Helen Thomas

Banks are international in life and national in death. But finance isn’t the only place where success is global and failure is a decidedly local problem. The tech sector has got the same idea.

The UK start-up fraternity has just had its second emergency government rescue in three years. As the world shut down in 2020, the government saved start-ups from extinction by pumping money matched by venture capital investors into the sector. The Future Fund eventually invested £1.1bn, more than four times originally intended.

Three years later, and facing another “existential” threat from overseas, the government has stepped in to ensure cash-burning tech firms can access their bank accounts, pay their staff and stay afloat.

No taxpayer money is involved in the transfer of the UK arm of Silicon Valley Bank to HSBC for £1; bank investors are being wiped out. But a government-engineered fire sale, which ran through the night and required HSBC to get some regulatory waivers on ringfencing requirements, certainly amounts to a public rescue mission. Chancellor Jeremy Hunt had suggested that in the event that a deal couldn’t be found there would be liquidity support or a guarantee for depositors in SVB UK, effectively propping up start-up firms and their venture capital backers.

Hunt was clear that this was a tech crisis rather than a banking crisis. The UK arm of SVB had about £7bn in deposits and 3,000 customers, who also included lots of biotech start-ups. (Saviour HSBC is more than 40 times larger in terms of UK deposits). The SVB failure in the US has forced regulators to close Signature Bank, with concerns that uninsured depositors would pull funds from other lenders. There were, doubtless, some nerves about whether the confidence crisis that did for SVB UK would spread, particularly to other fintechs or neobanks likely to have exposure to SVB and the same start-up community.

But it was the tech sector shouting loudest for help. This was about saving “some of our most important companies”, said Hunt, “our most promising and exciting businesses”. SVB UK wasn’t too big to fail but it may have been too focused on a politically-favoured sector. It’s hard to imagine the Bank of West Country Widget Makers getting the same treatment.

The tech world’s general fetishisation of West Coast culture is part of this story. An estimated 30 to 50 per cent of UK start-ups banked with SVB UK, with particular concentration at the top tier venture capital firms. That owed something to a tight-knit tech network, something to the fact that SVB was active in pursuing start-up business, and a lot to its name. Who wants to be with Midland, the historic brand almost resurrected when HSBC created its UK ringfenced bank in Birmingham, when you can go for Silicon Valley instead?

Indeed amid the expressions on Monday of relief and gratitude, there were already some quiet grumblings about whether big, lumbering HSBC would be as nimble and entrepreneurial as tech visionaries require.

The pandemic was act of God stuff but the tech sector at least has to consider its own risk assessment with SVB. Business bank accounts may typically exceed deposit insurance limits, especially the UK’s lowly £85,000. But you can bet they’ll be better diversified from here. The California, tech-native branding came with financial risks that probably weren’t well considered or understood.

The UK tech sector has been backed up and bailed out by a country it sometimes appears impatient to escape. The government should, absolutely, redouble efforts to make sure the London listing regime and research offering works for tech companies, and that UK policy supports innovation. But everyone knows that founders also seek out US VCs and Nasdaq listings because that’s what, in their view, proper tech companies do.

Wise, the money transfer service which has been one of the better London tech listings in recent years, turned down early, big name backing from US venture capital because it required moving to California. “We told them it makes no sense — we have a business going in Europe,” said co-founder Taavet Hinrikus.

Perhaps the Great British Tech Rescue might prompt others to make a similar choice. Either way, the UK government shouldn’t be shy of reminding them of it.

helen.thomas@ft.com
@helentbiz

It was hard to imagine the news flow getting worse for London as a capital market this week. WANdisco has managed it.

The Aim-listed software company, proudly dual-headquartered in Sheffield and San Ramon, California, said on Monday it was considering an additional US listing.

The group, then with a market value of about £900mn, has been making those noises for about six years and, frankly, in another week no one might have paid much attention.

Yet on the back of news that building materials group CRH will shift its listing to the US, and the suckerpunch that SoftBank will opt for a US-only listing for Arm, the slight shift westwards of one of the UK’s crop of listed tech companies felt something of a blow.

But hey, most of WANdisco’s revenues come from the US. The company helps customers move big chunks of data quickly and securely between different systems and we apparently live in what founder and boss David Richards calls the “data activation era”. High-growth tech companies, we’re repeatedly told, get a better valuation stateside.

Not this time. On Thursday the company said it had mislaid about 60 per cent of its expected revenue for last year. After discovering “significant, sophisticated and potentially fraudulent irregularities” with orders, “as represented by one senior sales employee”, the company thinks sales could be as low as $9mn compared with the $24mn expected.

Quite how one person could inflate or create $15mn in non-revenues without anyone noticing went unexplained but it doesn’t say anything good about WANdisco’s internal controls. The company’s shares, which had bounced around between 200p and 400p for most of the past couple of years, suddenly took off last autumn. Now suspended, they had tripled since the beginning of November on a series of bullish announcements about contract wins.

There was the “largest ever contract” of $25mn with a “top 10 communications” company in September; the “record $31mn agreement” with an unnamed “tier 1 global telecommunications supplier” in December; then the $12.7mn contract with a “global European based automotive manufacturer” announced two days later. The company is investigating but says it has “no confidence” in its bookings pipeline and flagged “significant going concern issues”.

