Why London’s tech industry continues to lag Silicon Valley

EACH time an American company like Apple, Google or Facebook releases its results, I cannot help but wonder why Britain isn’t better at producing our own home-grown tech firms. It’s not as bad as it once was – and there are now a number of fascinating young tech firms in the UK, one of which, Moshi Monsters, reported good figures yesterday. But many of Britain’s tech companies are still choosing to move to New York when they go public, and we are still failing to produce truly global consumer giants.

Yesterday’s numbers from Facebook remind us of the astonishing scale of the world’s leading tech firms. It now has a record 665m active daily users globally, and 1.11bn monthly active users, for instance (though Nielsen research reveals that its numbers in the UK are stagnating at around a still massive 26m, down 2m from peak, and have also dropped in the US).

Silicon Valley Bank, which works with about half of all venture-capital backed businesses in the US and which now has a presence in the UK, has released an intriguing study seeking to understand the challenges that face the British tech industry.

One finding from its interview of 125 startup executives was especially striking: 77 per cent say that finding workers with Stem (Science, Technology, Engineering and Maths) skills is absolutely critical to the success of their business. Yet there is often a lack of supply of such graduates in the UK, especially those with engineering qualifications and experience. This is partly because of a major failure of the UK education system in recent years, which has churned out the wrong sorts of skills.

The survey also highlights a funding gap for growing businesses between £250,000 and £1m, which confirms that the tax system still needs to be radically improved to incentivise greater amounts of venture capitalism. The research also reveals that many players in UK tech believe that the overall culture is far more risk averse in London than it is in the US, which means that individuals, finance providers and companies will be less likely to take calculated risks.

That has certainly long been the case with students: Bill Gates and Mark Zuckerberg are just two in a long list of star entrepreneurs who dropped out of Harvard to make their fortunes. Try doing that in the UK, and you would immediately face derision and be branded a social failure.

There is one key statistic about Silicon Valley that is vital to bear in mind in this debate, however, and that is America’s ability to attract the best, most skilled and most entrepreneurial migrants, and create the right conditions for them to set up new firms successfully. The Partnership for a New American Economy has estimated that over 40 per cent of America’s Fortune 500 firms were set up either by immigrants or by their children. Research by the Kauffman Foundation suggests that immigrants founded 44 per cent of companies in Silicon Valley between 2006 and 2012. This is one of the primary forces driving the success of America’s tech industry, and is partly caused by top foreign students at US elite universities staying on when they graduate.

So Britain needs to change if we are to grow our tech industry. Taxes on capital need to be simplified and cut; students need to become better informed of the relative demand for different sorts of degrees, and universities need to do more to encourage spin-offs and start-ups; our culture needs to continue to become more entrepreneurial; and we need to allow the best, most educated foreigners to remain in the UK. There is no magic bullet, but that certainly does not mean that we should give up.

allister.heath@cityam.com
Follow me on Twitter: @allisterheath

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