07 JANUARY 11
by JAMES SILVER
David Cameron wants to boost London’s startups by building a “Tech City” on the Olympic site. Will it work?
The seed of David Cameron’s vision to create a new “Tech City” on the Olympic site in east London was planted last July. It was the final night of a UK trade mission to India, and Rohan Silva, senior special adviser to the prime minister, was with Matt Webb, MD of design consultancy BERG, whom Silva had invited on the trip. The pair had spoken briefly a couple of times, but it was only on the final night, in a Delhi hotel lobby after a UK Trade & Investment reception, that they finally had what Webb calls “a proper conversation”. “I asked Rohan for advice on a topic that was really stumping me,” says Webb, whose firm is one of around 100 tech startups in the vicinity of Old Street — mapped in Wired last February — that has come to be known as ” Silicon Roundabout”. “What could I do to help this cluster ignite?” Webb asked. “How could I kickstart more events, get more people into the area to create a virtuous cycle of startups, talent and money? When recovery comes, it won’t come from Tesco hiring a million people. It’ll come from 10,000 small companies doing their bit.” Silva was intrigued.
“Matt said that there isn’t a Silicon Valley-type ethos in Old Street where you all come together,” he recalls. “So he asked if we could help. I met people from Silicon Roundabout, as well as from the broader tech and investment sector, and put together proposals with them that might make a difference. I must have had over a hundred meetings with people ranging from Eric Schmidt from Google, [Apple designer] Jonathan Ive and [Skype cofounder] Nick Zennström, to small-scale investors and startup companies. And we just kept talking about this stuff.”
Four months later, at a November 4 “Innovation Future” networking lunch in the Truman Brewery on Brick Lane, the prime minister pledged the coalition’s ambition to transform London’s East End into a world-beating technology hub.
The initiative, presented to an audience packed with tech entrepreneurs and investors, was, Cameron said, part of a push to “create new jobs, diversify the economy and support sustainable economic growth”. Insurgent companies were taking advantage of “thousands of new innovations and millions of new consumers to generate billions in revenue. Right now, Silicon Valley is the leading place in the world for high-tech growth and innovation.” Yet why should it be dominant? “Something is stirring in east London,” Cameron said, name-checking startups such as Songkick and Last.fm. It could soon be “one of the world’s great technology centres”.
His government pledged £200 million to build technology and innovation centres, one of them in the Olympic Park. More than a dozen tech giants — including Intel, Google, Cisco and BT — would invest in the area, along with a clutch of universities. The zone would stretch from Shoreditch to Stratford, where the Olympic Park media centre would become an “accelerator space” offering cheap, flexible offices for startups and tech firms that would be, in Silva’s words, “fibred to the nines”.
Yet within hours The Guardian’s digital content blog dismissed the plans with the headline “Tech City: the Tories’ corporate, top-down vision for UK tech”. And the editor of Computer Weekly, Bryan Glick, blogged that the challenge in growing the next Google had nothing to do with geography.
Did the doubters just not get it? Or was there a flaw in the plan?
Glick wrote: “It’s not about location, it’s about business culture. Autonomy and ARM [in Cambridge] are rare examples of British tech successes that have managed to stay independent — but both are regularly cited as possible acquisition targets for US or Asian giants. If a smart company — whether they are in Shoreditch or Swansea — came up with an idea that just might be the next big thing, how long before they are snapped up by Silicon Valley? It’s no surprise that Cisco and Intel were involved — they are two of the most voracious buyers of clever startups.”
Alex Deschamps-Sonsino, CEO and cofounder of Shoreditch design agency Tinker London, warned the PM to “leave the East End alone”. In a satirical post on her Designswarm blog, headlined “The politician’s handbook to East London”, she pointed out that “Stratford isn’t near Old Street” and that if “you fill east London with people like Google, Facebook, Intel etc the value of property will rise, and all the creative people will move to emerging creative areas like Bermondsey and New Cross.”
Some venture capitalists were sceptical too. “Startup hubs generally start in places you’re not looking,” says John Lilly, a venture partner at Greylock Partners (whose investments include Facebook and LinkedIn) and former CEO of Mozilla. “They often start in places nobody else wants to be, as they’re very low cost. They rarely start because Apple or Google or Intel has a huge outpost nearby. The role of government should be to get as many structural barriers out of the way as possible, so that entrepreneurs can do their thing. That might mean reforming bankruptcy laws to make failing more palatable. It might mean reducing the requirements on angel investing. And it might mean reforming the law so that London becomes a great and easy place to bring in technical talent from around the world.
