Can Britain ever build its own Silicon Valley?

Ever since the advent of the internet, respective British governments have sought to make the UK a world leader. Surely, it has been argued, a country with some of the world’s best universities and tech skills can rival America’s success? From the coalition-era Silicon Roundabout to more recent plans for a British DARPA (the US military body which has supercharged scientific research), the idea of turning Britain into a tech superpower remains an evergreen fixation.

This year has seen two big tech debuts in the city, albeit with slightly different results. The much-hyped arrival of takeaway giant Deliveroo, for example, turned out to be a bit of a flop, with shares falling 26 per cent, from their flotation price. And then came Darktrace, whose shares jumped 50 per cent to give it a valuation of more than £3 billion. Between these two stories, there are clues as to what Britain can do right.

In a special edition of The Spectator’s podcast, Fraser Nelson talks to one of the Darktrace founders, Mike Lynch, about the British tech conundrum. Why do so many tech successes sell out to Americans, or go to America? What were the factors that led to Darktrace? And what does Lynch think about his own situation: an extradition request by American authorities for his role in the sale of Autonomy (which its American buyer claims was falsely valued).

The discussion starts with Darktrace: a project which began as a collaboration between Cambridge mathematicians and former intelligence officers. It has long been touted as a future unicorn and its recent IPO did not disappoint. ‘It’s a thoroughly British success story,’ says Lynch, shortly after arriving at The Spectator’s offices in Westminster. Its USP he explains, has been to apply the vast potential of artificial intelligence and machine learning to identify suspected information security breaches. ‘When it goes into a large company, 75 per cent of the time, they find something really nasty lurking in there — even if that company has put all the protections in place. That’s the basis you have to work on now. That there’s probably something inside already.’

His thoughts on Britain’s wider tech sector, however, are more nuanced. ‘The thing to understand about Britain is that we have the most amazing science and technology base — it really is second to none,’ he says. ‘If you go to Silicon Valley, you’ll be surprised how often firms will have a Brit as their head of engineering.’ In some cases, they may even have started the company. The $27 billion unicorn Slack, for example, was co-founded by a British ex-pat. 

What we’ve been less good at is generating our own Slacks, Zooms or Palantirs. Though that’s not, Lynch insists, because of any shortage of decent brains. ‘Britain actually has a phenomenal start-up scene and plenty of good mid-sized companies,’ he explains. ‘What we’ve not been so good at though is turning that into companies with a larger economic impact.’ He points to the recent acquisition of Cambridge Quantum by the American industrial giant Honeywell as a typical example. ‘When companies get to a certain size, they often get bought up by an American company. What we’ve got to do now is fix that part of the process. Namely, how do we stop those companies that have proved their technology being bought by someone else?’

But isn’t that just an inherent part of the global free-market — that companies can make acquisitions from elsewhere to expand their business? And in any event, aren’t these kinds of big money deals essential to help British businesses scale up their vision in the first place? ‘That’s an argument I hear a lot in the UK,’ says Lynch. ‘And I think that’s because a lot of people don’t really understand how tech works.’

Rather than helping British firms thrive, he says, the Silicon Valley acquisition model has actually led to frustrations within the smaller businesses, which often find themselves with little decision-making power within their new corporate structure. ‘Look at DeepMind and their ongoing argument with Google. What tends to happen is that the centre of gravity shifts to the US,’ Lynch says. ‘You might have a research and development lab over here, but all the decisions are made in Silicon Valley. I had a friend who ran part of Yahoo! in Europe who used to say they were involved in decision making less than the receptionist over in Silicon Valley.’

According to Lynch, there are consequences, too, for UK PLC. The loss of potential tax revenue for one, but also the haemorrhaging of value from our own tech sector, which would seek to reap the benefits if these companies were able to grow here. ‘If these companies were to continue to grow here, they’d also be doing all the marketing and sales over here — which are the kind of skills we need to add to our science base.’ Likewise, as has been the case in California, those companies may also go on to produce the next generation of founders: thus enabling the cycle to start all over again. 

Then there are the more sobering arguments around national security. Like many tech types, Lynch is conscious that technologies such as artificial intelligence and cyber-security have become intrinsically linked to fundamental questions around state and sovereignty. The UK government, he says, has been slow to appreciate the significance of this: allowing its technologies to be bought up by overseas buyers. ‘The kind of stuff that Darktrace does is critical as a strategic technology. It’s just as important as jet engines for example — and look at the strategic value we put on Rolls-Royce as a company.’

This isn’t just a point for China hawks and tech ethicists, nor an attack on the free market, but one with immediate consequences for the government itself. ‘Some 99 per cent of the time everything can just go forward as normal,’ he says. ‘The government doesn’t need to intervene. But there are certain things that are so fundamental to the future that we do have to keep an eye on them and we need to think a little bit differently in the UK.’

‘An interesting one is the NHS data debate,’ he adds. ‘We’re getting to the point where we decide that researchers should have access to NHS data to come up with great healthcare solutions, but we’re not thinking about it strategically. What happens if it leads to a foreign company developing a new drug and then trying to sell that to the UK. We haven’t even put in a control to say that, if you use our data to make a product, the NHS should get the best price.’ It’s this sort of joined-up thinking, he says, which will ensure the UK maintains its competitive advantage in a tech-driven world.

Britain’s aim, he says, shouldn’t be to try to copy Silicon Valley but instead look to have around ten or so large companies on the FTSE within the next few years. ‘We have the difficult part done already. We have a phenomenal science base. Look at what we’ve achieved on the vaccine, for example. The issue has been how we turn that into economic impact and ultimately tax receipts for the UK. But when it comes to the people and the talent — well, we already have that.’

Through his own firm, Invoke Capital, he hopes to play a role in providing angel investment to more would-be tech giants. Right now, though, the champion of Silicon Fen has a more immediate concern: fighting his extradition to the US where he believes he would spend years in prison before even answering allegations of corporate fraud (allegations he has denied in court wrangling over the last decade). He doesn’t believe he’ll get a fair trial: ‘The important thing to understand about the US justice system is that it has a 97 per cent conviction rate. People assume the system works the same as it does here, but it doesn’t.’

He’s extremely critical, as you might expect, about the UK’s extradition treaty with the UK. ‘It was a treaty that was agreed by Tony Blair and it was supposed to be the same in both directions. And when the Americans saw it, they thought it was so unreasonable that they refused to ratify it. So what we actually have is a treaty that is different in each direction. What a lot of people don’t realise is that there’s pretty much no defence to an extradition request. If you fight it, the American default is to put you in jail for two years before your trial anyway. It fundamentally needs changing. We shouldn’t have accepted it in the first place.’ It’s time, he says, for the government to review the situation. ‘It would be too late for me – I’ll have to fight it in court either way,’ he adds. ‘But there has been lots of coverage about how the US uses its justice system around the world to enforce its economic interests.’ 

If allowed to stay in Britain, Lynch hopes to continue to focus full time on his tech investment portfolio, with Invoke already investing in a number of AI-focused companies, from start-ups to emerging disruptors. He remains hopeful there might be another FTSE launch on the cards before long. With an estimated 700 unicorns worldwide, the race to find the next one is on.