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A London-based virtual reality firm has raised $500m (£388m) in one of the biggest investments in an early stage European technology business.

Japan's Softbank is backing Improbable in a funding round that values the business at more than $1bn.

The deal is further evidence that the UK's technology sector can now compete with the best.

There may also be relief that despite the cash injection from Japan, Improbable will stay independent.

Improbable was founded just five years ago by Herman Narula and Rob Whitehead, who had studied computer science together at Cambridge University.

Their aim was to build large-scale virtual worlds and simulations - mainly for games developers but also for other clients who could use them in applications such as modelling transport systems.

The company believes it has developed revolutionary technology with its Spatial OS operating system, which it has opened up to other developers. It has partnered with Google to put its system on the search giant's cloud, allowing small developers to create massive simulations without much infrastructure of their own.

Mr Narula's ambitions for Improbable are of a kind we are more used to hearing from Silicon Valley than in the UK. "Our vision," he says, "is to create completely new realities, massive virtual worlds that can change the way we live and work and can impact the way we understand some of the hardest problems."

Softbank has obviously bought into that vision because it is paying a very high price for a relatively small business that is still loss-making. Improbable did get an investment of $20m two years from the ritzy Silicon Valley venture capital firm Andreessen Horowitz. It has used that cash to fund expansion and now employs nearly 200 people but still has relatively scant revenues.

But for Softbank's chief executive, Masayoshi Son, this is just another step in his mission to become a major force in global technology. He is finalising his $100bn Vision Fund with backing from the Saudi government as well as Apple. The Improbable deal is not part of that fund, but could be offered to its investors at a later date.

Last year Softbank swooped to buy the chip designer ARM, the jewel in the crown of British technology, paying a 43% premium to take control. What is different this time is that $500m - roughly what Google paid to buy another young UK technology star, DeepMind - does not give it a majority stake in Improbable.

And Mr Narula was very clear that he and his colleagues had been determined to stay in control. "Retaining our independence was something we talked about in a bar five years ago," he told me. "I'd like to see a British company - maybe us - get to the level where we could be a world-leading platform."

Time and again, we hear the same lament: that Britain has great universities turning out lots of clever start-up technology firms, but we lack the ambition to stay the course rather than sell up. Perhaps Improbable can build a world where a British technology firm can match anything coming out of Silicon Valley or China.