Wednesday January 1st 2020
Drone Industry Lift-Off | London Restaurants Crisis | Female Enterprise Investment | UK Law Firms Threatened | Birmingham Booms | More Funds For UK Spin-Outs | Business Frugality | Euro Deep Tech Investment | French Innovation
Digest of news and trends in the GRID marketplace in December 2016:
DRONE INDUSTRY LIFT-OFF
Vodafone eyes role in traffic control for drones | Peggy Hollinger and Nic Fildes, FT. December 20
Vodafone is looking to move into the lucrative business of managing drone traffic, after meeting European aviation safety authorities about adapting its network to track and identify unmanned aircraft.
Sesar, the European project to overhaul the region’s air traffic management, estimates there could be more than 400,000 commercial and government drones flying in its airspace by 2035, many at low levels and over densely populated areas. Drones flying at altitudes of up to 500ft are expected to account for 250m flying hours by 2050, against just 33m for manned aircraft in controlled airspace.
In the race to replace declining revenues from voice calls, roaming and texting, many telecoms companies have looked to the enterprise market as a substitute. Vodafone has 45m Sim cards installed in machines not typically associated with mobile phones, including smart meters, semi-autonomous cars and even in tracking equipment attached to seals.
Initially, consumer drones could be required to insert and register a Sim card, similar to their use in the mobile market. The mobile network could then be used to enable communication between drones to avoid collision and no-go areas. Vodafone could also use its network for flight authorisation.
The company has its eyes on the bigger prize of the commercial market, where companies such as Amazon are considering drones for deliveries and other services. Further out, Vodafone is also hoping its technology will be applicable to larger unmanned aircraft, which could be used for cargo.
The question marks hovering over drones | John Thornhill, FT. December 20.
The holy grail of the logistics industry has always been to solve the “last mile” challenge, the trickiest and most expensive link in the delivery chain. Amazon Prime Air could be part of the solution. If the necessary infrastructure were in place, drones could be used for the bulk of Amazon’s deliveries. According to Mr Bezos, Amazon’s drones can deliver packages weighing up to 5lb (a little over 2kg), covering 86 per cent of the items it delivers.
The critical question is whether that infrastructure will ever be built. Will we allow the mass use of commercial drones over populated areas? Can we envisage a day when thousands of commercial drones buzz through our cities delivering parcels to specially designated drop-off points on rooftops and in car parks?
Energy companies regularly use drones to survey remote oil pipelines, damaged power lines and wind turbines. Their use is particularly effective in parts of the developing world where drones can leapfrog poor conventional infrastructure. Rural parts of Rwanda are already benefiting from drone-delivered, time-sensitive medicines.
Security services are already installing ‘geofences’ around sensitive sites.
A report by PwC highlighted the speed at which the industry is developing, identifying 200 drone manufacturers globally.
… perception threshold. Regulators in some countries, such as the UK, Japan and Poland, are adopting an accommodating approach, encouraging drone operators to experiment provided they meet defined safety standards. However, other countries — most notably the US — are far more cautious about whether to allow operators to fly autonomous drones beyond the line of sight.
Ed Leon Klinger, chief executive of FLOCK, an early stage start-up company serving the drone industry, says the UK is at the forefront of global thinking on commercial drone use. “The drone industry is developing at an incredible pace. We will see drones in cities within three years,” he predicts. His company, which provides real-time data analytics on weather and traffic conditions to operators, enables drones to fly more safely and smartly in cities and helps insurance companies price risk.
FT READER LETTER: Robert Garbett, Chief Executive, SUAS-Global, London.
An international standard is in development for the emerging drone industry …the International Standards Organisation (ISO) is currently in the process of developing a far-reaching standard for the manufacture and operations of commercial unmanned air systems (UAS), which is expected to provide an integrated safety framework designed to enable manufacturers to produce safe drones and commercial operators to fly said drones in a safe, responsible manner. …that will:
1. Distinguish professional commercial operators from those flying drones for recreation;
2. Provide a framework from which regulators and governments can better formulate policy which, in turn, will allow … those operators using drones for commercial gain to grow without the understandable public safety concerns.
