The problems of London Silicon Roundabout
Tech City — London
An expanding group of high-tech digital businesses have been clustering together in Inner East London since the early 1990’s. They were originally drawn there by cheap rents and good access to the city and the rest of London. A further important attraction was an already thriving Art and Media sector and part the area was ‘cool’ with a vibrant atmosphere.
This digital growth happened quietly until an article in the Financial Times in 2008 titled ‘Silicon Roundabout’ brought it to the attention of the wider business community and government. Today there are over 4000 tech firms in the area with 1700 in Clerkenwell, Hagerston and Hoxton alone.
This is double the number of businesses that existed in the area in 1997 and includes global players such as: Mindcandy, Unruly Media, and Songkick. These companies provide over 50,000 digital economy jobs and employment in the sector continued to increase after 2010 when digital employment in other parts of London began to fall as the UK economy dipped due to the world economic crisis. The digital economy is characterized by high skill, intensive labor and high wages which in itself have provided a ‘multiplier’ effect increasing employment opportunities in other industries. It has now become recognized as an important business and employment centre for London as a whole.
London needs these businesses to grow and it is argued these businesses can grow more easily with the benefits of their close proximity to an exciting global city that attracts the very best from around the world seeking employment and opportunities for investment. London also has many of the services the industry requires for continued growth. Services like Finance, Management Skills, and International Networks on a level only a Global City like London can provide. These businesses are also essential to the UK as a whole.
Government Recognition & Support
The UK digital economy already takes the largest share of national GDP in the G20. Its success in creating employment and adding to national growth has been recognized at the highest levels of Government and there is an acceptance across government that the continued success of ‘Tech City’ is one of the greatest importance to the UK Economy. This recognition has ensured it receives a great deal of attention from Government. However, with this attention has come a fear amongst some of the businesses involved that public policy may interfere with its existing organic growth.
In identifying this concern government has worked hard to ensure appropriate attention, is given to getting public policy right. In 2010 launching The Tech City Investment Organization (TCIO) a government ‘arms length’ agency to assist in building the profile of the area, channel government support and attract investment; David Cameroon the UK Prime minister gave a speech to digital businesses in East London emphasizing their importance to the UK Economy and promising government support to their activities. It was at this point the name ‘Tech City’ was given to the area which it was previously known as (And is still most commonly called) ‘Silicon Roundabout’. With the new name and the ‘Tech City’ agency came a three-pronged government strategy:
- Supporting the cluster of start-ups, small and medium sized businesses around Old Street Roundabout;
- Attracting large international investors;
- Using this momentum to build high tech activity further east including into the post games Olympic Park.
Supporting these strategies were a long list of policies including:
· Entrepreneur Visa;
· Cheaper finance for SMES;
· Tax breaks for seed funding, venture capital and video games;
· Fast broadband fund; and
· The Launchpad Competition for digital firms.
The importance given to Tech city by the government was emphasized at the launch of ‘Google Campus’, in 2012 a new building south of Shorditch providing workspace for start-ups, free Wi Fi, mentorship opportunities and shared services. The Chancellor of the Exchequer George Osborne underlined how the Tech City Initiative was integral to the ‘Coalitions’ (Government) whole growth strategy.
While the government’s efforts have been broadly appreciated and businesses have welcomed the higher profile that has followed, with perhaps the exception of the impact on rents, there appears to be little understanding of the detail, which means many businesses were missing out on what support that is available. Improved communication from Government at practically street level is required.
Urgent Solutions required
A recent report into ‘Tech City’ (2) included a series of in-depth interviews with entrepreneurs and business leaders giving a valuable insight into the problems they were facing these can be listed under the following headings:
Failures within the UK Educational System;
Recruitment of suitably qualified and experienced staff;
Finding suitable work-space at a reasonable price
Access to the right sort of Capital;
Connectivity;
Mentoring and business development advice and support.
Failures within the UK Education System
Although London is one of the most attractive global cities in which to live and work tech businesses still have a problem sourcing staff with the necessary skills. They relate this to problems with the UK Education System and Universities failing to understand the requirements of their industry. The general opinion is that while the system is good at giving students a good in-depth understanding of science, when it comes to applying that knowledge in such ways as ‘developing software’; they have not created the syllabuses that will enable their students to develop these skills to a sufficient level to be of use to potential employers.
This failure of integration between UK Universities and the digital economy is a serious concern. Universities should be encouraging their best students to go into post-graduate research building opportunities for them to work with the digital industry the problem however is they appear to be reluctant to give their support. This can be clearly illustrated when an average salary /grant for such research is likely to be only around $10,000 a year. It is not surprising that a very high percentage of the UK’s best students in this field take their talents and knowledge overseas. There are some signs of improvement starting with the arrival in 2012 of a new university technical college in Hackney offering new hope for local people to get involved in the industry on their doorstep.
