The website of Tech City in east London says the UK is ‘the best place to start and grow a digital business’. So why are London’s start-ups still so tiny compared to their Californian counterparts?
Five years after it became George Osborne and David Cameron’s favourite industry, the London technology sector is still like the anxious newcomer at the party, nervously glancing over the Atlantic for any hint of approval from the cool Americans. This is in spite of being lavished with government grants and tax benefits.
In public, the Silicon Valley crowd are generous, sending the occasional venture capitalist to Shoreditch to gamble on the most hopeful start-ups near ‘Silicon Roundabout’.
In private, they admit that most of the tech crowd in the Bay Area haven’t heard of our much-vaunted companies. Some even say they don’t bother coming to London any more on European trips, preferring Berlin or even Cambridge.
‘When you talk to people in the Valley, they know Spotify [Swedish], they know of Rocket Internet [German], but they don’t know the London “unicorns”,’ confesses one influential US investor who tends to be positive about the London scene.
‘Unicorns’ is the industry term for start-ups valued at a billion dollars or more (about £650 million). This is the achievement that founders obsess about. There are so many of them in California that the term has lost its value and their current ubiquity is often cited as a sign that the second tech bubble might be about to burst.
Much is made of Europe’s growing list of unicorns from this tech generation (tech companies founded since 2000). The list is led by Skype (founded by a Dane and a Swede and mostly based in Estonia), Spotify and Rocket Internet. King Digital (which makes the kind of iPad games enjoyed by the Prime Minister) and the fashion site ASOS are the biggest British entries, valued at about $5 billion apiece.
But here’s some context to throw politely into your next conversation with one of the many Tech City evangelists who sip Kool-Aid in east London’s cocktail bars: Facebook, which was founded in 2004, is worth about twice as much as the 40 European unicorns put together. And Uber, founded in 2009, is worth more than the combined value of Britain’s 17 unicorns, including King, Wonga and Zoopla.
So called ‘mega-unicorns’ — companies worth over $10 billion, like Uber, Snapchat and Airbnb — are the ones considered world-beating in the US nowadays. For all the government support and the hysterical, tub-thumping PR, London has never produced a tech company of that size, according to valuations calculated by dealmakers GP Bullhound.
The discrepancy between press coverage and actual success is breathtaking. So far, PR is probably the single most impressive achievement of the London technology scene. Apps that haven’t even been launched in the app store, where they will soon be ruthlessly found out, are gushed over in full-page magazine features. Firms that are haemorrhaging money are written about as if they are going to change the world.
As a journalist in London for most of the period since the government created the Tech City initiative, I have been complicit. I was once sent to write about an >interesting ‘sharing economy’ site that a respected financial newspaper thought might be about to revolutionise the food delivery business — but which had yet to deliver a single meal at the time of our five-page feature. When I tried to order a curry on the site a few months later, it had ‘pivoted’ (a tech euphemism for a failing company’s desperate attempt to reinvent itself) to a completely different model that had nothing to do with sharing.
The Silicon Roundabout cluster of digital businesses in east London — the roundabout in question being the breathtakingly ugly interchange at Old Street — emerged because rents were low and bankrupt firms of architects had left big offices that were conveniently close to the City. It was also a stone’s throw from Shoreditch, then an up-and-coming area.
When David Cameron’s government ramped up tax breaks for investors in early-stage companies and promoted east London’s tech sector with glitzy events and a special body, Tech City UK, the number of start-ups grew impressively. But the question of how London should go about turning any of its thousands of small tech firms into unicorns, let alone mega-unicorns, was never convincingly answered.
Everyone agreed that London needed a bit of management magic from the US tech giants and in late 2012 the Prime Minster pulled off what looked like a major coup, hiring Joanna Shields, the former managing director of Google for Europe, Russia, Middle East and Africa, to run Tech City UK. Last year she was made a Conservative peer and in May she was appointed minister for internet safety and security. But some weren’t convinced by Shields.
One very well-respected investor, who recalls Shields’s playful mannerisms and slightly coy behaviour while presenting next to the Prime Minister at Tech City events, says her appointment seemed more of a PR move rather than a serious attempt to rocket-boost Britain’s tech sector. A few days after I spoke to the investor, the Daily Mail revealed that Shields had a misleading CV on her website that could leave readers with the impression that she was ‘the’ managing director at Google, rather than ‘a’ managing director. So she was one of several middle managers, not the wunderkind she’d been billed as. That mistake went uncorrected for three years.
The Shields story reflects a wider problem: that London’s tech firms haven’t been able to attract the real ‘rock star’ Silicon Valley executives, people like Sheryl Sandberg who have worked in massive companies and are capable of scaling up a business fast. Some even acknowledge that Silicon Fen is a more dynamic tech hub than Silicon Roundabout — quite an admission when you consider that it’s in Cambridge, not London.
Ask insiders where this generation’s first British tech giant will come from and they mention newly minted unicorns like TransferWise, a money-moving service, and the peer-to-peer lending site Funding Circle. Both have impressive backers and promise to ‘revolutionise’ important corners of the economy, but it’s a sign of where we are five years after the holy anointing of Tech City that Britain’s two hottest digital companies are only worth about a billion dollars each, whereas companies like Airbnb are worth 20 times as much.
‘If you walk around co-working spaces here, it is pretty bleak,’ says tech reporter James Cook. ‘It is photo-sharing apps, virtual reality and niche social networks — like social networks for dentists.’ Caustic media commentator Milo Yiannopoulos has been the leading sceptic of the London tech scene — Tech City in particular — for half a decade, lampooning its pointless innovations and hubristic personalities. ‘People in London start-ups, and their credulous cheerleaders in the press, used to tell me all the time that I would be eating my words soon enough,’ he says. ‘I’m still waiting.’
When Hackney Council demolished some old offices that had housed tech start-ups near Old Street to make room for a residential development two years ago, they called part of the development ‘Silicon Way’. Locals joked that the only silicon in the new flats was in the breasts of the girlfriends of the absentee Russian landlords. Given the track record of London’s tech sector to date, a better name for this so-called tech city might be Silicon Cul-de-Sac.