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You will find Tech City at a crossroads, not a roundabout

  tech city 3Last week Haggerston Times came across a report from 2012 entitled “A Tale of Tech City: The Future of Inner East London’s Digital Economy”. The report was released by not for profit think tank Centre for London, in association with the British Venture Capital Association, British Telecommunications Plc, London & Partners and the Federation of Small Businesses, and put together by Dr Max Nathan, a research fellow at LSE’s Spatial Economics Research Centre, urbanist and writer Emma Vandore, and Rob Whitehead, deputy director of research at the Centre for London.

The 100 odd page dossier struck us as being surprisingly relevant despite being published 2 years ago (plus ca change?), drawing its conclusions based on 100’s of hours of interviews with founders in London, and some very thorough market research, meaning it is as close as anybody has got to mapping an area that, in equal measure seems charmingly oblivious to the fact that it has become one of the coalition governments most talked about pet projects, and determined to live up to its reputation and become an area of global significance.

For anyone who lives and works in “Tech City”, the report covers some familiar ground, reinforcing many of the urban myths about an area that stretches from Clerkenwell, via Shoreditch, as far afield as Dalston, and very almost to Hackney Wick and beyond; the majority of tech start-up founders are well educated and male (although we’ve definitely noticed a trend towards increasing numbers of female founders), the chief grumbles are broadband speed, spiralling rents and a skills gap caused by a lack of appropriate educational facilities in the UK, plus the difficulty of obtaining an entrepreneurial visa from overseas (no mention of a lack of funding opportunities, interestingly).

People are attracted to the area either because the office space is, or at least was, cheap, or because of its “cool” vibe and plethora of coffee shops and bars, although some complain that facilities are restricted to servicing the needs of your traditional mid 20’s male techie, i.e. newsagents and craft beer rather than Waitrose and Boots.

Around a third of all interviewees were unaware of the “Tech City” project, often because they have been doing business in the area since long before the government’s “intervention”, and those that were aware were not necessarily convinced that it was a good thing. It should be noted that inner East London’s share of the UK digital economy, at around 10%, is not as large as many might think; the report counted 3,200 digitally focused companies providing 48,000 jobs, but also observes that the area is vulnerable to and can be significantly affected by changing economic conditions.

Few founders described their start-up businesses as an out and out tech business, (if there was such an option most founders would probably have opted for “it’s complicated”); one of the most appreciated aspects of living and working in the area was the access to mentoring, the chance to hone management skills by co-habiting with other founders and being able to spend time with and learn from successful serial entrepreneurs.

Perhaps the biggest issue the report tackles, other than the overall direction of the “Silicon Roundabout”, and the one that will most concern the government and those who believe the digital economy represents Britain’s economic future, is a lack of appetite for, or an inability to “scale up”. Few firms interviewed saw their businesses becoming global players, and did not express much appetite for taking on the Facebook’s, Google’s and Amazon’s of this world.

tech city 2Intriguingly, the report notes that efforts to create a “hub” or a concentration of a specific kind of activity through expensive PR campaigns, propaganda and investment almost invariably fail; that simply labelling an area as a “science” or “cultural” hotspot is a 100 to 1 shot that nearly always fail to go plan, with 2 notable exceptions.

The report often refers to the success of both Silicon Wadi, in Tel Aviv, Israel, and Silicon Valley itself, which were both brought into existence because of substantial investment from the military, and from government weapons contracts. These areas represent possibly the 2 most powerful tech hubs in the world, and both were, to a certain extent, “created” to satisfy particular requirements. That both, in particularly the older, more established, Silicon Valley, have been able to sustain growth and reinvent themselves is a testament to the culture that has been put in place, plus an awareness that staying ahead of the game is the only way to guarantee survival.

The report suggests that London’s “Tech City” has more in common with New York’s “Silicon Alley”, and the Berlin Tech Scene, which have grown up largely autonomously and without external funding. Both areas share the same hipster roots Shoreditch in London and all three have been self-sustaining communities largely uninterested in becoming global enterprises, but now being encouraged to try and do so by government and big business, victims of their own success you might say, or perhaps, quietly, this was the aim from the outset.

Finally the report outlines the 4 directions that it believes Tech City could take; 3 good, one not so good. The Coalition government’s aims when David Cameron first outlined his ambitions for the area back in 2010 were threefold; namely, to increase the number of SME businesses in the area and foster a creative environment, to attract investment from overseas, and enable Tech City to push further East into the Olympic Village, which they hope will become a new home for large numbers of dynamic young tech companies.

tech city 1Here are the 4 most likely outcomes, according to the authors of “A Tale of Tech City”:

1/ Go East: Inner East London continues to add companies and bring jobs to the area, but at the same time there is a shift towards the Olympic village as rents become prohibitive, businesses stretch out towards Bethnal Green and Hackney Wick, and a “Canary Wharf effect” is created around the Olympic Park, attracting larger international firms and global players.

2/ Upgrade: Inner East London continues to develop, with high levels of job creation and start-up activity. The area’s profile is enhanced, and attracts substantial overseas and angel and VC investment, enabling businesses to grow and become better established. There is consolidation as the larger and more successful firms push out the smaller players who begin to gravitate towards the Olympic village and other areas, creating new early stage business communities.

3/ Corporate Takeover: Property development and property market activity experiences a boom and the existing community of SME’s are largely replaced by bigger players, drawn from the financial, legal, and multinational sectors. Some high performing SME’s remain but VC and angel activity begins to gravitate elsewhere and the Tech City phenomenon dissipates as clusters form elsewhere.

4/ Decline: the large scale failure of digital firms to grow satisfactorily and compete with other major cities such as Paris, Berlin and Lisbon and other areas damages Tech City’s reputation. Foreign investment fails to materialise, firms are unable to compete domestically and internationally, and perform poorly, leading to a large scale break-up of the area, a lack of fresh employment, and an overall talent drain. Entrepreneurs are no longer attracted to the area and co-working spaces are sacrificed in favour of residential developments as landlords push for change. In short, “Tech City” moves elsewhere.

Much will depend on landlords and property developers who are essentially profit driven and will tolerate the area’s reputation as a tech hub for only as long as it continues to grow and be successful. The residents and businesses of Old Street, Shoreditch, Haggerston and Dalston, of course, are the other major factor. If they are feeling the pressure, however, it isn’t showing. To all intents and purposes, the area continues to thrive and enhance its reputation. Tech City is by no means “too big to fail”, neither is it too small to make a difference. The infrastructure requires careful management as many of the initiatives that are being introduced, such as tax efficient investment schemes, are high risk, may lack co-ordination, and are relatively untried and untested. Ultimately the best case scenario may be that the area becomes exactly what its residents want it to be, a rare privilege for an area to have, perhaps?

 

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