Does the Darktrace takeover prove the US bad for British tech?
Policy makers love that we’re building tech companies like Darktrace in the UK but hate it when they scale in the US. Time to regulate for reality, says Camilla de Coverly Veale
You don’t have to look far to find someone presenting the view that the US tech scene is a predator to British tech: a boot on the face of Silicon Roundabout. The news that Darktrace – one of the headline tech stocks on the London Stock Exchange – has been bought by US private equity firm Thoma Bravo appeared to confirm this. But the reality is more complicated.
In fact what is happening in the AI ecosystem is a good microcosm of the complexities of the UK’s wider tech relationship with the US. British startups are enmeshed with the Valley – they are competitors, collaborators and customers – often all at the same time – with US investors, startups and big tech firms.
It’s worth saying that this is a good thing. To paraphrase the Devil Wears Prada – a million startup ecosystems would kill for that. We may be sending longing looks across the Atlantic but across the Channel they’re pining over us instead. Look at Wayve – a British firm that has just raised the largest known investment into an AI company in Europe. We’ve built formidable tech strength as part of a long collaboration with American investors and corporates. You can see it not just in Shoreditch but in the suburban office parks of the M4 Corridor – where a generation ago the UK enterprise software ecosystem grew from the inflow of American corporate tech HQs.
Much of this is a consequence of economic realities: in order for British companies to succeed, they have to look abroad. And with Brexit limiting the ability to scale in the EU’s common market, the next best place to scale is the US – unless we want to be drawn into China’s orbit. This cuts both ways – the English language (and legal system) makes it much easier for Americans to land across the pond here in the UK than elsewhere in Europe.
We’ve taken advantage of this. The UK has an extraordinary AI ecosystem – and setting aside the fact that some of our foremost computer scientists partner on AI with top US tech firms – a lot of the soft power and economic value of AI innovation in the UK looks set to come from both narrow AI systems, such as diagnostics tools, and – critically – the mountains of companies currently building on top of different foundation models. That’s going to have lots of implications for how we think about the development of the AI ecosystem and the support it needs – including the right regulation.
But our public discourse and policymaking environment seems determined not to reckon with the reality of our own success. We love the foreign investment, but we hate the foreign exits. We love that Mustafa Suleyman runs Microsoft’s AI Division, but we hate that he might have to go to Silicon Valley to do it. Put bluntly – we love the companies we’re building here, but hate that we need American help to do it.
It’s time we embraced this hypocrisy head on. Not least because it has major policy implications. Take cloud computing. Startups need an astonishing amount of (pretty expensive) computer power and they realistically have a small selection of American providers to choose from. Those platforms compete fiercely for their startup customers – including offering them (incredibly popular) discounts and credits. So far the UK’s reaction to this has been for the department for science, innovation and technology to consider building a supercomputer that will address this critical need in five to ten years and for the competition and markets authority (CMA) to mull over restricting discounts in the belief that making things more expensive for everyone will be beneficial.
The same is true for AI where the CMA has been first out the gate looking at specific AI partnerships. While it’s more than fair to think about the ties that bind firms with potential competitors, surely it’s better to first debate the rules of the road on what we want partnerships to look like before we start saying “papers, please”. Many of the UK’s most promising AI startups want to build on these companies – do we really want to tell them they are not welcome to partner with us? Or put it another way – we rolled out the red carpet only to slam our door in the faces of companies that had the audacity to step inside. It’s not out of the question to think that could have a damaging effect on AI-driven growth in the UK.
The reality is the US has a bigger economy – and if UK tech firms are undervalued by our own investors – they won’t be undervalued by theirs. It’s a problem we need to address, whether through opening up funding, fixing regulation, and generally doing anything we can do to make the UK the more attractive proposition to the company builders we so desperately need. We’ve got a bunch of proposals for politicians (and in fairness they are doing lots of them).
But while we have the challenges we have – we can’t make policy pretending these don’t exist. So until we have the thriving domestic capital market for tech, or an exits market that will allow companies to merge to build competition or want to list on the LSE – policy needs to understand how to work with, not against, the tides of the tech economy that have taken Darktrace private again. That honesty will help us reshape digital markets for the better, not raze them to the ground.
Camilla de Coverly Veale is policy director at the Startup Coalition