For the ninth year running GP Bullhound is publishing its annual Technology Predictions report, a comprehensive report outlining what we expect 2016 to bring. This year our predictions range from virtual reality to drones to end-to-end software services and deskless workers. In this article we have highlighted a few of our predictions that are relevant to this region.
Silicon Valley venture capitalist Aileen Lee famously coined the term “unicorn” in 2013 to anoint tech companies reaching the elusive $1B+ valuation club. We anticipate a number of unicorns to drop below the $1B+ valuation plateau in 2016. The first visible valuation strains of privately-held unicorns were seen late last year when fund manager Fidelity announced it was writing down some of its high-profile tech investments such as Dropbox, AppNexus, and Zenefits by as much as 25%. With logic-defying valuations which are inflated by any rational measure, many would-be acquirers cannot justify a price to acquire these unicorns in their current state.
Whilst there may be a watchful eye on “unicorpses”, there are a number of businesses in the North with great potential that could add to the unicorn club in 2016 – we have previously labelled these as “foals”. One of the foals, NCC Group plc, an international provider of information assurance services, recently advanced to the FTSE 250 with a market cap of over £800m following successful acquisitions combined with strong organic growth. Perhaps, before too long, we will soon be able to boast another unicorn in the North.
Alternative lending will continue to shine in the fintech sector. Unlike its traditional lending counterparts burdened with stifling regulation, antiquated processes and high overhead costs, alternative lending providers have no need for reserve requirements and are leveraging technology to enjoy a refreshing nimbleness.
Traditional banks are getting increasingly nervous about the success of alternative lending platforms that are threatening to cut them out of their long-held dominance in the lending business. Jamie Dimon, CEO of JPMorgan Chase, famously warned shareholders in his annual letter in 2014 that start-ups are coming for Wall Street.
This trend has had a strong impact on the North and is highlighted by the success of Macclesfield and Manchester based Zuto. At the start of 2015 Zuto had just under 250 employees, by the end of the year it had increased to over 325. Nostrum Group, the Harrogate-based providers of digital lending technology, has also enjoyed strong successes and were recently named in the Deloitte 2015 Technology Fast 500 EMEA.
Along with the likes of MarketInvoice & CrowdCube, who have both set up offices in Manchester, Zuto and Nostrum have proven that the North is contributing to the disruption of the finance sector.
We expect to see that 2016 is the year that advanced cyber security solutions for the enterprise become ubiquitous and a must-have for business operations. The frequency with which embarrassing and large scale cyberattacks have been happening over the past year has increased dramatically. Ashley Madison, the online dating site for married people, was one such victim of so-called “Hacktivism,” and more recently the well documented plight of telecoms giant TalkTalk caused a large amount of negative goodwill when over 15,600 customer account numbers and sort codes were stolen.
Lloyds estimates cybercrime will cost businesses $400B a year, and JP Morgan, itself a victim of a high profile cyberattack in 2014, is said to have set aside $500M in 2016 for combatting cybercrime. According to CB Insights, in the past two years alone investors have plunged $4.6B into cyber security companies.
Avecto, the privilege management software solutions provider based in Cheadle, is a great Northern example for international investors showing the appetite to invest in high quality assets, having received $49m investment in December from JMI Equity, a U.S based private equity fund. On the back of a record year in 2015 with revenue growth of 70% and further investment to fuel future growth we expect Avecto will continue to fly the flag for the North and challenge global players in the endpoint security market.
Overall, we believe that 2016 will be another strong year for tech companies in the North. For several years, the main frustration for the Northern technology ecosystem has been the lack of funding available in comparison to London. In 2015 we saw a continued growth in the level of interest in the region by investors as they all strive to uncover the hidden gems that have previously gone unnoticed. With plenty of Northern businesses showing great potential we expect to see investors jump on the train from London more often. We hope this will transfer to an increased level of investment in 2016.
2016 Tech predictions for the Northern Powerhouse
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