London Tech Needs Immigrants

Adbrain, one of the most successful companies to come out of Campus London to date, attributes its achievements — which include attracting over $8 million in funding and partnerships with some of the biggest names in advertising — to having a diverse international team. The adtech company’s 30 employees include 12 different nationalities, many of whom are non-European. “We live and die by the strength of our product,” says Gareth Davies, CEO of Adbrain, a company that helps clients develop ads targeted to clients across multiple devices.

That’s the company’s strength — hiring the best people globally — but it comes with its own issues. One of its co-founders risks having his visa application denied on a technicality. While Davies says he is “confident we will get this resolved,” the issue has cost the company precious time and “a fortune in specialist legal fees.”

Adbrain team: One of the founders risks haveing his visa application denied

If London truly wants to be a global tech hub it will need to revamp its immigration policy to allow more talented, highly-educated foreigners to stay in Britain, says Davies. “It is critical for our country and our economy.”

The UK government has responded. Having opened up visas for overseas entrepreneurs, the government announced in March an expansion of its “Exceptional Talent” visa to include for the first time “exceptional talent in the field of digital technology.” Tech City UK will be able to endorse 200 applications.

Rigid Rules Drove Entrepreneur Away

Indian-born, but Barcelona-based, entrepreneur Sindhu Joseph was pretty confident that she stood a good chance in a 2012 European Union-backed start-up contest. In fact her company, Cognicor, won, and as a result later landed a €1 million funding deal.

But because of UK immigration restrictions she nearly didn’t make it at all.

The final stages of the contest were to be held in the UK but first Joseph, who has Spanish residency, had to get a visa. As the deadline got closer and closer there was still no answer from the British Embassy in Madrid.

“I called up the European Union and I told them I had to get a visa. I asked for a letter explaining why I want to go to the UK. They sent me the letter but it didn’t make any difference. “I knew someone at UKTI [the UK government department for Trade and Industry] and I called him up directly,” says Joseph. “That fast-forwarded the process. I had to go to Madrid to pickitup. And I only got it on the day I was traveling.”

Even today Joseph finds it all but impossible to visit the UK, despite the success of the company.

She is actively looking to relocate but says it is almost impossible for her to move to the UK. She took legal advice on getting a UK entrepreneur visa, but her lawyers said it would be very hard.

“I still prefer the UK. It sits in a strategic position between the US and Europe. For funding it is good, for living — except for the weather — it is really good. We are also interested in our kids’ education. All of this was a good match.”

The UK’s loss is the U.S’s gain: The U.S. government has already given Joseph a 10-year multiple entry visitor’s visa and she is applying for a Green Card to get permanent residency.

To date the number of people able to stay in the UK under the scheme has been extremely limited as the qualification criteria were so stringent. Only 60 were issued in 2013 said the Home Office.

“A lot of what the government has done has been excellent,” says Dan Crow, CTO of Songkick, which operates a database of concerts, pointing to earlier policies like the entrepreneur and investor visas, and making it easier for companies to sponsor a small number of visas, effectively fast-tracking employees through the convoluted system.

But that is not enough, says Hussein Kanji, partner at London’s Hoxton Ventures, a new fund focused on early-stage investment. While it is too early to say what effect the expansion of the “exceptional talent” visas will have, Kanji says the government’s efforts to date rate an “incomplete.” To get a passing grade it will need to focus on the roles that will make the biggest impact. “Where does job creation come from? It comes from start-ups that begin small and scale up rapidly. Look at Google; it went from nothing to 20,000 jobs in five years.”

For London start-ups needing to scale there is a missing person, someone you can’t find in Europe — product managers. “Most products in our industry are bad — product management is a poor profession. But the ones who are good are consistently good. Why is this? Product management is not something you teach at business school. It is an apprentice-driven industry. You can trace back the good product managers in Silicon Valley. Every product he or she touches is a good product. All of the people who get trained underneath him or her know how to do it.

“These people don’t exist here in London because we don’t have the guys here who have done it who can teach the next generation.”

But there are fears that the UK’s increasingly hostile political climate towards immigration is going to make it harder to recruit. “The rise of UKIP makes a difference,” says Crow, referring to the anti-European Union political party that is predicted to do well in the May European elections. “That is having an effect [on recruiting]. We as a start-up are having to work a lot harder to open the conversation with candidates.”

"Try telling them that rising immigration is good news"

A February poll conducted by YouGov found some 70% of voters said they want immigration reduced (49%) or stopped completely (21%).

Nor is it just opposition parties. Home Secretary Theresa May told an audience in 2012: “It is not a choice between wealth and poverty, but of the sort of country one desires to inhabit.”

And earlier this year, in a hard-hitting speech, the junior immigration minister said immigration “puts pressure on social cohesion, on public services and infrastructure …

“The people who lose out are from working class families, they’re ethnic minorities and recent immigrants themselves. Try telling them that rising immigration is good news.”

Even if the economic argument can be proved, persuading a skeptical public of the benefits may prove a lot harder, meaning things could remain difficult for start-ups with culturally diverse teams like Adbrain.

Is European VC Broken?

Limiting the number of talented foreigners who can work in Britain is not the only thing holding back the UK.

Compared with Silicon Valley London, like the rest of the UK and Europe, suffers from a dearth of capital invested in its start-ups.

Taken across the last five years, a European start-up will attract about 30% less capital when compared with its U.S. counter- part in all stages of the company’s growth.

But, says Hussein Kanji, a partner at London’s Hoxton Ventures, there isn’t a lack of capital in Eu- rope; the problem is more fundamental. “The European VC market is structurally broken,” he says.

Like any investment class, the VC industry has to make a return on investors’ capital.

“A passing fund should make a 3x return, a good one 4x.” The problem in Europe is that funds are too big when compared with the size of the market exits.

“If you have a $500 million fund you have to return $1.5 billion just to be considered OK. But you don’t own 100% of your companies, you own 20%. That means you need to generate $7.5 billion of market cap. That can’t be done.”

According to research by Hoxton Ventures, in the 10 years from 2000 Silicon Valley venture-backed companies generated $600 billion in market cap.

“You can easily create $7.5 billion from that,” he says.

Over the same period in Europe, including Russia, $70 billion has been created.

“You can capture all the Criteos and Skypes, but you are not going to capture $7.5 billion.”

One of the biggest venture-backed European companies is Finland’s Supercell. “Supercell is $3 billion — let’s say it gets to $5 billion. If you capture two Supercells, then job done. If Supercell turns out to be a $50 billion company, happy days and my argument no longer exists.”

News that King, maker of the popular Candy Crush Saga, is seeking a $5 billion listing is certainly welcome, but it will take a lot of Kings to fix the problem. The solution, says Kanji, is smaller funds in the $100 million range.

Smaller funds will have better returns, which will help European VCs raise more capital from investors.





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