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Unicorns: The US vs. UK in Strategy

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A Too Big To Fail mindset has gripped the strategy of some unicorns, such as SnapChat and Uber (the latter has even hired a political campaign manager to ward off its potential legal troubles) which in turn, has caused media panic in fears of an impending tech bubble. Bill Gurley, the conscience behind Benchmark Capital, has continually spoken about the "death" of the unicorns post 2015 in numerous talks and tweets along with the dangers of sky high valuations and burn rates. 

Across the Atlantic, the UK has taken an alternative approach. In the last two years, IPO exits have nearly doubled for UK unicorns, with several more set to exit in 2016 and 54x as the average return on capital invested. The UK strategy is clearly moving towards liquidity, with the average liquidity time around 8 years before a company exits. In comparison, in the US only 1% of unicorns exited between 2013-2014 with 64% of all invested venture dollars at expansion stage, and many more US based unicorns taking a stance that an exit is not in their near future. This could be one of the factors that would ultimately make the UK economy more stable than the US economy in terms of bubble-bursting startup valuations.

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London, Tech Capital of the Global World

Although in the past, there has been much talk about UK-based companies moving abroad to the US to be headquartered or raise capital; recent events, such as Mosaic Ventures' $140 million fund and Octopus Ventures launching its scaleup fund of the same amount, along with Highland Ventures 332 million fund reveal that the Europe and the UK are fast becoming the global tech capital of the world and wants to keep its top entrepreneurs.

Even if Silicon Valley is still the reigning champion with its collection of 60+ unicorns centered around San Francisco, there has been a recent migration to other parts of the US, such as Texas, Utah and Oregon. (As a sidenote, and bit of a digression, it would be interesting if these San Francisco based unicorns were all contributing to the prevention of the dismal fiscal state of California; however, due to the advantages of incorporation in the US, none of these unicorns or corporations actually pay any state taxes due to legally being incorporated in the tax haven of Delaware.)

However, the US is not the only place where there are tax advantages. Corporations and startups in the UK can be incorporated in other UK territories, such as Bermuda, British Virgin Islands and the Cayman Islands, which are considered tax havens. But to counteract the migration of startups and corporations moving into those regions, the UK had come up with a very comprehensive tax plan for startups, including the 200% tax refund and other tax credits on R&D that allows entrepreneurs to take advantage of all the resources of London and the surrounding areas. In addition, the infrastructure of London with its growing base of incubators and accelerators, to the explosion of co-working spaces and advent of green technology have created an environment that is ideal for startups. 

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Another interesting shade of difference between the two nations is that despite all the media attention to the cult of young founders, the median and also average age of Founders in the US is 40, and research by the Kauffman Foundation found that in every year from 1996 to 2013, Americans in the 55-to-64 age group started new businesses at a higher rate than those in their twenties and thirties. In the UK, the average age of Founders is 35, with the majority or 58% of Founders in the 35-45 range with just 14% being less than 25.

The pervasive media coverage of the end of life at the age of 30 began in the 1970s during the height of the Vietnam War when teenagers had the mantra: "Don't trust anyone over 30" and with such popular sci-fi movies such as Logan's Run, depicting people who must die on their 30th birthday since obviously people 30 and over are completely useless members of functioning society. However, in reality, in our contemporary era and for startup Founders, life seems to begin at 35 in the UK and 40 in the US and clearly favours experience over what Plato calls youthful naïveté. 

Logan's Run, a popular 1970s sci-fi film in which everyone had to die at the age of 30

As another bit of digression, I'm always a little bit amused when I read the bios of some Founders and they insert meaningless statements such as "started their first company at the age of 16" or "been a computer hacker since 12" etc. Certainly, everyone at one point of another, had a lemonade stand or went around cutting people's lawns or started a diary online (remember or tripod website hosting in the 90s?) as a teenager. However, I find the most interesting hackers are the ones who develop mobile games in their free time or have an app they have launched in the past as the most interesting ways of determining their "hacker" abilities. Stating you've been programming since 12 doesn't really mean much, except for probably having figured out a way to to read your classmates' emails, and are probably a regular contributor to the Fappening or have downloaded illegal content off the internet in a futile attempt to sound like some sort of genius.

Instead, I tend to think UK VCs are typically attracted to humility and a keen sense of insight into their industries in Founder personalities, although in the media, TV shows, such as Silicon Valley, portray the exact opposite- people attracted to arrogance and psychological warfare, abeit possessing a lot of distraction in slapstick humour with amusing caricatures of Eric Schmidt and Thomas Perkins (the latter who had made rather controversial statements likening the persecution of the wealthy ("the 1%") with persecution of Jews in Nazi Germany).

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Thomas Perkins, apologised for making statements in which he compared "the suffering and persecution" of the wealthy with that of the plight of the Jews in Nazi Germany

However, despite the endless media chatter about unicorns like Uber, its valuations and its identity crisis about whether it is a car transportion company or a same day delivery company or an eCommerce company, there are many more underrated UK-based unicorns such as Ve Interactive, Skyscanner, and Blippar, that have not received as widespread press coverage, but have remained with quiet confidence in the background, getting ready to strike. Of course, they don't have a former political campaign manager heading one of their departments, but perhaps in the start-up world, avoiding the strategy styles of American politics is a good thing. The UK has its own distinct venture capital personality, and there really is no need to copy its more flamboyant American twin.