This all feels like a greatest hits of reputational shortcomings. London’s junior market Aim was memorably dismissed as “a casino” by one US regulator in 2007 (when it was succeeding in nabbing US listings). The growth market has, I was assured by one senior City figure recently, now found a “good balance” in terms of standards.

London also has history with software groups and questionable revenues, such as the fallout after Hewlett-Packard’s purchase of Autonomy. In fairness, WANdisco’s statement gave no indication that accounting chicanery is the issue here. The company has been shifting towards a “commit-to-consume” model, where customers sign agreements for business over several years. But some of the chunky contracts announced last year were one-offs, where sales would be recognised upfront. It’s not clear how much of the company’s $127mn in bookings made last year (up a mere 967 per cent on 2021) remains in the realm of the real.

One fillip for London? WANdisco does suggest that you don’t need a US stock market presence to fully imbibe of Silicon Valley’s “fake it til you make it” culture. Founder Richards, who was pushed out by the board in 2016 only to return a few days later, last year put the company’s total addressable market, or TAM, at $14bn. In an interview published this week, he said the company had no competition in the area of live data movement: “we have 100 per cent market share”. He added: “Ten enterprise sales guys pulled in $127mn in bookings. We think we can get to a billion dollars of bookings with 20 salespeople, and be the most profitable company the world has ever seen.”

On reflection, New York, perhaps you can have this one.

helen.thomas@ft.com

It was, in fairness, a good line. The boss of Activision Blizzard, in full campaigning mode in support of the gaming group’s $75bn sale to Microsoft, last month noted UK prime minister Rishi Sunak’s ambitions to become a European tech hub and quipped: “If deals like this can’t get through, they won’t be Silicon Valley, they’ll be Death Valley.” 

It also was a little odd. The deal, amid concerns that ownership of the blockbuster Call of Duty franchise could dull competition between Microsoft’s Xbox console and rivals such as Sony’s PlayStation, is mired in antitrust problems the world over. The Federal Trade Commission sued to block the transaction in December. The European Commission is examining the deal, and potential remedies offered by Microsoft, ahead of a decision expected in April.

Why did the Competition and Markets Authority attract Bobby Kotick’s ire? The UK regulator provisionally concluded in February that, after an in-depth investigation, the deal could mean higher prices and less choice for the UK’s 45mn gamers. The tech giants must persuade the watchdog that behavioural solutions such as licensing deals with its rivals can alleviate concerns, ahead of a final decision next month. 

Kotick isn’t wrong that the UK has become a tougher place to do deals. New national security vetting rules are being used rather more expansively and less predictably than was either promised or hoped. On antitrust, the CMA has taken back control over big, global deals that would have previously been judged in Europe. Companies and advisors are trying to read the regulatory tea leaves on the basis of limited case history. And the trend is clear: Linklaters puts the proportion of deals prohibited, unwound or pulled after second-phase CMA investigations in recent years at double that from 2014 to 2017.

This is partly a global phenomenon, particularly in tech. New CMA boss Sarah Cardell talked recently about its shift after a pair of UK reports in 2019 found “historic under-enforcement” in scrutinising the digital platforms. Greater global focus on less well-trodden areas such as dynamic or potential future competition concerns, and on vertical deals between companies buying from or selling to each other such as Microsoft’s, mean less predictable decision-making, and less consistency in outcomes between different regulators. 

One issue for Microsoft and Activision is the CMA’s reputed scepticism of the types of behavioural remedies the companies are offering as mitigation. Cardell’s recent speech seemed an attempt to counter criticism that the UK regulator hasn’t always signposted what it was doing and why. But she argued these commitments can become ineffective as markets evolve and can be “very challenging” to monitor. If anything, says Stephen Whitfield at Travers Smith, this “reinforced the message that the UK has a different way of thinking about behavioural remedies to Europe”.

Another is that the UK regulator perhaps has more scope to act as Grim Reaper to Big Tech, even when its peers might want to play executioner. American dealmakers (who broadly distrust any system other than their own) can and do beat the regulators in court. In the UK’s administrative system, the decision rests with the CMA with appeals via judicial review decided on the fairness of the process, rather than the full merits of the case. (The quid pro quo, argue UK regulatory types, is an extensive, objective investigation, including an independent assessment at the second stage.)

The UK’s growing number of tech start-ups, who generally want some protection from big tech while reserving their God-given right to sell out to them, may disagree with the Kotick assessment. After considerable angst in recent years, notably after the regulator in 2021 blocked the merger of two UK equity crowdfunding start-ups Seedrs and Crowdcube, UK start-up body Coadec has welcomed the prospect of the CMA’s new digital markets unit, once seen as a threat to the sector. The hope is that it can better balance concerns around fostering innovation and containing incumbents. 

Death Valley for some? Perhaps. But the view from Silicon Roundabout seems to be that the main problem with the government’s tech ambitions is that they are policy-lite, not enforcement-heavy.

helen.thomas@ft.com