There are also organisations such as SUAS-Global, of which I am a co-founder, that have been formed to take some of the weight from regulators globally by providing a hub for operators, industry and regulators to communicate and share best practice.
LONDON RESTAURANTS CRISIS
London restaurant bosses in warning over 'crippling' rate rises and Brexit effect | Jim Armitage, Evening Standard. December 20
London’s most popular restaurant chains have demanded that Theresa May ease the “crippling” burdens caused by a perfect storm of soaring business rates, taxes and the weak pound. The bosses also urged the Prime Minister to give assurances that they will be able to retain foreign EU workers after Brexit.
Together, the 23 chiefs own hundreds of London restaurants employing tens of thousands of workers. The hospitality sector employs about 500,000 Londoners.
Some of the signatories to the letter will be hit by rates rises of more than 50 per cent. The business rates rise is biggest in London because property rental values have increased here since the Government’s last valuation in 2010. While property owners may have benefited, tenants are punished with higher rents and rates. The biggest increases will be for businesses in the West End and the City, with some rates there going up fivefold by 2020.
Restaurateurs also face higher prices on ingredients bought from Europe due to the collapse in the value of the pound since June’s Brexit vote. Some products have become 20 per cent more expensive.
They are also being penalised by the tax system that orders them to charge 20 per cent VAT, the letter says. On top of these costs, the chains are being hit by a new apprenticeship tax and increases to the National Living Wage from £7.20 an hour to £7.50 next year and towards £9 by 2020. “… labour costs represent around 30 per cent of our revenue…”
3SIXTY RESTAURANTS: James Horler, CEO
BUSABA EATHAI: Jason Myers, CEO
CAFFÈ NERO: Gerry Ford, CEO CAMINO Richard Bigg, managing director
CARLUCCIOS: Simon Kossoff, co-founder CASUAL DINING GROUP Steve Richards, CEO
LEON: John Vincent, CEO and co-founder
LEVANT GROUP: Chaker Hanna, chief executive
LIVING VENTURES GROUP: Jeremy Roberts, CEO
LONDON UNION: Henry Dimbleby + Jonathan Downey, co-founders
LOUNGERS: Alex Reilley, co-founder + Nick Collins, CEO,
PATISSERIE HOLDINGS: Luke Johnson, chairman
PIZZA EXPRESS: Richard Hodgson, CEO
PIZZA HUT : Restaurants Jens Hofma, CEO
THE NEW WORLD TRADING COMPANY: Chris Hill, CEO
THE RESTAURANT GROUP PLC: Andy McCue, CEO
TURTLE BAY RESTAURANTS: Ajith Jayawickrema, founder and director
WAGAMAMA: David Campbell, CEO
WAHACA: Mark Selby and Thomasina Miers, co-founders
YO! SUSHI: Robin Rowland, CEO
FEMALE ENTERPRISE INVESTMENT
Sisters end up doing the fundraising for themselves | Laura Onita, The Sunday Times. December 18
Roughly one-third of Britain’s companies are set up and run by women, but only 10% of venture capital money flowed to female entrepreneurs last year. Several British business angels are now trying to redress this balance.
Debbie Wosskow, founder of the home rental start-up LOVE HOME SWAP, is also a co-founder of ALL BRIGHT, a new fund aiming to invest £10m solely in start-ups led by women. All Bright, set up with Anna Jones, 41, head of Hearst Magazines UK, also has an angel network, a crowdfunding platform and an accelerator programme.
“Women in general are slightly less mad than men. They make decisions on the business itself rather than the ego issues around it,” said Richard Reed, a partner at JAM JAR INVESTMENTS and co-founder of Innocent Drinks.
Another backer of female-led start-ups is ANGEL ACADEME, a three-year-old network set up by Sarah Turner, 50, and Simon Hopkins, 49. It invests between £100,000 and £500,000, and has handed cash to 11 companies so far.
