Tech city will soon be celebrating its 4th birthday, and around the same time, Silicon Valley will turn 45. By human standards, that means Tech City has learned to walk, talk and make friends and will soon be saying goodbye to the nursery and hello to a new uniform and its first days as a fully paid up member of a society that will be less forgiving, endlessly testing and demanding of tangible, consistent, results; signs that it can look after itself in the long term.
Meanwhile Silicon Valley has been through all of that, and will know that, although it has had its ups and downs, it has had quite a life. The early years (50s and 60s), when defence and military technology nurtured it and gave it the best possible start in life, to its experimental teens (60s and 70s), when it played with integrated circuits and microprocessors, before maturing into a manufacturer of personal computers (80s) and really making its mark on the world.
Then, firmly into its stride and discovering how to regenerate and grow with every passing year, it unleashed the internet, perfected the Venture Capital model, briefly destroyed it (the bursting of the dotcom bubble), decided all was not, after all, lost, more steady growth, and then the mid-life crisis that is social media. Where is that going! Internet.org, connecting the world, wearables, driverless cars, the quasi legal sharing economy – is it another monumental success, or time to wake up and smell the copious amounts of coffee?
Because here’s the thing; when it comes to venture capital, human years are more like dog years. By its very nature venture capital supercharges growth. Silicon Valley is at a stage where it must be looking over its shoulder and thinking, “jeez, kids grow up so fast these days”. It is most likely also asking itself, “how much longer can I stay ahead.”
Of all the upstarts snapping at its heels; New York, Israel, Berlin, Munich, Beijing, Banaglore, could London be the one it fears the most, or, looked at another way, the one it is most proud of?
In 4 short years London has accomplished a great deal. In 2010 London’s loose association of tech start-ups, maverick founders and university funded brains trusts sat in its high chair and helped itself to just over $100m dollars of investment; but since then its appetite has grown – considerably.
In the first 9 months of this year, its proud parent, the office of the Mayor of London and the coalition, now conservative government, announced it has chewed its way through $1.6bn already – that’s more than the whole of last year, ten times more than 5 years ago, and 75% of all of the venture capital into Britain this year. Takes some digesting, doesn’t it?
Throughout these 4 years of explosive growth, London has conducted itself with aplomb. It hasn’t thrown its toys out of the pram, it’s made a lot of new friends, it hasn’t bitten the hand that feeds it, and, to use an expression beloved of venture capitalist, it hasn’t sh*t the bed.
London has a friendly and supportive extended family. As mentioned, the government, and the mayor of London are its doting parents, happy to trumpet all of the wonderful things that it does. Joanna Shields has done sterling work as Tech City’s chair and hands over a healthy, happy baby to the omnipresent Eileen Burbidge. The avuncular Russ Shaw looks after the Tech London Advocates who look after Tech City. Gerard Grech, CEO at Tech City promises to create the best environment in the world to start and grow a digital business, while old-stagers Martha Lane Fox, Mike Butcher, Michael Acton Smith and Brent Hoberman look on approvingly.
London has already invented a new industry, FinTech, and become its world leader. The FinTech Future Fifty is a stable of wannabe unicorns, all set to benefit from a favourable new fast track listing service at the London Stock Exchange. Level 39 brings good tidings from Canary Wharf, and the Shoreditch “Silicon Roundabout” project is working, even if Google Campus could do with a coat of paint and a few more tables and chairs. Or am I just being curmudgeonly, that’s anti start-up thinking right there!
The corporates are getting involved; Barclays and UBS have their own accelerators; accountants KPMG, Smith & Williamson and PWC are sponsoring blogs and newsletters and organising and attending events. Their “mobile friendly” and tech savvy and on the lookout for fresh talent. The start-ups are becoming “scale-ups”, just like Sherry Coutu CBe said they should. Takeaway.com, farfetch.com, and Funding Circle have all raised over $50m this year, Just Eat Zoopla, and Transferwise have become unicorns (2 listed, one private). And the funds keep coming. Playfair Capital, Angel Lab, crowdcube and London Business Angels and Seedcamp (& Forward Partners and more!) sit proudly under the LCIF umbrella; Balderton, Notion, Santander, Google Ventures and now Octopus, with the launch of its new $140m fund, are ready to do big deals.
