Delighted for the Swiftkey Founders. Here is a good piece on what Swiftkey's acquisition means for UK Tech Exits.

Microsoft is acquiring London-based SwiftKey, a predictive-keyboard app maker, for a reported USD250m, which represents a good exit for the two founders and its investors, which had pumped USD21.59m into the company to date. Powered by artificial intelligence (AI), the app fits neatly into Microsoft’s ongoing attempts to build up its mobile and productivity services, as well as its AI and language recognition capabilities. SwiftKey will continue to function as normal with Microsoft saying that it will, “explore scenarios for the integration of the core technology across the breadth of our product and services portfolio.”

SwiftKey At A Glance

 Founded in 2008 the app now powers around 300m Android and iOS smartphones’ keyboards.

  • It does not currently offer a version for Microsoft’s Windows mobile operating system.
  • The firm had raised USD21.59m to date, primarily from Accel, Index Ventures and Octopus Ventures.
  • Microsoft reportedly beat off other buyers to the company, including Apple.

The acquisition comes as another sign of UK companies attracting attention from US acquirers. In particular it shows the region’s strength in building AI-powered services with Google buying Oxford University spinout Deepmind for more than USD500m and Apple last year picking up AI speech company VocalIQ.

“This is a great validation of UK Tech. We have a fantastic group of innovative and exciting tech businesses in the UK and SwiftKey is a great example of the ambition and potential of these companies,” says Jo Oliver of Octopus Ventures, one of the SwiftKey’s first institutional investors. “SwiftKey has grown from an idea between two friends to a globally successful tech company, with its product being used by over 300 million smart phone users over 100 different languages, in less than 8 years.”

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UK Acquisition Overview

  •  In the UK there were 55 acquisitions in 2015, with more than USD35.5bn changing hands in disclosed deals, according to PivotlIQ.
  • That figure is boosted significantly by deals such as BT’s acquisition of rival telecom EE for around USD19bn.
  • 19 of the total number of UK deals saw a US firm acquire a UK company.
  • PivotlIQ tracked 21 acquisitions by Microsoft last year with Berlin to-do list app Wunderlist the only European buy.

Cross-Pond Buying

SwiftKey’s acquisition highlights the UK’s growing ability to build companies and teams that are of interest to US companies. Strong exits such as this also encourage ecosystems for a couple of reasons:

Makes Investors Less Cautious

European investors are often thought to consider revenue more important than their US counterparts. But SwiftKey never really arrived at a solid business model. It originally charged USD3.99 for its app, but in 2014 opened it up for free instead offering personalisation features for a small fee. It also made deals with Samsung and BlackBerry for the app to come pre-installed on their devices. However, by and large it was not a massive revenue earner. Its exit could encourage more UK investors to take risks on businesses with impressive tech, but less clear routes to profit.

Confidence in Funds  

At a time of slowing tech IPOs, with zero in January, exits like this gets more money back to funds and their investors. It could encourage more pension funds, life insurers and others to become LPs in European tech-focused funds, knowing there are big returns available.

More Money In the Ecosystem

SwiftKey’s founders Jon Reynolds and Ben Medlock will reportedly make USD30m each from the deal, having held onto a substantial minority stake. The buyout will give them and any employees with stock the money to potentially act as angel investors offering advice and capital to London startups.

No Local Exits

The deal shows the UK’s growing strength in AI and it, as well as the likes of Deepmind, highlights the role of the UK’s academic institutions in building startups. However, that acquisitions such as these are coming from US firms may indicate a dependency of sorts on deeper-pocketed firms from across the pond. That Apple and Microsoft reportedly competed for SwiftKey showcases an ability to build world-leading tech, but suggests a lack of options domestically. Many would like to see more UK and European companies remaining independent and rivalling, rather than folding into, US firms.