UK LAW FIRMS THREATENED
Hard times for British lawyers as US rivals muscle in | Anthony Hilton, Evening Standard. December 13
… while English law is firmly established as the regulation of choice for the world’s international business and while the impartiality of the English courts has secured London as the venue of choice for much of the world’s most complex litigation ….it is becoming ever more apparent in London legal circles that American firms which have set up here over the past 20 years are now beginning to eat their lunch.
Most professions have already been Americanised. Accounting went a long time ago, as did management consulting, headhunting and employee benefits and pension consulting. Fund-management statistics show virtually no British presence in the international top 20.
Perhaps the mystery is that British law firms have managed to hold out for so long. But they are in trouble now. The root of the problem is that no UK firm has successfully established itself in America, so they lack serious access to US capital markets and don’t generally move in the right circles over there. That in turn means that when American corporations go global — usually through an acquisition — they no longer automatically look to the indigenous British firms for advice but are instead increasingly content with the London offices of US firms.
As US corporations progressively tighten their stranglehold on the globalised economy, American law firms are extending their reach here.
At the same time, the determination of the American authorities to apply US law whenever the mood takes them in wherever country in the world that suits them has put pressure on non-American multinationals to build close relationships with US lawyers. If the Department of Justice decides to launch some massive action against a non-American company for allegedly breaking sanctions in Iran, that company needs a lawyer with top-level contacts in the Department of Justice. It is no longer enough for them to rely on a British firm to meet their global needs, and they do not feel comfortable doing so.
Until a few years ago, private-equity groups would rely almost entirely on London law firms for the legal work that lies behind their often-complex financial structures. Now, however, it is the US firms in London that are landing the business. …US parent firms — Blackstone, KKR, Carlyle and the others — increasingly dominate the space.
The core of the problem is the London firms have a business model that is no longer suited to the modern world. London law firms basically provide two quite different services:
1. Advice, providing expert guidance to senior business figures on the intricacies of some complex strategy. They charge a vast amount of money for this — and if they are good, the client usually pays without too much complaint.
2. Execution-only deals. This is when the client knows what he wants to do — has probably already done it — but requires a legal team to sort out and tie up the loose ends. This is pretty standardised commodity work.
A British firm typically has had a small number of partners doing advisory stuff, and a large number of associates doing the grunt work. But competition in grunt work is increasing, and it is very vulnerable to technology. So the firms overall are stuck with overheads that are increasingly hard to support. There has been a rush to relocate these businesses to cheaper parts of the UK — Belfast, Glasgow or Manchester — but it is not getting any easier. The real answer would be to split in two: a high-quality advisory firm and a low-cost, efficient, technology-driven provider of services.
In contrast … the American lawyer business model has high numbers of big fee-earning advisers and relatively few people doing grunt work — so they can focus on capturing and executing the high-value business. This also plays to their strengths when it comes to establishing their presence in London — the more so as many of their partners are credible and experienced British lawyers who were prematurely bounced out of their original firms when they turned 50, in order to create space and a career path for the army underneath.
Birmingham races ahead for new businesses but jobs still a battle |Andy Bounds and Sarah O’Connor, FT. December 11.
Birmingham is creating businesses at a faster rate than London … Birmingham’s business base grew 8.1 per cent (35,665 to 38,552) during 2016, Manchester 7.2 per cent to 25,895 & London 6.4 per cent to 535,110. Growth was more than twice the national average of 3.5 per cent.
Birmingham’s local authorities also said it was on track to retain its position as Britain’s number one regional city for start-up creation for the fourth consecutive year. Marketing Birmingham said high value-added sectors — such as business and professional services, life sciences and digital — underpinned the region’s economic rise. Advanced engineering business numbers grew 25 per cent, partly driven by the rapid expansion of JAGUAR LAND ROVER.
There was significant investment from both the UK and overseas as the city becomes a cheaper alternative to London. HSBC is establishing a retail headquarters there while Deutsche Bank has a trading floor and back office jobs.