In short the future looks rosy, and the project ready to step out of Silicon Valley’s shadow. How does it compare currently? Well, for the first nine months of 2015, venture capital investment in the Bay Area totalled $22.95 billion, a 25% increase on the previous year; the software sector accounted for nearly half of the total amount, followed by consumer products and services ($2.4bn). Biotechnology ($2bn) was up 55% year on year. So perhaps the granddaddy of capitalism isn’t panicking just yet; relative to Palo Alto, London really is still in diapers.
But let’s not worry too much about that; many people thought that imposing a new infrastructure, a new model, a completely different way of thinking about growing a business from scratch (because make no mistake, that is how radical venture capital is) would never have been possible at all. But tech angels have taken the SEIS and EIS bait, the media are increasingly supportive, and the influx of foreign talent (unless Theresa May “sends them all back home”) is throwing fuel on the capital’s creative fire.
In short, it’s all happening; just the way it was planned. Could it be going any better? Let’s look at 4 things that could stunt this youngster’s growth as it starts to grow hair in unexpected places and question its role in the world.
1/ Is it too cosy within the confines of Tech City? – I’ve lost count of the number of times I’ve heard somebody say “it’s not what you know, it’s who you know” in relation to Tech City, and particularly fundraising. Not generally seen as a positive, exclusivity could be in danger of being worn as if it were a badge of honour around the Silicon roundabout on occasion.
How would the model cope if Labour oust the tories at the next election? Is it sustainable, capable of surviving as an independent entity? What do Corbynistas think of Tech City (does anyone care what u-kippers think)? There has been unrest in Shoreditch over signs of hipster privilege such as the “cereal café”, or Jack the Ripper museum. It’s important Tech City maintains its independence and promotes the creation of great companies that will last, and doesn’t become seen as a way for entrepreneurs to get into politics…world domination, on the other hand, is permitted.
2/ Where are the Amazon’s, Google’s, Ali Baba’s and Facebook’s? The billion dollar question, and the explanation for the disparity between fundraising sizes in London vs the Bay Area. The unicorn hunt in the UK is well and truly on (11, at the last count), from fast food (Just Eat) to gaming (King Digital) to fashion (Asos); 0.27% of all tech companies founded in Europe since 2000 have become unicorns, compared to 0.07% in the US. None, however, have had the cataclysmic effect that the A Microsoft or an Apple have had. These behemoths are operating in a different league and have genuine global influence. London built the Internet and Apple’s head of design is English. But there is no signature company for us to hang our hats on – yet. Its easy to imagine one, harder to build one. London’s status as the next global tech hub stands or falls on its ability to create one. Think of it as the next space race.
3/ Where does the money behind the money really come from? Every time a new tech fund is announced it’s good news for start-ups, of course it is, but it’s worth remembering that founders, no matter how imaginative or disruptive their ideas may be, do not have a god-given right to funding for their projects. It’s worth remembering the hard work that venture capitalists and fund managers do persuading their investors that tech is the right sector to be in, that they can pick winners from amongst the thousands of companies bidding to be the next Google, that they can manage an environment that is fraught with risk and lives in the shadow of the dreaded statistic that 90% of all tech start-ups fail. Persuading institutional investors to back funds who back start-ups is tricky. Pension funds, corporates, hedge funds and governments have plenty of choice when it comes to where to invest their money. They have to be persuaded to come on board for the long term, and to be patient.
4/ Is it a Bubble? Silicon Valley has experienced a bubble, but it is not a bubble itself. It is 45 years of careful planning, building infrastructure, learning about what works and what doesn’t, and above all, it has been wildly successful over the years and is regarded by many as the cradle of today’s civilisation. Social media has been a tremendous success to date and long may it continue, provided it continues to address real concerns and solve genuine problems.
London too has experienced a bubble back at the start of this millennium but a collapse in valuations on this side of the pond would be far more serious as there is less infrastructure and growth is at a more delicate stage. Britain is home to more coders than anywhere else in the world, several of the world’s most prestigious universities, a first world economy and as a nation we are early adopters par excellence with a tendency to embrace the digital world.
But we have still made a big bet that we are building a digital future that the world will want to use and be a part of. We do not yet have world class infrastructure and some might argue, if it’s not our strength, why are pouring so much resource into it? Are we trying to force it too much? Going forward, will it be a case of “the kids are alright”, or “oi…teacher…leave them kids alone”? London’s tech scene needs to become self-sustaining quickly and it needs to be able to handle itself. But it’s alive alright.