That might be a case of selection bias. The only reason to put up with UK regulations and other issues is if you have a compelling reason to do so (compared to similar opportunities).
But a per capita figure is diluted by how big of a tech sector that country/region has relative to the rest of its economy. The more people work outside of that sector, the lower is any per-capita figure from tech. Fewer lines of code written per capita, fewer bugs per capita, ...
The figure per invested dollar is much better: how many unicorns emerge per billion of investment money.
Those who chase unicorns are mainly investors (plus people who want to join startups that become unicorns). That figure is directly relevant to them.
The tech sector in the UK is pretty big but also massively finance weighted. And salaries a lot lower than the US so a $ investment goes further. At my company a few years ago our one developer in Boulder earnt more than our head of software in the U.K.
Boasting a stat like who has the most VC backed "unicorns" is like ranking cities in a state by how many lottery winners it has. Let's see a chart comparing the number of top "bootstrapped" businesses and I have a funny feeling the result will be much, much different.
There's this class of article which is just X is the most Y. One of the things I like to amuse myself with is to pick a random city X and type in "top city for" and see if there's an article for it.
Does "unicorn" really mean anything beyond "can play investment game"?
It seems like the tech version of the quarterly earnings per share game that has ruined Wall Street and publicly traded companies for the last 25 years.
The main difference between the US and the UK is that American startups are building platforms for the world, whereas UK ones often consume those platforms. The platform holder holds the strategic keys. The efficiency of the market system is irrelevant to simple dominance. This is the same issue with other startup hubs, like Singapore, Bangalore, etc.
The article is a case study in playing with statistics to give the message you want. A different, and simpler, way of saying the same headline is that it’s much harder for ideas to get investment in the UK.
While the “unicorns per dollar invested” stat looks good the “good ideas killed off because someone didn’t invest” stat looks really bad.
The US market doesn’t pride itself purely on unicorns created, but on the fact that it’s a vibrant ecosystem that invests in ideas even if they might not become a unicorn. That fact seems lost on the meaning of the headline.
If you’re investing, this is a solid argument you should consider a UK VC over a US one.
Same data, different perspective and probably more the angle they were going for. Obviously ROI is ultimately what matters but risk tolerance is a thing.
UK's financiers have always been risk averse.
> but on the fact that it’s a vibrant ecosystem that invests in ideas even if they might not become a unicorn
Most venture capitalism in the U.S. is basically snake oil. Companies with tenous ideas at best get pumped and pumped until they're dumped and the VCs move on to the next grift. Most recently, it was self-driving cars, then blockchains and cryptocurrencies, and now AI. I'm sure they'll move onto something next soon.
There exist self driving cars being made by Alphabet and Amazon, publicly listed companies, not VCs.
The snake oil self driving cars are peddled by Tesla, not VC.
> The US market doesn’t pride itself purely on unicorns created, but on the fact that it’s a vibrant ecosystem that invests in ideas even if they might not become a unicorn. That fact seems lost on the meaning of the headline
That just seems like spin on what is essentially burning cash. I don't think it's a morally superior posture to invest in things that fail. I assure you VC's are turning down plenty of things because they don't seem like unicorns.
I mean Sequoia invested with SBF while he was playing league of legends in his pitch meeting. We're not dealing with geniuses here.
2 british blokes in a shed doing what an entire team of corporate engineers cant is an incredibly strong part of British culture. They strive to be scrappy. They dont like making a show of things. They dont like to ask for more.
Essentially they draw a hell of a lot of national pride from this 'doing more with less' attribute. It came about out of necessity during ww2.
Is it really surprising that this culture produces companies that manage to do more with less? No.
Germany has a strong safety and reliable robust engineering culture of ensuring things are always done perfectly to spec. Is it surprising their companies have a reputation for making reliable machines? No.
Does British scrappiness and pride in their modesty mean they're somehow better than other cultures that prefer to go all out about things? No.
