Innovation Diary: Tech City turns three: Cluster changes shape while the quango seeks scale

Tom Welsh
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TECH City has just turned three. There is some confusion over what this actually means, however. Tech firms have been located around Old Street roundabout since at least the 1990s, so it’s really just the anniversary of the government quango dedicated to stimulating them. Yet despite criticism (Sir James Dyson has attacked an obsession with “web fads and video gaming”, and WANDisco’s David Richards has questioned government “table scraps”), Tech City UK has not been the damaging flop many feared.

The Tech City postcode can claim to be the most vibrant place in the UK for business creation, with 15,720 companies formed in EC1V in 2012-13 according to UHY Hacker Young. Tech City research shows that the number of tech/digital companies incorporated in London between 2009 and 2012 rose from 49,969 to 88,215. East London’s tech/digital sector accounted for 40 per cent of the jobs growth in the whole UK tech/digital industry. Tech City UK didn’t create these jobs, of course, but there’s something to be said for its focused approach to easing the barriers to entry and growth. On Friday, the government announced plans to ease visa rules for software developers. Tech City UK will vet applications with the Home Office.

But what next? First, Tech City is obviously not the sole entrepreneurial cluster in London, let alone the UK. In the 15 years to 2012, Cambridge produced 11 billion dollar tech firms and 15 with over $100m in revenue. According to the Cambridge Cluster Map, there are now 1,575 high tech firms in Cambridge, employing 57,140 people. And if Next chief executive Lord Wolfson’s vision of a motorway between Oxford and Cambridge comes to fruition, arguably Britain’s own university-led Silicon Valley equivalent will be found on this cross-country Brain Belt.

London, too, has a more diverse spread of entrepreneurial clusters than often implied. UHY Hacker Young showed that 5,190 businesses were formed in Borough and Bermondsey in 2012-13, particularly in finance, professional services and the creative industries. Bishopsgate and Canary Wharf, meanwhile, attracted 4,900 new City-related firms. The benefit of collaborative networking between startups is now well-understood – in terms of funding, knowledge, and business contacts. London, almost a city of villages, has long seen industries hug together – from the goldsmiths of Cheapside to Soho’s media startups.

But clusters can arguably become too successful. As Taylor Wessing partner Simon Walker says, Tech City’s “initial success was driven by the interaction between content developers and those with digital media skills.” But we’ve seen a pivot, with technology providers like Samsung moving in. William Hill has just opened a 6,000 square foot office in Shoreditch to develop its mobile offering. The result is not malign, but Walker says there’s now “a lack of affordable space in Tech City itself”. Companies have been shifting out to Dalston and Hackney.

This is possibly reflected in the quango’s own strategy – less about boosting startups, more helping companies to scale. This year, Tech City UK head Joanna Shields has announced its Future Fifty – 50 companies deemed to be able to become world-class digital giants. The latest tranche was released on Friday, and will benefit from a year-long programme to boost exposure to institutional investors, gain access to government schemes, and receive bespoke advice.

The group is impressive, including investment network eToro, and online wine merchant Naked Wines. Nick Day, chief executive of fintech company Small World FS, is another. Small World is no rookie. Founded in 2005, it is now Europe’s largest payments services provider with over $100m in revenue, and Day is enthusiastic about Future Fifty. “We are in a growth phase, and we’re looking for support,” he says. And he expects the programme’s impact to grow with time. “There should be a feedback loop. As firms take part, the programme leaders will get into the nuts and bolts of what will accelerate other companies.”

Tom Welsh is business features editor of City A.M.