“Tech hubs are rarely created by government and almost never by the offer of free office space. They’re almost always created by governments knocking down impediments to starting and growth, and then letting entrepreneurs take care of the rest.”
Lilly isn’t alone. On stage at the Founders tech gathering in Dublin last October, Sean Seton-Rogers, general partner at PROfounders Capital, suggested that tech clusters cannot be formed simply by building an enterprise park and expecting business founders to flock to it. Cameron’s vision, Seton-Rogers said, would be “dead” if it failed to tap in to entrepreneurs’ genuine needs, and if it ignored the reasons why so many startups have colonised Shoreditch — namely, affordable rents and a local ecosystem where connections are easily made.
Brent Hoberman — cofounder of Lastminute.com, founder of mydeco.com and investment partner at PROfounders — feels it’s important to have American corporate giants such as Google and Intel on board, but acknowledges the need to get British and European companies involved. “I’m not a protectionist,” he says. “But in some areas, big US companies can actually threaten UK innovation. For example, I’m not sure holding [the recent launch of] Global Entrepreneur Week in Google’s London HQ sends out the right message. The best way to have tech clusters is to make our home-grown businesses more successful, so they engender their own ecosystems. The value of those successes is that they create more success. On a tiny scale, we’ve seen it with Lastminute.com, which has spun off about 20 [startups].”
The term Silicon Roundabout was coined by Dopplr’s Matt Biddulph, who created a Google Maps snapshot of the companies in the area (including his) in July 2008. There were just 15 on Biddulph’s map. By the time Wired published an updated neighbourhood map last February, we had identified 85 startups and local digital businesses around Old Street and Shoreditch. Today, the consensus is that there are around 150 such firms there, including branches of foreign firms. Wired spoke to and exchanged emails with 15 tech firms in the neighbourhood — the sort of people David Cameron hopes will make the move to Stratford as they outgrow Shoreditch.
We heard widespread praise for the Government for identifying the potential of London’s startup hub, yet there was deep scepticism too, particularly about the proposed accelerator space in Stratford. “The Old Street area has good infrastructure in terms of bars, restaurants, cafés and some level of culture,” said Ryan Hall, joint MD of Worship Street-based digital shop Nice Agency. “The worry would be that if you shipped people outside that hub, then you detach them. I’m from the north of England and I’ve seen a lot of incubator spaces set up outside of the city centre. They always just felt stagnant to me. That would be my worry about sticking a load of people at the Olympic Park site.”
Deschamps-Sonsino even has reservations about the term “Tech City” itself, which she argues smacks of central-government-speak. “That name will scare off any creative people. Old Street is connected and convenient, there’s an existing community — it’s not one you’re trying to create from scratch.”
One of the 15 startups on Biddulph’s map, Trampoline Systems, specialises in social-analytic software. CEO Charles Armstrong applauds “a bunch of good initiatives”, such as new entrepreneur visas, a review of the patent system and the roll-out of superfast broadband in Shoreditch and Old Street. But for him the accelerator space in Stratford is “where the wheels start to come off the idea”.
“Old Street is one thing: you’ve got this clear historical process,” Armstrong says. “In the 80s it became a cluster for the printing industry. Graphic-design businesses grew out of that and as a result Curtain Road, Shoreditch, became the epicentre of our dotcom boom. To take that natural phenomenon and then say there’s going to be a Tech City stretching from Shoreditch to Stratford — that’s just not a logical step.
“Cameron has the foundation of a good idea — recognising this is where the UK tech startup scene is concentrated — and a bunch of sensible initiatives. But they’ve got mixed in with a policy fig leaf, which is really about this embarrassment over the Olympic legacy. I’m afraid what you’re going to see in Stratford is business parks with tumbleweed blowing through them.”
Unsurprisingly, Armstrong would not be tempted to move. “I wouldn’t, for all the reasons that it was great for Trampoline Systems to be established in the Old Street area: the complex infrastructure that developed as a result of that progression from the 80s onwards — the bars, the clubs, the galleries, the parties, all the cultural phenomena that don’t have anything explicit to do with a thriving tech scene. Yet they create the quality of life and social melting pot that underpin a successful tech community. You can’t create those out of thin air or by bringing in a handful of big businesses.”