Sometimes you just cannot do something with 2 brits in a shed taking pride in their modesty and NEED that american exceptionalism and balls to the wall with everything attitude to get things done.
Thats one reason that i believe america produces more unicorns at a faster rate relative to population than the UK, Americans believe in themselves harder and go big or go home more often with less reservations.
As an investor it shouldn't make you consider the UK any less risky, as Brits may go modest and go home just as often as any American company can goes big then home.
> Essentially they draw a hell of a lot of national pride from this 'doing more with less' attribute. It came about out of necessity during ww2.
Two of my best success stories are along those lines, and I thought might hit favorable "10x" and "startup agility and resourcefulness" notes.
But in the US, I think the stories often land with the unspoken reaction of, "strange flex, bro: if that company were better, it would have raised more, and had rapid growth of headcount, on the way to a successful exit."
This might be a good application of LLM to large text corpus: label instances of US startup people of the past 2 decades (i.e., ZIRP, followed by crypto and AI gold rushes) speaking of how much they raised, and also label instances of them speaking of how scrappy they were with limited resources. Compare.
Yep, as a brit abroad I tend to think the brits end up on the side of excessive tightfistedness too often for their own good. Their approach also does not scale up well, since they optimize at too small a size.
One big upside of UK business culture that I don't see much of anywhere else is once your proverbial two guys in a shed are making something useful then people do come out of the woodwork to help. The US seems to do that through investments, but the UK it's often customers deliberately paying more than they might strictly have to. I think everyone that has seen success of this form has stories of customers showing up and writing cheques bigger than the amounts asked for.
I'm a brit.
There's more than an element of truth to this, we do not always dream big enough or take enough risk. We are efficient and frugal sometimes to a fault.
However it's not the whole story, there are actually people who want to swing for the fences, but who cannot and ultimately end up either scaling back, failing, or moving to the US. There isn't good access to early-stage funding here, and there is no real ecosystem either.
We have absolutely obscene amounts of untapped potential, it's infuriating.
According to the article in the past decade the UK produced 57 unicorns, and the US produced 762. I wouldn't really call that outperforming.
They pretty clearly state their metric for performance is "unicorns per $1bn" (3.08 vs 1.22).
They're suggesting dollars invested in UK startups are more likely to create a unicorn than those same dollars put into us startups, hence higher performance.
Quite typically the highest return investments are picked first; as such there is a diseconomy of scale, it should be of no surprise that the ROI decreases as investment scales. Perhaps instead of thinking of it as a sign of efficiency it should be thought of as an underdeveloped market with the UK foolishly leaving money on the table.
Also it is not measuring average returns per $ but returns split by company then a vector operation of ceiling (1bn) divided by my 1bn then aggregated.
Thats a dumb metric. It is like saying conditioned on a doctor saw you, how many people were saved. You gotta count folks who died because they did not see the doctor too.
Some of the unicorns could be simply rent seekers making money by colluding with government people. Investors saw them sure shot and hence invested. That model is neither scalable not healthy.
If they are able to scale at that ratio it will be noteworthy. It is quite unlikely though.
Well, yeah. Presumably the way they achieve a good ratio is by being more discerning with their investments. If you try to scale that you get the US's numbers as you throw money at anyone with a pitch deck.
The thing is, the US model is still better in aggregate as it basically results in every single unicorn being birthed (in theory, there’s simply no lack of funding for plausibly good ideas). Focusing on a conversion metric is a vanity exercise when absolute value creation is available.
We would all rather own a huge low margin business than a tiny high margin business. Eg, 5% margin on $1B of sales is better than 80% margin on $10M sales.
I wonder if the study adjusted for purchasing power in SV vs well, everywhere else - maybe London is on par
Presumably because VCs in the UK are so much more risk averse? They only invest in 'sure things', potentially missing out on other opportunities.
I know nothing about UK investment culture, but I have been building startups for 15 years, volunteered for multiple accelerators, made angel investments and rubbed shoulders with many US VCs.
