The UK cannot afford to waste its DeepMind dividend

Bizarrely, one of the most energising things happening in Britain right now was barely mentioned during party conference season. Nor is it much discussed by institutional investors. Despite the ambient indifference of Westminster and the City, Britain has built the world’s third-strongest innovation economy over the past 15 years. And now a new generation of entrepreneurs is busily launching scores of ambitious AI-enabled start-ups.

The latest ranking, published last week by Sifted, the FT-backed media group that I co-founded, shows that 32 per cent of the 250 fastest-growing, early-stage start-ups across Europe are from the UK. They follow previous cohorts of venture capital-backed British companies that are growing robustly. Silicon Valley is not the only place to play the VC game. On some measures, the pooled returns of British VC firms, investing between 2020 and 2024, outstrip those generated over the same period by their US peers, according to the British Business Bank.

Given how fast technology is evolving, the next 12 to 18 months may be critical for determining whether these British start-ups flourish or fade. The hope is that some can seize the moment, diffuse the benefits of AI across different industries, revitalise the British economy and emerge as global players. Fast-growing London AI start-ups, such as Wayve, ElevenLabs, Synthesia, CuspAI and PhysicsX, are already promising to transform industries as varied as autonomous driving, audio and video generation, material science and engineering.

But the risk is that another wave of the country’s most ambitious entrepreneurs will decamp to the US. Faced with rising taxes and energy costs at home, they may prefer to join the west coast’s AI-driven gold rush.

Much of the credit for turning London into a global AI hotspot goes to Sir Demis Hassabis, the Nobel Prize-winning co-founder of Google DeepMind. Founded in 2010, DeepMind rapidly became the leading AI research company, attracting talent from around the world.

Massive injections of capital, computing power and data, following the company’s acquisition by Google in 2014, enabled DeepMind to pioneer some of the machine learning techniques powering the latest AI surge. But Google is increasingly shifting its AI focus back to California, triggering a series of departures from DeepMind in London.

What happens to these alumni may be one of the most important strategic issues facing the country. Zeki, which tracks AI researchers, has found that DeepMind remains a big talent magnet in Europe. But more researchers have left to join rivals Anthropic and OpenAI than the other way around.

Hassabis, who remains chair of Google DeepMind, is also chief executive of its London-based spinout Isomorphic Labs, which has raised $600mn to accelerate drug discovery. Several other former DeepMind researchers have launched labs.

Most notably, David Silver has founded Ineffable Intelligence, which has raised a record $1bn seed round to explore ways of reaching “superintelligence”. DeepMind’s former principal scientist Tim Rocktäschel has co-founded Recursive Superintelligence, raising more than $500mn. DeepMind alumni are also behind three other ventures: Emulate, Revolution Labs and Metis Reasoning.

“I think this is a great moment for London. There is a lot of very interesting . . . activity across a wide spectrum of ideas,” says one former DeepMind researcher working on a new start-up. “The DeepMind dividend is incredible.”

Some of these start-up founders complain that non-compete clauses make it harder for them to hire from big US tech companies. But the government is working “extremely rapidly” on a solution, Kanishka Narayan, Britain’s AI minister, said last week. He has also promised the government will place more contracts with UK start-ups.

The lack of domestic growth capital is another industry bugbear. Behind the scenes, successive governments have helped improve financial support systems, says Saul Klein, chair of the investment group Phoenix Court. The British Business Bank has been expanded, local pension funds are being consolidated and 17 fund managers have pledged to increase domestic private-market investment.

But, to date, domestic capital is only trickling in. It mystifies Klein why US, Canadian, Japanese and Singaporean investors are more enthusiastic backers of Britain’s young companies than the country’s own institutional funds. An obvious investment opportunity lies under their own noses. It would be tragic for Britain if they fail to act.

john.thornhill@ft.com