Others in Old Street are far more enthusiastic. Christian Ahlert, the organiser of MiniBar, a monthly tech meet-up in east London with 3,500 members, gave Steve Hilton, Cameron’s powerful strategy chief, Silva and a group of VCs a tour of Shoreditch tech firms. “I found it quite unusual that they would call me up and say, ‘Can you show us around some startups?'” he says. “They came out here, we sat down with a couple of entrepreneurs and they were pretty frank in saying, ‘Just tell us what sucks.’ It’s easy to make out that it’s a top-down approach, but they realised they needed to listen to people on the ground and ask them what works and what doesn’t.”
One of the entrepreneurs who met the Downing Street team was Alex Halliday, cofounder of SocialGO, a company that builds social networks. “The Government is under no illusion that it can manufacture what is an organic process,” he says. “It understands that what it needs to do is create the conditions for success. Will it create a carbon copy of Old Street? Absolutely not. But what it might do is create a space where the next generation of startups comes from.”
Glenn Shoosmith, founder of bookingbug.com, lives close to the Olympic Park. He has no doubts about its viability as an accelerator space, and says that people who claim Stratford is too far east have probably never been to Silicon Valley. “If you go to the Valley, you’ll see it stretches for miles. It takes an hour on the train to get from South of Market [San Francisco] to the bottom of Palo Alto.
“The reality is people go between the two all the time. You need both in London. You need the tech companies in the new Olympic Park, you need the hot new startups in Shoreditch, and you need to make it easy for people to commute between the two.”
A second drawback cited by some of the Old Street digerati is the presence of big US companies in a putative tech hub. Intel, for instance, says it will launch a new research lab in east London; Facebook will create a permanent base for its Developer Garage programme; Cisco will open an Innovation Centre in the Olympic Park; Vodafone plans an offshoot of its Vodafone Ventures global investment fund; and wireless giant Qualcomm will provide expert advice to startups on IP. “It’s a good idea to try to bring the tech community — including big companies — together in one location, rather than just set up some science park in the middle of nowhere,” Shoosmith says. “The concern is that these companies will put a sales team there, not tech or engineers. You need innovative technical people who work for one of the big companies for a year or two before leaving to set up their own startups. That’s the culture you need to engender.” Another concern raised by Silicon Roundabout startups is whether Cameron was wise to draw a parallel with Silicon Valley in the first place. “The fixation with Silicon Valley is incredibly damaging not just for the British startup scene, but in general for Europe,” says Armstrong. “The way a phenomenon like that develops is so contextually specific. In the case of Silicon Valley, and Israel too, it’s absolutely clear that the starting point was a massive defence industry investing in that area, which created a university system of a particular kind and a certain technical base. Unless the Government is planning on creating a huge weapons programme in Stratford and then waiting for 40 years, then it’s mad to be fixated on that model.”
Although the Silicon Valley comparison is unpopular with many of those we canvassed, most pointed out that, when it comes to venture capital, the UK can learn from California. The lack of VC money invested in London startups, compared with California, is the single biggest barrier to the UK spawning the next tech multinational, many said.
Shoosmith argues that London-based VCs and even angel investors are risk-averse. “Over in the Valley, they’ll happily put a couple of million dollars into a very early-stage business to see if it works,” he says. “That culture started because they have those successes. If you go to Seattle, it’s full of millionaires from Microsoft who put money back into tech. We don’t have that here.”
According to Mark Esiri, of private investment firm Venrex, there is a great deal of VC cash available in London, but investors simply struggle to find the right startups to back. “There’s certainly a mismatch between the capital and the startup,” he says. “I do early-stage investing and we’ve got an investment in one company, notonthehighstreet.com. Their first money was raised because the founder happened to bump into somebody while on holiday in the south of France. There’s no formal mechanism for accessing the capital, but there is capital available.”
Esiri argues that government could play a match-making role. “Government could certainly put startups together with VC firms,” he says. “One of the things that is likely to happen in this expansion of Silicon Roundabout is that there will be more venture-capital firms locating there for that reason. We’re considering opening an office in the East End. And if you’re attracting satellites of leading VCs around a cluster of tech companies, you’ll end up attracting the capital.”
Silva admits that a lot more needs to be done, but says that Number 10 will keep hosting meetings with a core group from Shoreditch and convene events with organisations such as Google, VCs and other potential tech backers. “We’re convinced that if we keep up the momentum, great things will happen,” he says. “And we can say that because they already are.”