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Start-ups are dead, all hail the Scale-ups!

blue peter elephant

A new report for government says Tech City needs to “scale-up” (or should that be “wake up”). At least there’s no shortage of coffee to smell!

“Start-up” has been the buzz word that has become synonymous with laying the foundations of the so called “Tech City” in East London, a global hub expected to rival the Bay Area, in San Francisco, as the world’s most celebrated driver of technological innovation and home to the world’s biggest digital companies.

The coalition government has thrown its weight behind the project, appointing Joanna Shields, formerly head of Facebook’s Europe, Middle East and African divisions, as Head of “Tech City UK”, her brief to encourage some of the finest entrepreneurial and technical talent to converge on a previously overlooked and somewhat downtrodden area of East London, creating a breeding ground consisting of literally 1,000’s of companies intent on becoming the next Facebook, Amazon, Google or Microsoft.

And there has been no shortage of investment either. Seed investors with boards of directors that read like a who’s who of global digital talent have worked furiously to promote and grow their early stage investments, making minor celebrities out of successful founders, and doing everything they can to add value and substance to projects which have all the right ingredients for success. Playfair Capital, Forward Partners, London Venture Partners, Passion Capital, Index Ventures, Ariadne Capital, Early bird Ventures; the list is as long as your arm.

And yet? It’s not that there is something rotten in the state of Shoreditch, but it is possible that we may be about to experience the “Silicon Roundabout’s” first winter of discontent. On the face of it, a report released today by Angel and entrepreneur Sherry Coutu CBE, suggesting that the UK could add £38bn to the UK economy over the next 3 years, creating 238,000 jobs in the process, by “scaling up” start-ups with more than 10 staff and annualised growth in turnover or employees of more than 20% per annum, is a sign that “Tech City” is working. But is the report really doing the best it possibly can to praise Tech City, whilst at the same time sounding a note of urgency? Could this be the government’s way of saying, “We’ve put a lot of time and energy, not to mention money, into this project, and now it’s time to deliver.” For “scale-up”, should we be reading “wise up”?

Ever since “Tech City” first became “a thing”, there have been rumblings of discontent; where is all the money disappearing to? Where are the billion dollar IPO’s we were promised? Where are all the truly innovative technological solutions that will change public life for the better? Where, even, is there a half decent Broadband connection to be found in East London?

In the first few pages of the report, Coutu makes 2 fairly blunt points: Firstly, “Competitive advantage doesn’t go to the nations that focus on creating companies, it goes to nations that focus on scaling companies.” And, warming to her theme, “Getting our ecosystem to produce a greater number of scale-ups is more ambitious and challenging than producing a greater number of start-ups or celebrating entrepreneurs.” “Dear Chancellor, the party’s over. Time for founders to either front-up, or shut-down”. That third one is mine.

But look, we fans of the start-up scene might argue, what about Spotify, Zoopla, JustEat, King Digital, Mind Candy, Asos, Citymapper, Last.FM, Duedil? Fantastic start-ups; disruptive, technically superior enterprises that are part of tech folklore. But do people get excited when founders talk about being the next JustEat? “I want to change people’s lives by making it easier for people to order takeaway.” Hardly. Let’s be honest, it was pretty easy in the first place.

So it may be about to come to pass that we as a nation have decided that the time for blue skying, brainstorming, disrupting and chucking money at some quite silly ideas is over. A bit like telling an errant rock band, “there’s no more acid, left, guys, time to get back in the studio and make the album.” “Please boss, just five more minutes, we can smoke what’s in those teabags?” Sorry boys, get those instruments out, and let’s hear what you’ve written?”

happy mondaysIf we really are about to start weeding out the Beatles from the Happy Mondays, things could start to get a little tasty for some, and I’m not just talking about all those takeaway food apps. England expects, and people like Gordon Innes, Chief Executive of London & Partners, have started using expressions like “long term economic gains”, and “The intent of Tech City was to establish a mind-set to accelerate digital innovation”. Note the use of the word “was”.

Evidence has been mounting that the start-up market has grown saturated, with a disproportionately small number of businesses with seed funding going on to open Series A, B or C funding rounds. Now the focus is shifting, these secondary rounds will increasingly become the government’s focus. According to the report, “freeing data makes it possible for stakeholders in the economy to identify scale-ups. This is the most important thing government can do to help them grow.” In other words, once we’ve worked out who we think’s crap and who’s not, we can start helping the ones we like.

More worryingly, perhaps, the report identifies a lack of access to talent as the second most important obstacle to successful scale-ups. There is a gigantic skills vacuum, we are now being told. Anyone familiar with Algerian novelist and philosopher Albert Camus might want to remind themselves of his interpretation of the myth of Sisyphus. Sisyphus, condemned by chief Greek God Zeus to push a boulder all the way up a hill, only to see it roll all the way down to the bottom again every time he reaches the top, has become happy with his lot, Camus postulates, because he has lowered his expectations. My point? “So my start-up failed, oh well, I’ll believe the hype and just start another one, I’m probably the next Mark Zuckerberg, right?”

Wrong. To a certain extent the government has become like an over-enthusiastic Blue Peter presenter, over-indulging the kids in an effort to disguise their massive big business coke hangover, and ruining the cardboard Thunderbirds diorama in the process by overdoing the sticky backed plastic. Painful to watch, dispiriting, with potentially long term consequences. But never mind! For now it’s out of the sand-pit and into the fire, and probably not long before the white elephant starts to sh*t all over the studio floor. It’ll never work with kids and politicians, as they (sort of) say.

Excuse the analogies, let’s try a metaphor instead: stable door, horse, bolted? A skills vacuum is bad news, caused by the government backing too many dodgy steers in the first place, meaning the ones that could improve people’s skills and knowledge were crowded out by those that couldn’t, but had a ton of funding anyway. We wanted to have our Raspberry Pi and Just Eat it.

chessboardSadly, the biggest giveaway that the bubble was about to burst came from the Silicon Roundabout’s impossibly rich, not always pleasant and occasionally underhand neighbours on the other side of Bishopsgate, the bankers. When Boris Johnson, George Osborne and others beat a path to their door, “Invest in Tech?”, they said, “Sure, well, tell you what we’ll do, we’ll outline some things we need doing, you can do them with your funny little companies, and then we’ll buy them back and bring them in house in a few years’ time, and hey presto, there’s an exit strategy for you. And we’ll call it…FinTech, how about that. Now off you go, play nice!” Talk about damning a movement with faint praise.

Santander, Barclays, and many others have launched their Fintech funds at Level 39 in Canary Wharf and I suppose we should all be grateful, but forex payment technology and risk analysis tools weren’t what we wanted when we started calling Shoreditch “Tech City”. Not at all. We wanted a revolution. Instead we had a warehouse party. And now we’re being told to tidy up? Start-ups are dead. All hail scale-ups!


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