Since January last year, ‘City University’ London has been running City Unrulyversity, a joint venture between Cass Business School, Unruly and others offering the tech community in East and Central London a free program combining academic and professional expertise. Any entrepreneur who attends five Unrulyversity sessions can apply to the £10m venture capital fund managed by The Peter Cullum Centre for Entrepreneurship at Cass Business School. The centre has already invested in six start-ups and incubated seven. These developments offer a real chance for future academic / digital collaboration but much more of the same is needed. The close collaboration with the academic community especially from ‘Stanford’ that exists in Silicon Valley in the USA is an example of where the UK’s Academic / digital economy should be. This close working relationship very much from the word ‘go’ has been a hallmark of Silicon Valley’s initial and continued success.
Recruitment of suitably qualified and experienced staff
The largest challenge facing these digital businesses today is the shortage of skilled workers. The skills needed are not the traditional ones like finance, HR and sales, they are industry specific, and in short supply, specialized digital and technology skills like coders, developers and usability specialists. This talent shortage is recognized as having a negative effect on growth. The top skills most in demand are:
Coders and developers (programmers);
Marketing and PR;
Business development;
Web designers; and usability specialists;
There is a real shortage in these technical roles with the most difficult to recruit of all these skills being coders and developers.
Sourcing staff is a problem that hits start-ups in particular, as large corporations such as Accenture grab all the best candidates straight from University. This is reflected in there being more start-ups in the USA than in the UK. The high demand and short supply mean high salaries, often start-ups are faced with paying one member of the team a sum of money that is more than the rest of the teams’ salaries added together. Interims and Freelancers are one solution, but they prove expensive and do not often provide the continuity required; even though they are often more experienced. Employers preferred when possible to recruit permanent staff.
The combined impact of this is to seriously reduce the number of available candidates. The most sought after are good developers that can focus on product and customer and have start-up experience. In the UK this has become a very small pool in which to source staff. To deal with this continuing situation businesses seeking to recruit find the best candidates tend to be from the USA. Even though the Government has made obtaining Visa’s to work in the digital economy easier, companies are often still missing out on their preferred recruit due to visa problems.
Finding suitable workspace at a reasonable price
…it was incredibly difficult to find an office on a short-term lease in Tech City. “You can’t get a six-month place. You have to get a three-year place. We did the co-working thing when we were smaller and if there’s two or three of you then you can do that but at some point you need your own place.” Property consultancy Shoreditch Office Space said this is a problem it sees “time and time again” in Tech City. It is difficult for young and dynamic start-ups to come into the area at the moment.
It is the character of start-ups that they require a flexible approach when it comes to taking on leases because the dynamics of their businesses does not allow them the facility of knowing their accommodation requirement three years into the future. One of the initial attractions of the area back in the early 1990’s was the availability of cheap work-space. Today, supply is dwindling fast as the area becomes more and more attractive; drawing in related industries that see advantages in being close. The supply side of the equation is failing to keep up with the demand. Some bright areas exist such as numerous incubators and accelerator spaces on the edge of Old Street, which has pointed the way for other new spaces since around 2009.
In the past five years, Tech City’s startups have been joined by the big hitters from Silicon Valley, most notably Google, which has thrown its weight behind Campus, another facility for start-up growth including WeWork, Huckletree and a number of names. As businesses are growing the problem doesn’t, as indicated above, ease. The government has tried to answer this potential problem by advocating the cluster spreads to the Olympic Park. However, Government has been warned, you cannot make ‘clusters’ out of thin air, they have to grow organically.
‘Tech City’ itself has replied to this criticism by saying they are not trying to, or even follow a formula. The ‘cluster’ was growing organically in East London and would continue to do so. It has pointed to$75 million government contribution to the regeneration of Silicon Roundabout which will create the largest ‘Civic Space’ in Europe it is promoted as an area to support start-ups and provide educational facilities to train entrepreneurs helping potential new entrants to the industry to get the required skills. Local Government in the area has been encouraged by the London Mayor and his team to search out redundant buildings in their ownership and convert them into shared workspaces to increase supply.
Why is there reluctance by so many to even consider the Olympic Park with all its space and modern facilities?
Although it is only a little distance from the cluster, at some points less than three miles, transport links between the two are also good. The view is that unless you live in Stratford (Next to the Park) you are unlikely to favor such a move. There is a very strong desire to stay within the existing area; this has as much to do closeness to clients and each other as the social buzz of the area. This closeness allows people to mix informally at evenings and lunchtimes in the local pubs, restaurants and snack bars.
Many see this informal contact as very important and it is seen as a major attraction of setting up business in the area. This desire to be close and part of a vibrant community is a feeling replicated in ‘Silicon Alley’ New York. Certainly, for the present a move to the Olympic Park would probably make the sourcing of the best staff even more difficult, as potential employees would probably understandably argue; a move out of the cluster to the periphery and beyond could seriously affect their career prospects. They would be missing out on the informal day to day networking and the opportunities that come from it.
Access to the right sort of Capital
…“London’s tech businesses (78%) have used some kind of investment or financing in the past. These firms use on average 3.4 sources of finance, with angel investors (27%), venture capital (22%) and borrowing against personal assets (16%) the most popular. Only 14% of investments are funded by traditional bank loans, making it difficult to grow businesses without losing some equity share to private investors”…
If ‘Tech City’ is to join the premier league of digital innovation joining such as Silicon Wadi in Israel or Silicon Valley in the USA it has some fundamental economic hurdles to overcome. Many of the businesses around Tech City may be early stage, but they are grappling with complex funding requirements to enable rapid expansion and traditional bank debt simply does not fit with the risk profile of a startup. Many more financial incentives are required for these businesses to go forward and develop into global technology and digital businesses. Innovative ideas and business models must be balanced with greater investment capital.
