Tech City: what a missed opportunity

The Government’s newest tech quango could have been so different, says Peter Storey, but in its present form it does little good for entrepreneurs or investors.

Well, would you Adam and Eve it? For years, my East London neighbourhood has been known for two things: the murder of a string of tarts by Saucy Jack, and the murder of George Cornell by Ronnie Kray.

The promise of a decent curry was the only tool I had to lure my metropolitan friends to a parish described by Jack London as “a nightmare, a fearful slime that quickened the pavement with life, a mess of unmentionable obscenity.”

So you can imagine my relief when, in November 2010, Prime Minister David Cameron held his nose long enough to announce the grand Tech City project. “Britain’s answer to California’s tech-centric Silicon Valley” lauded The Guardian. “London’s answer to Silicon Valley … the most exciting technohub this side of California” raved the Evening Standard.

The East End was to be “transformed into a world-leading technology city to rival Silicon Valley” said the PM. And behind it all was to be a comprehensive package of policy and support pushing the Government’s clear pro-business agenda.

Except, of course, it wasn’t. In my view, UK Trade and Investment’s Tech City Investment Organisation represents a monumentally cynical piece of political opportunism. The policy is tissue-thin and designed, not with an agenda of economic growth or regeneration, but with a constant eye on how it can be spun to a gullible press.

It may be a cheap shot to point out that the only job outside politics the Prime Minister has ever held was in public relations for a TV company, but it is key to understanding what we are dealing with. The Coalition is like a photo-bomber trying to get its smarmy grin on every snapshot of success, while bringing nothing of value to the table.

I have no desire to get into a discussion of the concept of Silicon Roundabout as a “tech hub” or cluster. There is a wealth of research on whether internationally competitive industry clusters can be whipped up out of thin air, and interpretations are often contradictory.

It is enough to say that in the oft-quoted success stories – South Korea, Israel and indeed Silicon Valley itself – massive government investment and expenditure, generally defence-related, is often present.

Tech City is somewhere in the third tier, sandwiched between Denver and Portland. The concern is not whether East London will ever be a credible rival to Silicon Valley – obviously, it won’t – but whether the policies we are seeing do justice to the entrepreneurs and, indeed, the taxpayers, of Britain.

So why “Tech City”, and not the name the entrepreneurs favour, Silicon Roundabout? The answer lies out east, in the Olympic Park at Stratford. Four years ago, I was invited to a number of meetings and consultations about the likely shape of the Olympic Media Centre. There were two options in play at that time – a temporary campus built out of Portacabins, or a permanent structure offering a million square feet of studio and office space, with all the infrastructure the world’s media would require.

This latter option won, and at an estimated cost of £308 million, thoughts turned to how it might function as a legacy project. There were vague suggestions that the “creative industries” could use it, with the BBC and Sky touted as possible tenants. But as the world economy worsened from 2008, the likelihood increased that this building would turn into a Dome-sized white elephant. Meanwhile, a little over five miles away, the creative cluster centred on the Old Street roundabout was in full swing.

The renaissance of this once-grotty quarter had begun in the mid-nineties, with an influx of artists, hipsters and cultural institutions like the Blue Note music venue and the Lux Centre, home to the London Film-Makers’ Co-op. Genuine East End hipsters will probably point to the opening of White Cube on Hoxton Square in 2000 as the beginning of the end, but this was a green light for colonisation by media businesses around the tail end of Web 1.0.

At some point in 2010 an increasingly desperate Cabinet Office apparently felt it would be a good wheeze to stitch the two things together. And thus, like a piece of grotesque Victorian taxidermy, these distinct animals became “Tech City”.

Given its odd genesis, how likely is it that Tech City will become a success? The biggest stumbling block at the moment is a fundamental lack of understanding of the technology industry by the public bodies charged with building the cluster. The conflation of agencies and lightweight consumer web start-ups in Hoxton with the engineering-heavy needs of a Google or a Cisco is hopelessly misguided, even if cluster-building theory requires the presence of an anchor firm.

Google does not participate in vertical supply chains: it builds or buys wholesale, and, sadly, having it as a near physical neighbour does not increase your chances of being acquired (although it may make it harder to hang on to your best developers.) With Tech City, there is no recognition of the uniquely weightless structure of the modern information technology economy, where physical presence is a very minor consideration. Ever read The World is Flat? Or heard of Skype? My own start-ups may be modest, but I regularly draw on expertise from west London, Cambridge, Nottingham, Vilnius, Lahore and Manila. Needless to say, I do not bump into any of these experts at Silicon Drinkabout.

There is also the almost complete disregard for Britain’s existing tech industry. Homegrown web heavyweights such as ASOS, Betfair, Wonga, Lovefilm and MoneySupermarket have all eschewed East London, as have incomers such as Playfish, Skype, Facebook, Microsoft, Twitter and Groupon.

There is a colossal tech cluster along the M4 corridor where the real big beasts live, and further major regional concentrations: semiconductors and artificial intelligence in Cambridge, defence in Bristol and the West Country, gaming in Scotland. To date, none of these has expressed any interest in relocating to the unloved Olympic Park, where the government will be offering giveaway rents to any brand-name tenant seen to support the project.

