Investors back #TechCity – Concentration of startups "will attract" capital

The debate about the government’s latest announcements, intended to help stimulate the high tech startup sector, has been raging in our comments. Just to re-cap: the governement plans to effectively “brand” East London as a “Tech City” high tech hub of technology companies, re-work the Olympic Park after the 2012 games as a space for tech companies, introduce a Startup Visa, review IP laws to make it easier for the new wave of tech companies which rely less on patent law, and a number of other initiatives including £200m of equity finance (though the devil is in the detail on this last point).

Speaking as someone who has observed various “government initiatives” towards the technology sector, I’m overall positive about these moves. Frankly, anything which draws attention to the tech sector, especially startups, is a good thing.

Contrast this with the moment this March when the last government said they would create an “Institute of Web Science” for £30m back in March, this seemed like a nice gesture, but, frankly it wasn’t something aimed at tech startups or the creation of jobs. We were going to get more open government data – this is happening anyway – a bit more broadband rollout and a Number 10 iphone app for £1.19.

The new government’s “TechCIty” initiative and other new policies are another kind of “start”. No mention was made of addressing more fundamental business issues, like reducing capital gains tax which would open up access to more early stage capital or any other startup-oriented policies like an easing of employment obligations for small companies or simplifying the corporate tax code. Those are battles we’ll have to continue to fight.

But it’s the TechCity idea which seems most intriguing, and I’ve been wondering what the venture capital and Angel community thinks about the initiatives. Would they care about the new policies? Do they actually care where the startups they invest in are located?

A handful left comments on our earlier coverage but they are worth repeating here. Why? because they largely back the idea of clustering tech startups because it is easier to make investments quickly. Plus, this cluster may foster bigger ties with other clusters around the UK. That at least is one intepretation.

Reshma Sohoni, CEO, Seedcamp commented:

We’ve invested across 17 countries in Europe in the past 3 years and one of the biggest takeaways is the importance of hubs and of continuing to grow those hubs. London is becoming this hub but isnt’ there yet and Europe will be stronger for having London as a Tech City. More local initiatives are needed but it’s important to tie them into the strongest ecosystems such as in the US and also in London, Berlin, and Paris. Speed is one of the crucial factors in helping startups and we’re all for initiatives that increase the speed with which startups can grow. All the comments on here about funding are fair but this is about what the government can do and they’ve started in the right direction.

Stefan Glaenzer, WhiteBearYard Angel and former backer of commented:

Great discussion, agree with many points (too many to mention), and would bold underline the missing university link.
From an investors point of view there are big advantages in a high density of talent and vision. And of course I´m a big supporter of the east end, having chosen whitebearyard as our main base. Looking back to my investments out of the last 18 months: 22 investments, thereof 9 in London´s east end and 7 in Berlin Mitte, all others over various places. My involvements/engagement is actually so much more efficient and enjoyable (well, you should ask the founders whether this true) in the two main clusters. We should work on stronger links between London/Berlin and London/NYC. If we are able to combine forces with these places, have a deeper exchange of thoughts/talent and add understanding/serving Asia to our ecosystem we might end up of building anything deserving the attribute ‘Silicon’ in a combination other than ‘Valley’. Its a long way to Tiparillo, but hey, lets do it.

Katy Turner, Associate with Eden Ventures commented:

I agree with Reshma and Stefan. Fostering hubs such as this in London can surely only be a good thing in terms of helping drive further such hubs across Europe. If the model can work here then it can work elsewhere (in UK or outside of it). Given the geographical dispersion of Europe along with the cultural diversity, we are never going to replicate Silicon Valley here in every sense but what we can build is a joined up ecosystem which tries to help entrepreneurs across regions and countries. As Mike and Stefan point out investors want to be close to their investments in order to provide the maximum support and value and there is no denying that there is a high density of start-ups in London. However there are funds outside of London (Eden, Notion for example) and initiatives such as SETSquared (who incubate tech start-ups from the unis of Bath, Bristol, Guildford and Surrey) – lets hope that some of the govt funding will be utilised to support the good work of such regional initiatives as well, and to support start-ups nationally.

I would agree that the administration and management of any such fund needs to be carefully looked at.
However I can’t see this as anything but a good thing – I am as sceptical as the next bleeding heart liberal about the motives of Cameron’s govt but putting technology, entrepreneurs and innovation on to the agenda is a huge positive. If we don’t like what is being proposed then lets make our voices heard and find ways to help with refining of such activities. It may be imperfect but it sure as hell is better than nothing.

Mark Littlewood, The Business Leaders Network, which works with events for people like Private Equity investors commented:

This is an interesting move but if the government thinks that it is going to be doing the creating of the cluster, it is wrong. The best a government can ever hope to do in this country is to reinforce existing activity and to create conditions that are benign to the startup ecosystem.

The companies that Cameron cites are not doing this because the government asks them to. They are doing this because there are really sound business reasons for doing so. Silicon Valley Bank wants to do more in the UK as it views the technology sector as being incredibly badly served in the UK and most of the companies I know would agree with them. Silicon Valley Bank then see working more closely with the technology sector in the UK as a significant opportunity for them to own a market where companies like Barclays treat startups like crap.

London is the natural home of the web startup community. Any other place in the UK that thinks it is so is smoking from a big old bong.

I live in Cambridge and there is a lot of activity here but it is absolutely not going to be able match the density of people, quality advisers, capital, customers etc that there is in London.

Cambridge can claim to be the second best place in the UK, for some software/web companies and is probably first for biotech and life sciences but the idea that there is anywhere else in the UK that can come close to London is delusional. I have heard debates in the past year about Edinburgh, Newcastle, Bristol, Oxford, Glasgow, Leeds, blah blah blah laying claim to being the next Silicon Glen, Silicon Fen, Silicon Hill, Silicon Whatever. They usually wheel out the example of one local company that did well as ‘proof’ that they are on the way. They are not and they just demonstrate a total lack of understanding about the uniqueness of Silicon Valley in terms of the amount of capital, expertise, HQs of large technology businesses in one small area and where everyone hangs out together.

By putting a bunch of European offices of those American technology companies together in East London we are not going to create Silicon anything, not should we.

There is however a huge value in what could happen by putting some of these companies together. The availability of cheap office space will attract start ups, the concentration of start ups will attract angel and venture investors (they are highly efficient – some would say lazy) people who don’t want to have to travel for 3 hours to the north of England in order to possibly bump into one start up that is interesting. What will happen is that more people will be attracted to where the money is (and the £200 million is a bit of a red herring), the REAL money will come from the other VCs who will be able to find potential investments more easily and more efficiently as a result of startups clustering together.

Concentrating expertise is a good thing. Proper capital (not government capital) will follow. Let’s not kid ourselves that this will be the next Silicon Valley – and that is OK too.

This was a point well made by David Soskin, Chairman of Cheapflights at an event in London last night about scaling digital businesses – transcript here. We need to get over this Silicon Valley obsession and just get on with doing good stuff.

Photo by Tom T on Flickr. Some rights reserved.