Depop sale not a sign of deflation in the UK tech scene
This month’s $ 1.6 billion sale of Depop, a fashion app popular with ‘Generation Z’, was an unlikely catalyst for a debate over the health of the UK’s tech economy.
Some have railed against the sale, claiming that UK tech champions sell too early and too often to overseas buyers.
“Why the hell isn’t the government using its new powers to screen takeovers,” Vince Cable, the UK’s former business secretary, Told The Times, urging his successors in Westminster to “watch carefully”.
Depop is a real phenomenon among eco-conscious and fashion-conscious young people thanks to its mix of Instagram, eBay and chic charity store. It’s a great fit for New York-based Etsy who needs younger users and can share their expertise in operating an online marketplace for creative types.
But its sale does not raise quite the same strategic issues for the United Kingdom as the loss of a deep-tech innovator such as the British chipmaker Arm, initially acquired by SoftBank in 2016 but which is the target of ‘a $ 40 billion offer from Silicon Valley. based on Nvidia. Given that Arm’s technology powers nearly every smartphone and more, it makes sense for regulators to review Nvidia’s takeover bid.
The Depop issues have more in common with those surrounding the sale of British artificial intelligence pioneer Deepmind to Google in 2014 (when Cable, by the way, was the UK’s business secretary). Did Depop sell too early?
That may or may not be the case, but Depop and its sale are part of a more positive underlying trend in UK tech. When the company was founded in 2011, a billion dollar internet deal was something most London founders and tech investors could only dream of. Industry meetings at 10 Downing Street were held to discuss how to design this ambitious outcome for more start-ups.
In the decade since Depop’s inception, the UK has produced more than 80 companies valued at over $ 1 billion, according to the Digital Economy Council and the Dealroom market tracker. Technology investments in the UK increased tenfold between 2010 and 2020, from £ 1.2bn to £ 11.3bn.
“People don’t sell. They collect more money and get bigger and bigger “while staying private for longer,” says James Wise, partner of British tech investor Balderton and investor in Depop.
While UK venture capital buyouts total € 7.1 billion so far this year, according to Dealroom, investment in start-ups is over € 12.4 billion. ‘euros. This is already approaching the total of 13.9 billion euros for 2020 in one year when 7.9 billion euros of technology deals were concluded.
Even in areas of traditional weakness for the UK, such as funding at a later stage, there are signs of improvement. Just this week, Balderton announced a new $ 680 million “growth” fund explicitly designed to help founders turn down premature takeover bids. “A lot of people are now building $ 5 billion to $ 10 billion businesses that historically should have sold,” Wise said.
Another nuance to the debate over whether the UK sells too early is that taking Silicon Valley money doesn’t always have to be a bad thing.
Venture capitalists say it’s often first-time founders who fold when presented with a multi-million dollar offer. But many of these start-up entrepreneurs soon leave the big companies that buy them out to start over. Next time around, they have the experience and the personal financial security not to sell so quickly.
“We have seen this cycle repeat itself over and over again,” says Simon King, partner at Octopus Ventures. Alex Chesterman is the UK poster child for this kind of thinking. He sold the movie rental site Lovefilm to Amazon for £ 200million in 2011; its Zoopla real estate site went public at a valuation of £ 1 billion in 2014; now he’s in the process of going public with his $ 8.1 billion used car site Cazoo.
Cazoo has chosen to be listed in the United States, through a special purpose acquisition company, rather than doing an IPO in London. But despite being listed in New York, Cazoo will retain its headquarters in the UK, where it employs nearly 2,000 people. Etsy also pledged that Depop would remain operationally independent, retaining its London office and current management team.
Any threat to block the Depop deal is likely to spark a fierce backlash from UK tech investors, who would argue that the ‘right to be acquired’ is more important to the long-term health of UK tech than stance. more traditional protectionist. .