As to the network effect enjoyed by a cluster, Silicon Valley extends from San Jose in the south, through San Francisco and arguably up as far as Sacramento and Folsom to the northeast, an area of several hundred square miles. So it is perverse that resources are being ignored in favour of publicising an artificial geography and a very narrow subsection of the industry. This also overlooks the fact that much of the knowledge and expertise of the sector lies not with youthful Social Network-alikes but with middle-aged men and women who value green space and good schools over grungy bars.

Surely, though, the firms already in East London are enjoying the benefits of this dynamic policy? Well, not really. In his 2010 speech, the Prime Minister made the frankly bizarre claim that in 2006 there were only 15 tech start-ups in East London. While literally hundreds of local entrepreneurs knew this figure to be a complete fiction, it has been repeated over and over by mainstream press and specialist bloggers, who should know better. This allowed the Government to show blistering growth in the sector, with 100 companies in November 2010 and various claims of between 200 and 600 today, if you include hairdressers and T-shirt shops, as the official Tech City map does.

There has been no attempt to collect substantial empirical data on the size or growth vector of the cluster. One of the best lessons of the Lean Startup methodology is the importance of testing and measuring every aspect of your product, from traffic through activity to conversions. This approach is excellent for building web apps, but it seems somehow too difficult for, or simply beneath, a public body charged with substantial investment in a critical growth area of the economy.

A lot of entrepreneurs I have spoken to take a “better than nothing” attitude to Tech City, conceding that, despite the faulty strategy and freewheeling methodology, the extra publicity given to local startups can only be a positive. Sadly, a recent Freedom of Information request from the editor of this magazine confirmed the spending priorities of the Tech City Investment Organisation. The promotion of startups was way down in the pecking order, despite a £1.7m annual budget. Each year, £250,000 is set aside for events, and £150,000 for marketing, with much of this being self-referential grandstanding for the organisation itself – such as their £53,000 WordPress site and their sponsorship of the Europas award ceremony.

However, this figure is dwarfed by the whopping £1.2m set aside each year for management consultants – sorry, “business specialists”. TCIO does not deign to tell us who these eight experts are, nor what they do, nor how their effectiveness is to be assessed, nor why each of them is worth over £146,000 annually. Hopefully this coyness will eventually be overcome so these outstanding individuals can be congratulated on the triumph of Tech City as a beacon of taxpayer value.

We are not seeing a serious attempt at industrial policy, but a series of stunts where the only metric of success is column inches.

Happily for the coalition, the press have been especially lazy in regurgitating this puff, while breezily forgetting other unfulfilled promises. Whatever happened to the £200m promised for Innovation Centres? Or that £200m of equity finance for businesses with high growth potential?

There has been an extensive campaign to woo tech bloggers, first with invites to breakfast at 10 Downing Street and drinks at Buckingham Palace, and then via transactions with their own business interests. Criticism has been muted, as many who privately think the project stinks do not want to disqualify themselves from future governmental largesse, nor risk ostracism from the incestuous community. Even the outspoken tweeter @TechShitty remains anonymous – and for the record, no, it’s not me.

For all the supposed consultation with local entrepreneurs over croissants with Dave, there seems to be very little understanding of the actual day-to-day needs of the sector, in East London or indeed elsewhere. No entrepreneur I have met has complained about a lack of Innovation Centres, or has held off starting a business because they were concerned about the marginal rate of income tax that kicks in north of £5 million.

For London to have any future as a technology hub, it needs cash. Lots of it, invested by knowledgeable people who understand the risk-and-reward structure of the assets. London also needs a senior executive class: individuals with the experience and contacts to act as a vector for this cash, and who can engineer substantial exits. All else is window-dressing.

On the face of it, there were some encouraging developments in George Osborne’s Autumn Statement last month. The Seed Enterprise Investment Scheme offers massive tax breaks for high earners to invest in early stage companies, and should in theory increase the capital available to technology start-ups. However, there is a relatively small pool of people in the UK seeking to offset £100,000 from their income tax bills, and this pool will generally be “dumb money”: investors with voting rights and board representation, but no sector experience.

There is also the concern that the investment becomes secondary to the tax break itself, with structures and intermediaries that do not prioritise the needs of the entrepreneur and the business.

Osborne’s other announcements were generally met with a “meh”. Loan guarantees will not benefit the start-up community, as credit will be as hard to obtain as it was under the failed Project Merlin. Small Business Rate Relief is generally not a major benefit for tech start-ups, and in any case does not apply to the area’s many co-working spaces. As for the promised £1bn to be invested under the Business Finance Partnership, I will believe it when I see it. The £100m for enhanced urban broadband will possibly be of interest to those wishing to run server farms. Largely irrelevant, though, to anyone who has heard of Amazon Web Services.

I am a long-time resident of the area, and a several-times entrepreneur who both runs start-ups and provides services to others. My academic career has been largely at the two universities slap-bang in the middle of Tech City, Queen Mary College and the Cass Business School, both of which have been overlooked as partners in favour of UCL and Imperial (perhaps fair enough) and, er, Loughborough.

No doubt I’ll now be accused of typical British pessimism. But it is difficult to escape the conclusion that all East London has been bestowed with is another self-serving quango, doing little of substance, but desperate to take credit for the organic growth generated by the enterprise and hard work of others. One only has to attend the events hosted locally to feel the energy and appetite for success, but if East London is ever to become anything better than a silicon circle-jerk, we need and deserve better.