However ..has done little to improve employment rates in the city and its surrounding area, which have been poor for years. That is because many people who get the jobs created by new businesses in Birmingham commute into the city rather than live there. …the main contribution to the local economy comes from out-of-towners. The West Midlands city region — which includes Coventry, Dudley, Sandwell, Solihull, Walsall and Wolverhampton, as well as Birmingham — has the lowest employment rate of any major city region at just 64.5 per cent compared with a UK figure of 74.5 per cent, … the Resolution Foundation think-tank called it “Britain’s biggest employment black spot”.
LOMBARD RISK MANAGEMENT, which helps financial services companies with regulatory reporting and collateral management, had opened a software development centre in Birmingham in November. Mike Payne, chief technology officer, said “There is a good pool of developers and there are great universities. Tech skills are no different in Birmingham or London. But competition and salaries are higher in London. It makes no sense to open a development centre in London. Birmingham is going through an incredible transformation.”
The Greater Birmingham & Solihull local enterprise partnership attracted 81 new FDI projects to the region in 2015-16, creating or safeguarding more than 5,000 jobs. … almost triple the number five years ago. Investors included Chinese car manufacturer Changan and US civil engineering company Jacobs, attracted by the construction of the High Speed 2 line from London, arriving in 2026.
The city is also receiving billions of pounds of infrastructure investment, with new tram lines, office blocks and public squares planned as the 1960s city centre is remodelled.
MORE FUNDS FOR UK SPIN-OUTS
Oxford university start-up fund boosted by £230m injection | Madhumita Murgia, FT. December 9
OXFORD SCIENCES INNOVATION, which commercialises science and technology from Oxford university, has expanded its coffers to £580m in a new funding round, making it the largest private university fund in the UK. The £230m injection of capital has come primarily from Asian investors, including large tech companies who wished to remain anonymous, and sovereign wealth funds, such as Singapore’s Temasek and Oman Investment Fund. Peter Davies, chair of OSI
The fund has backed approximately 20 start-ups spun out from the university’s labs, including OXFORD NANOIMAGING, VACCITECH and OXFORD FLOW — double the number they planned to fund a year ago.
The UK has five of the world’s top 10 medical research universities, according to Times Higher Education, and Oxford has been number one for the past five years.
The burst of funding highlights the increasing flow of private capital into the UK’s academic sector to help spin out research breakthroughs.
The £50m UCL TECHNOLOGY FUND was set up in January to invest in intellectual property from University College London. In the same month, the £40m APOLLO THERAPEUTICS FUND was created in collaboration with Cambridge, Imperial College London and UCL, with backing from AstraZeneca, GlaxoSmithKline and Johnson & Johnson.
These have joined others such as Imperial Innovations, IP Group and Cambridge Innovation Capital which were already active on UK campuses.
CAMBRIDGE INNOVATION CAPITAL recently added £75m to its fund ahead of a planned flotation, while Neil Woodford, Britain’s best known fund manager, spent £11.6m to take a 22 per cent stake in Imperial College’s offshoot fund, IMPERIAL INNOVATIONS.
Deep technology start-ups have been particularly attractive targets for Asian investors: telecommunications, media and technology accounted for almost a third of Chinese investment into the UK last year, according to consultants Grant Thornton. Tencent, the Chinese internet group, for instance, invested in two British companies in 2015, mapping start-up SENSEWHERE and gaming company MINICLIP. In October, Chinese state-backed fund CSC Group helped fund a multimillion-pound artificial intelligence incubator in London.
Who said our job is not to make profits? Bah humbug! | Luke Johnson, chairman of Risk Capital Partners and the Institute of Cancer Research. The Sunday Times. December 4
I recommend that every finance director receives as a seasonal gift a handy paperback called Double Your Profits in Six Months or Less, by Bob Fifer. ….It contains some of the best advice I have ever read about the tough matter of saving money — and, in the process, saving businesses and jobs.