While the number of entrepreneurs prepared to invest and nurture their businesses with private finance is increasing more capital resources are needed to usher through the next generation. Finance is increasingly becoming a worrying issue. On the upside London has become increasingly attractive to US Institutional investors being seen as both cheaper and less competitive. Virtually all of the iconic US tech funds have now invested in London. With them comes, years of experience funding start ups and taking them through to global player status.
What is also significant and suggests that perhaps ‘Tech City’ is reaching mass to allow a real breakthrough to premier league status is that figures such as Suranga Chandratillake who was senior executive at UK technology success story Autonomy, and grew up in Manchester, who moved to Silicon Valley a decade ago to set up video-search software firm Blinkx has returned to the UK taking up a Tech Venture Capital role.
Connectivity
…’The founder of an app used by hundreds of thousands of people wishes to remain anonymous, but said in an interview with Techworld that BT taking more than a week to connect start-ups to the internet when they move into a new office in Tech City, and charging them for doing so, is “ridiculous”. “In any other city it would take 24 hours,” he said. “It’s just an embarrassment. This is London and the internet doesn’t work.”…
Connectivity is an issue that is seen as a real constraint on business development and the lack of connectivity, and ease of connection to fast Broadband services has particularly hampered start-ups. They often have to wait a long time to be connected as there seems to be few workspaces where the relevant permissions are put into a lease. This means the start-up having to go back to the leaseholders to get permission to install the broadband before they even contact the supplier.
Often because of their requirements it involves roadworks and other services, causing more delay. This has led to start-ups when they finally locate space, spending their first few weeks operating out of a hopefully close by café with a Wi-Fi connection. The question of why the area does not have free Wi-Fi access has been raised more than once. Although government has put effort in this direction it appears they have yet to grasp / understand the real problems on the ground.
Mentoring, advice and support
Virtually all digital start-ups have faced a lack of affordable and accessible mentoring including basic business advice, marketing, public relations and particularly in relation to growth. This is a real concern. Recent moves have been made with the ‘Future 50’ to overcome this problem but it is likely to be too little, with the industry crying out for such advice across the board. It is well understood inside and outside of the cluster that the lack of mentoring is seriously hampering business development and growth.
It is also probably one of the underlying reasons the Cluster has, as yet, failed to produce a globally recognized business like ‘Facebook’. The leadership experience in growing a business to that level is missing where it is most needed. Competitors like Silicon Valley and Silicon Wadi have developed strong connections in this area, and it has been shown that those competitors following a top down approach have this sort of advice built in to the package they sign up to; as in Cap Digital Paris and Santiago. What is clear this sort of advice is required to be freely available within the cluster itself and it has been suggested, it should be within the shared workspaces?
‘Tech City’ Seventh Birthday and beyond
Over Recent months there have been some significant changes in the approach to the ‘Tech City’ initiative. In November 2018 ‘Tech City’ celebrated its seventh birthday with the announcement that technology and digital companies now provide 30% of jobs in London up by nearly a fifth since it was launched in 2010. 582,000 individuals are now employed in the sector in London. The government also announced an Entrepreneur Visa which will allow foreign entrepreneurs to more easily start-up in the UK. There is also to be a superfast broadband rollout for the area.
A review of copyright law in the UK has also been commenced a move much sought after by web-based companies. As mentioned earlier ‘Future 50’ a group of start-ups selected to receive much needed mentoring advice and similar on how to spread their wings and build into international businesses has also been created. These announcements have been coupled with government’s contribution to the regeneration of Silicon Roundabout.
The business ‘EE’ revealed it was giving a selected group of companies in ‘Tech City’ access to its 300Mbps mobile network that will be developed and expanded commercially in subsequent years. They are offering accredited ‘Tech City’ businesses a privileged bespoke package and access to the network that is up to 300 times faster than the fastest fixed-line broadband on offer. EE are opening up their APIs to allow developers to create new products and services and get them to the market faster.
This is seen by many within the cluster as a ‘game changer’ move. The London Stock Exchange has also heralded a new index expanding the definition of digital-services companies that includes internet driven retail, travel and leisure stocks amongst others. Added to this the software company ‘Pivitol’ has made known it is making a $150m investment in ‘Tech City’ over the next ten years and it will be opening a European Headquarters in Old Street in January 2014 with a staff of 75.
London has also become increasingly attractive to US Institutional investors being seen as both cheaper and less competitive. Virtually all of the iconic US tech funds have now invested in London. With them comes, years of experience funding start ups and taking them through to global player status. Finally, in January 2014 Google announced it had paid around $700 million for British serial technology entrepreneur 37-year-old Demis Hassabis Company ‘Deepmind’ an artificial intelligence company. This does in itself raise again the question of why UK tech start-ups are apparently happy to sell their companies rather than continue to build them to global proportions.
