East London New High-Tech Hub ???

 

London’s change-makers have often found a home on the City’s eastern fringe—especially immigrants and artists—

but in recent decades their wares have usually been cultural rather than commercial.

In 2008, though, followers of the technology industry began to talk excitedly about a cluster of internet start-ups

in the Shoreditch area, near the ugly Old Street junction, to the north-east of the financial district.

 

London’s change-makers have often found a home on the City’s eastern fringe—especially immigrants and artists—

but in recent decades their wares have usually been cultural rather than commercial.

In 2008, though, followers of the technology industry began to talk excitedly about a cluster of internet start-ups

in the Shoreditch area, near the ugly Old Street junction, to the north-east of the financial district.

There are now around a hundred high-tech businesses in what has inevitably been dubbed Silicon Roundabout.

Measured by the concentration of technology firms and the availability of generous and informed investors,

California’s Silicon Valley is still in a league of its own.

But in the second division of hubs, this chunk of east London is near the top, along with the likes of Boston and Tel Aviv.

That its growth took place so quickly, and during a recession, is remarkable enough:

the high-tech zone in Cambridge has taken decades to evolve.

But the fact that Silicon Roundabout also emerged without government support, or even direct links with universities,

should pique the interest of countries that have tried to cultivate technology hubs without the same success.

Silicon Roundabout’s firms are generally small-to-medium sized and highly specialised.

One makes software for the fashion industry; another runs an online dictionary.

There is a hotel-comparison website, a firm specialising in 3D and interactive content,

and several digital-design firms with their own niches.

The congregation owes something to the advantages of London generally: its wealth, its appeal to global talent, the English language.

But the entrepreneurs in Silicon Roundabout stress the unique draw of the east of the city,

with its bohemianism and relatively cheap rents, for young, creative workers.

“If we were in west London, we would be a completely different type of business,”

says Steve Hardman, the co-founder of SocialGo, which helps clients build their own online communities.

The spontaneous rise of Silicon Roundabout might have persuaded the government to leave well alone. 

Instead, Conservative Prime Minister David Cameron has unveiled a plan to support it.

As well as tinkering with the legal framework in which such businesses operate—

by creating updated “entrepreneur visas” to bypass ill-judged new immigration restrictions, for example—

the government has persuaded technology titans such as Google and Cisco to invest.

Soon BT will bring super-fast broadband to the area; McKinsey, a consultancy, will share management expertise.

The aim is to build a “Tech City” stretching from Shoreditch to the 2012 Olympic games site farther east.

To some, Mr Cameron’s enthusiasm looks like straightforward political opportunism.

The government has much less to say about how it intends to generate economic growth than about cutting public spending:

Silicon Roundabout is a convenient bandwagon to mount.

And there are other reasons to be sceptical about its input.

Big technology companies of the kind it is courting often buy up innovative start-ups.

Forging such close links between Silicon Valley and Silicon Roundabout could make easy prey of the latter.

But the underlying motive seems to be that the government discerns the outline of a new kind of industrial strategy.

The old approach of favouring certain firms and sectors with protections and public subsidies—

revived, if more in word than deed, by the most recent Labour government—is unlikely to come back.

The new thinking is that the most useful thing ministers can do for emerging sectors

is to use the pull and prestige of high office itself.

It is true that Silicon Roundabout’s plucky businesses probably could not have struck such deals with foreign behemoths on their own.

Even the rhetorical support promised by Cameron could help, says one investor,

by publicizing quiet success stories and attracting foreign talent and capital.

As other countries struggle with fiscal penury and the need to find new sources of growth,

the government’s approach to Silicon Roundabout could become a model to emulate.

Entrepreneurs in the district welcome the attention.

But they all agree that the main barrier to growth is the scarcity of investment.

Britain does not have a technology-focused venture-capital industry anything like as bounteous as that which serves Silicon Valley.

Glenn Shoosmith, the founder of BookingBug, which sells online reservation systems, says

American investors have expertise in the sector as well as money, enabling them to act as hands-on “angel” investors.

In Britain, selling to a giant can be easier than finding cash.

Last.fm, a music website and Silicon Roundabout’s biggest success so far, was bought by CBS Interactive, an American company, for £140m ($280m) in 2007.

Mr Cameron’s plan includes measures to help with finance.

• Silicon Valley Bank, a Californian lender, will open up in Britain;
• Vodafone will bring its venture-capital arm to the area;
• the government will provide £200m in equity finance. 

But this will only go so far, according to this piece from the Economist.

Part of the problem is that venture capitalists themselves are finding it hard to raise funds.

Graham O’Keeffe, a partner at Atlas Venture, which specializes in the technology sector, says

this would change if pension funds (including public-sector ones) took venture capital more seriously as an investment.

What is needed above all, agree many in Silicon Roundabout, is simply more success stories.

American investors are keen on high-tech start-ups because they have seen many grow into world-beaters.

Until east London produces its own Facebook or Apple, British investors will be nothing like as bullish.