Tech City ‘More than Doubled in Size’

Perhaps it’s careless wording by the Wall Street Journal, but Eric Van der Kleij appears to be claiming that:

The number of start ups in the U.K.’s Tech City has more than doubled since the government-led initiative was launched last year…

I’ve said before that I’d be happy to be proved wrong by the Tech City initiative, but this claim (if, in fact, that’s what Van der Kleij was claiming) is problematic: we are supposed to believe that the government’s communications efforts and the disbursement of about £1,000,000 has resulted in the creation of more than 150 new companies in less than a year? Even if the government money only went to the new firms in the area we’d be looking at an average of £6k per firm… which is hardly enough to get a company off the ground.

However, we also need to view this dynamic in the context of Hackney’s MP, Diane Abbott, asking why no large tech firms have yet committed to the East End: “There have been a couple of vague offers of help from Google and Vodafone, but there have been no direct results.” This really shouldn’t be terribly surprising to anyone who has read my earlier piece, since it’s fairly clear that these firms will need significant inducements from government for this move to make any sense: leaving aside, for the moment, the issue of infrastructure, the deciding factor is almost certainly the fact that their staff are all based to the West of London and currently have easy access to Heathrow for international flights (especially to America). So, barring a revolution in accessibility brought on by Crossrail what’s in it for the large firms?

Putting these two trends together, it’s clear that ‘Silicon Roundabout’ is (currently) a small firm cluster, and as a result I’m not sure why Ms. Abbott thinks that bringing Cisco, Vodafone, and Google to East London would actually be a good thing. Large, established tech firms tend to operate with a campus mentality to limit IP leakage to competitors. This not only means tends to mean that there will be fewer spin-offs because there’s less in the way of spontaneous spillovers (Sofia Antipolis in France is a good example of this), but also that they tend to do everything in-house, which means fewer opportunities for the many small businesses that operate in East London.

I’ve yet to see any meaningful data on what all of these 350-odd firms in Silicon Roundabout are up to, but I’d not in the least be surprised to find that the majority of these firms are developing software and services for the cultural industries (film, advertising, theatre, web design, etc.) and are not operating in markets that are (for now) relevant to the major ICT players. The evidence for my guess is circumstantial, but I think it’s fairly solid: Shoreditch is an old warehousing/furniture building area, and so contains small, non-standard, uncontrolled, but well-lit spaces that are anathema to large firms.

Moreover, looking back at Shoreditch’s recent development, the first wave of gentrification was by artists, and the second was led by ‘creative services’ firms (and in particular by the trendier ad agencies), setting in motion its reputation as a ‘happening’ area. Throughout, the ‘vibe’ has been that of young, creative entrepreneurs, not large code-shop start-ups. To me, all of this points to a SoHo (that’s South of Houston in NYC, not Soho in London) dynamic, and if we look at what happened there in the late 1990s then we mainly see firms blending New York’s cultural and technological abilities in innovative ways (some of the firms even survived the crash!), but no Googles or Intels.

So, paradoxically, the ‘slow off the ground’ approach of the Tech City initiative is actually a very good thing for Silicon Roundabout — the longer the government dabbles at the edges without fundamentally intervening in the ‘market’, the better things will probably be for the start-ups since, at the end of the day, they are going to have trouble operating in an environment where the attention (and money) is hoovered up by large ICT firms, and where there is intense pressure for extensive land redevelopment to suit the needs of such firms (single, large parcels vs. varied, small, multiple-ownership units). Probably the single most useful thing that Mr. Van der Kliej could do would be to halt (or at least limit) the conversion of adaptable warehouse space into luxury flats in the Shoreditch area and ensure that landlords have incentives to continue offering affordable rents to start-ups. The rest should be up to the entrepreneurs and firms.

Stay tuned…