East is…Silicon East…?

Having always been taunted by my West London living banker friends (who else can afford to live there?) that ‘West is Best’, I was looking forward to finding out yesterday whether David Cameron would give me the retaliatory phrase I needed. I was one of the lucky few entrepreneurs to be invited to the Boiler House, Brick Lane, to hear David Cameron lay out his plans and vision for an ‘East London Tech City’ cluster to match the Silicon Valley of USA.

(Photo credit: Tim Ferguson/silicon.com)

As an entrepreneur working in the East End I am delighted that the government is finally taking notice of the thriving community of internet technology, graphic design and media companies that have set up home here. But with little of concrete note announced at the event it felt rather more like a marketing package of pre-existing initiatives and the joining of dots to generate positive PR in a post ‘Comprehensive Spending Review’ world. Whilst this is driven by a natural cynicism I applaud the governments skill in being able to link two facts together to generate a positive zero-cost jobs and technology story:

a) The old government and the new have been struggling to find any takers for what was quickly becoming a white elephant in the Olympics media centre after 2012

b) Until Wired started pushing the concept of ‘Silicon Roundabout’ at the end of 2009, neither the old government or the new knew that there were in excess of 400 tech companies operating in the Shoreditch area

Putting these two together along with getting BT to put the Shoreditch exchange to the top of the super-fast rollout queue and getting major tech firms to commit to a presence in the area is political genius, but will it actually really help to deliver the UK Google that this country needs?

The Prime Minister reeled off the names of all the major companies that have committed to set up labs and innovation hubs in the East End: Google, Facebook, Intel, Cisco. Not one of them a UK company. Where are the ARMs and Autonomys? Do we really want these companies looking over the shoulder of all the innovative companies that crop up to either buy them out early or ‘absorb’ their ideas?

Jeremy Hunt rightly noted that we have a mentality problem in the UK with entrepreneurs selling out their companies in the millions rather than the mega millions and billions. We just don’t have enough entrepreneurs who have the ambition and skill to match the quote from the Sean Parker character as played by Justin Timberlake in the Social Network:

“A million dollars isn’t cool. You know what’s cool? A billion dollars”

Even Travie McCoy in his number one hit sings about how much he wants to be a billionaire.

Why does this matter? It matters because we don’t have the angel investor community in the UK that America does. There are very few people here who have been successful at a level which then allows them to then pass on the investment and knowledge they have to enough firms to make the next big success. If we work on the basis that one in ten investments for a good investor are successful and that an investor will put 10% of his assets to work on risky investments, then someone with £5m will have £50k to spend each on 10 investments. This is not enough of an angel investment in a business to really get it off the ground and to Series A. This means more time expended fundraising to generate less for the entrepreneur if they don’t have a rich family, school or university network to begin with, i.e. most people outside of Eton, and a more convoluted board and shareholder structure that are less likely to hold out for that BIG success.

This brings me back to the question of why there are no major UK successful tech businesses involved in this announcement. I went to a depressing conference earlier in the year held by Bryan, Garnier & Co with the title ‘Can there ever be another SAP in Europe?’. Despite all the hype for our internet startup companies, the UK only has four companies with a market cap of more than €1BN: Micro Focus, Misys, Sage Group and the largest at €5BN in Autonomy (Source Factset, Company Reports early 2010). Actually there is a new recent joiner to this group post its float and it is the only one that is an internet company, Betfair. SAP is in a league of its own at €44BN larger than the next 20 software companies combined. Without this breed of tech entrepreneurs to help the new ones come through, Mark Zuckerberg got his first investment from PayPal co-founder Peter Thiel, we need a way for entrepreneurs to access the funds of those sections of society who are generating the millions…..who?…..the city’s West living bankers.

There is a real opportunity here. Bankers have the money and nowhere to put it at the moment and we have a great EIS scheme here in this country that encourages angel investment whilst protecting the entrepreneur with ordinary shares and longevity of commitment. Bankers also have a bad reputation and a moral imperative to ‘give back’ to society and as such helping to grow the new companies and jobs of the future. Government can help by reducing the friction and shoe leather costs of matching investors to entrepreneurs. And besides, we all know that bankers certainly love risk and chasing billions of dollars. Maybe we can use this trait to our advantage for the startup sector, without forgetting to ensure that we pull in the real successful CEO talent for statup CEO mentoring. Clustering startups in one place will help, but more supply-side help is needed, the sort of help that Google, Facebook, Cisco and Intel will not provide.

I look forward to hearing and seeing more to come from this initial announcement and hope that I don’t have to wait until 2013 for the positive changes, which goes for the also announced reviews of IP law and visa restrictions too.

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