My impression of the US VC industry, especially near the end of the zirp era and even more especially during covid, the amount of VC capital being deployed far surpassed the number of competent VCs or startup founders.
Many VCs were making decisions based on factors that were NOT correlated with future venture success. Many VCs in fact probably biased companies away from future success, because they didn't understand what they were doing and their instincts from prior industries or investment regimes were directly the opposite of what was needed for an early stage startup.
In other words, there is risk aversion, and there is foolishness. I know for a fact there was a lot of foolishness going on in us VC investing (I even participated in some of it, learned from it, and I know better now).
I'm not just talking about VCs throwing money at anyone with a pitch deck. I'm talking about VCs having a backwards understanding of what makes startups successful and actively pressuring startups that could have worked into doing the wrong things.
There is a core of US VCs that are the world leaders in what they do, exceptionally aware of what makes startups successful and have the track record to prove it - this minority is overwhelming responsible for the industry's ROI. There is also a massive graveyard of fools who tried to replicate that success and failed for a variety of reasons.
Also if the UK investor says "we'd love to invest, can do the whole round, want you to send us your current cap table, we need to get the deal done before April because we have capital to deploy before end of the current financial year" don't actually expect the funds.
Could you explain this?
Sure: UK VCs ('Haatch' specifically in this example) will give an enthusiastic 'yes' and then not deliver funds.
Aren't they afraid of the reputation risk? If they behave so treacherously, future startups may go to the US without even asking them.
I assume too good to be true.
I had the misfortune to be pitching to VCs in the UK, the money was so expensive that it’s just not worth it, much better off moving to the US if you can.
That might be a case of selection bias. The only reason to put up with UK regulations and other issues is if you have a compelling reason to do so (compared to similar opportunities).
Yes. If the UK matched the US per capita it'd be ~285 unicorns, so it's actually performing at 37%.
But a per capita figure is diluted by how big of a tech sector that country/region has relative to the rest of its economy. The more people work outside of that sector, the lower is any per-capita figure from tech. Fewer lines of code written per capita, fewer bugs per capita, ...
The figure per invested dollar is much better: how many unicorns emerge per billion of investment money.
Those who chase unicorns are mainly investors (plus people who want to join startups that become unicorns). That figure is directly relevant to them.
The tech sector in the UK is pretty big but also massively finance weighted. And salaries a lot lower than the US so a $ investment goes further. At my company a few years ago our one developer in Boulder earnt more than our head of software in the U.K.
Boasting a stat like who has the most VC backed "unicorns" is like ranking cities in a state by how many lottery winners it has. Let's see a chart comparing the number of top "bootstrapped" businesses and I have a funny feeling the result will be much, much different.
There's this class of article which is just X is the most Y. One of the things I like to amuse myself with is to pick a random city X and type in "top city for" and see if there's an article for it.
e.g. Fremont was the top US city for startups
https://www.mercurynews.com/2012/10/09/fremont-ranked-top-u-...
Appleton, WI is the fifth best place to live in America
https://www.nbc26.com/appleton/study-finds-appleton-is-the-f...
This metric is actively harmful focusing on "efficiency" stifles innovation and risk taking putting a cap on the overall growth potential.
The desired outcome from a wider economy perspective is to have more unicorns not efficiently created ones.
Does "unicorn" really mean anything beyond "can play investment game"?
It seems like the tech version of the quarterly earnings per share game that has ruined Wall Street and publicly traded companies for the last 25 years.
UK is desperate to have something going for it right now. Just let them have this one.
I don't really see this as a positive thing.
fake news.
The main difference between the US and the UK is that American startups are building platforms for the world, whereas UK ones often consume those platforms. The platform holder holds the strategic keys. The efficiency of the market system is irrelevant to simple dominance. This is the same issue with other startup hubs, like Singapore, Bangalore, etc.
Do you have something to back up this claim?