Companies tend to get flabby and out of shape during the good times. To cope with the headwinds of 2017 they will need to go on a diet to get financially fit. Being frugal is a state of mind — almost a philosophy of life.
Fifer’s book offers “78 ways to cut costs, increase sales and dramatically improve your bottom line”. Certain ones are more appropriate for a company in crisis, and facing the possibility of going bust. Others are for a business that is simply stagnating, rather than failing.
The first point the author makes is that you need to revise the culture if you want to fix a struggling company. That means, for example, that you should adopt Step 5: Never Apologise for Focusing on Profits.
In the 21st century, lots of well-intentioned experts tell company owners they must consider all stakeholders, and the purpose of business is not really to make profits. This is utter crap. A business that does not seek to grow its bottom line and make an appropriate return on capital is likely to drift and go wrong. Such cuddly attitudes do not survive a downturn.
Companies that do not generate cash cannot invest, innovate and hire. In a sense, businesses are like great white sharks: either they are making forward progress or they are dead. And only live businesses are any use to society as a whole.
Another vital message from the book is Step 12: A Sense of Urgency. The author states: “A stubborn impatience to do things now is a powerful producer of profit.” Procrastination and endless delay about critical issues lead to decay and doom. There is no room for embarrassment, sentimentality or squeamishness. When the very existence of a business is threatened, everything should be focused on just two matters: boosting sales or eliminating costs — all else is superfluous.
The writer … says, no cost is too small to worry about. From suppliers to landlords, from personal expenses to research and development, from capital expenditure to advertising, from bonuses to outside contractors, no stone must be left unturned in seeking efficiencies.
The status quo will not do: a business that breaches its banking covenants must adapt violently, or face the grim consequences of mismanagement and denial.
Many leaders lack the resolve to force their companies to adapt to changed conditions. Others have never commanded an organisation through difficult economic phases, and have no understanding of what it takes to prosper during hostile periods. Still others are congenital optimists, incapable of battening down the hatches and doing more with less.
EURO DEEP TECH INVESTMENT
Deep tech ascent: Europe’s emerging digital industries | Madhumita Murgia, FT. December 1.
European industrial tech applications and technical platforms that underpin more consumer-focused services — from artificial intelligence, virtual and augmented reality to big data analytics and chip design — are attracting record levels of activity and investment, according to Atomico, the venture capital fund.
… venture capital investors are now betting that the need to power more technically complicated consumer and industrial apps using the internet of things and data analytics means that Europe’s tech hubs can gain an advantage.
More than $2.3bn has been invested in the “deep tech” sector since the start of 2015, according to a study by Atomico, with executives in the industry pointing to the emergence of expertise in particular in robotics, chips and AI. These are feeding into other start-ups aiming to disrupt industries such as retail and finance.
This year, deep tech start-ups are on track to raise almost $1bn, which is four times the capital invested in 2011, with fund raisings in the past few months from companies such as France’s internet of things group SIGFOX, Italy’s fintech start-up EUKLID and Helsinki-based cloud computing company UPCLOUD.
US tech giants have also sought to tap into European expertise, either through investing in their own operations or acquiring and retaining businesses in the region. In the past five years, Apple, Amazon, Google, Facebook and Microsoft have acquired 53 European companies. Of these, 30 are from the deep tech category and seven were bought in 2016.
For instance, Amazon’s voice-activated speaker assistant, Alexa, was partly built by its team of engineers in Cambridge, acquired through its purchase of EVI TECHNOLOGIES. Facebook’s Aquila drone initiative is being driven in Somerset, where it acquired ASCENTA, and Google has built an engineering centre in Zurich.
Asian companies such as Huawei and SoftBank are also investing heavily in R&D in the region. … Microsoft said that would invest $14m in an internet of things “incubator” based in Espoo, Finland, where Nokia’s headquarters are based.
With much of the innovation being driven by research institutions, the talent pool is moving from Europe’s traditional tech hubs such as London and Berlin. Instead, start-up formation and, by consequence, funding is now flowing to locations tied to institutions: Cambridge …Munich …Grenoble … Malmo, Sweden, and Klagenfort, Austria. “Zurich has definitely built a strong position in AI, VR and big data, on the academia and research side thanks to ETH Zurich,” says Georg Polzer, chief executive of Zurich-based data analytics start-up Teralytics.
Artificial intelligence in particular has been a powerful driver of growth. “Europe, and the UK in particular, is arguably the best place in the world for AI given DeepMind is here and is clearly the world leader in the area. Plus, Apple, Amazon, Microsoft, Twitter have all acquired UK AI businesses,” says Saul Klein, founder and seed-stage investor at London-based LOCALGLOBE.
Cities such as Berlin, Zurich and Paris are also noted for AI research. Asian internet giant Rakuten and Facebook both have AI labs in the French capital, working on topics such as image recognition and natural language processing to build into their products.
Atomico’s analysis of LinkedIn data found cities such as The Hague, Antwerp, Birmingham and Copenhagen in the top 10 for having “frontier hardware” skills, including expertise in robotics and drones. Lisbon and Milan were found to be hubs of talent in virtual and augmented reality.
But the level of inbound M&A also underscores worries that Europe has yet to produce its own global tech success story.
French tech start-ups find their feet | Harriet Agnew and Madhumita Murgia, FT. December 1
Fundraisings show Paris emerging as serious challenger to London and Berlin in the tech sector.
When Paris-based BLABLACAR started out a decade ago, the long-distance carpooling service rented office space from a fellow fledgling start-up CRITEO. The two are now the torchbearers for a new wave of French technological investment, with Paris in particular emerging as a serious challenger to London and Berlin after long being considered one of the more parochial parts of the European tech scene.
… smaller start-up, DEVIALET renting office space from BlaBlaCar — and ….wasting little time in seeking to equal its rare French “unicorn” status. Devialet, a nine-year-old sound technology business, announced on Tuesday it had raised €100m from investors ranging from Jay Z to Foxconn to fuel an international expansion.
The emergence of companies such as Devialet and SIGFOX, a provider of connections to the “internet of things” that in November raised €150m, has helped add to the feeling of momentum behind the French tech scene.
France has attracted record levels of deals and capital invested in 2016, making it the third most significant European tech hub by number of start-ups and by investment. In 2016, there have been almost 500 fundraisings in the country, more than double the number completed in 2015.
… Paris’s Halle Freyssinet, an ambitious project led by telecoms entrepreneur Xavier Niel that plans to house 1,000 start-ups and hopes to become the world’s largest incubator of tech firms. It comes alongside a much more structured approach to nurturing start-up companies that the French government has encouraged through a €6.5bn state-backed investment fund, BPIFRANCE.
However, while French tech start-ups have been growing in number, sceptics still say that the industry needs to prove it can scale up companies as well as launch them. Others argue that the French market lacks visibility, is still too domestic in its focus and attracts less foreign investment than London or Berlin.
Foreign companies such as Japanese giant Rakuten and Facebook have opened artificial intelligence research facilities in the capital, while Apple plans to open a computer vision lab in Grenoble. After London, Paris is Europe’s second talent hub for AI, virtual and augmented reality, and hardware technology.
The city also has the second-largest number of professional developers in Europe, with 134,322 coders, says coding platform Stack Overflow. This reflects France’s historic strength in areas like maths and engineering, which start-ups and investors say has been an advantage.
French business schools such as HEC have developed entrepreneurship and innovation programmes, and the tech world is luring a younger generation that once would have gone into finance or consulting. In 2015, a fifth of graduates from Insead and HEC Paris entered the tech industry.
On top of this, corporate participation in tech fundraising is growing and now accounts for a fifth of total tech deals in France, according to CB Insights. “In a big group it’s very difficult to innovate,” says Quentin Sannié, co-founder and chief executive of Devialet. “They need start-ups to imagine new technologies.”