How Does London Become the new Silicon Valley?

I recently gave a speech at Kings College Student Think Tank on the subject of how London could develop into Silicon City .

Here’s what I said 

I am delighted to be here at the launch today to talk about tech and what we can do to make sure that London really becomes Silicon City. I would in fact like to see Silicon Nation!

 will.i.am says “Tech is new Rock N’ Roll” . He also says London is the centre of the world. And of course he’s right!

We are already doing well –after all the UK is generating more $1bn Unicorns than any other country in Europe. It is already the pre-eminent location worldwide for Fintech. Just five years after the launch of Tech City, venture capital into London is now 10 times higher than in 2010.

Tech firms in the capital secured almost $1.4billion in venture capital financing over the course of 2014, double the figure for 2013 and 10 times the figure of 2010. In just the first three months of 2015, the City’s tech companies secured more than $682million in VC financing. Over the next ten years the number of digital technology companies in London is expected to rise to 45,000 and create more than £12 billion of economic activity, according to research by Oxford Economics

Of the 17 UK tech unicorns, 13 are based in London. More than the total of Sweden and Germany put together.There was a 92% increase in new digital companies incorporated in Inner London between 2010-13. 251,590 are in digital employment across Inner London, more than any other city in the UK Over the next ten years there are expected to be 46,000 more digital jobs in London, according to research by Oxford Economics

London has become the FinTech capital of the world – With more people employed in the sector than any other city worldwide, standing at 44,000 (1,000 more than New York). London is a major hub for big data. There are an estimated 54,000 big data workers within 25 miles of London, compared to 57,000 for New York City and 98,000 for San Francisco/Silicon Valley

I had the privilege of launching the Manifesto of TechUk the body that represents the UK tech industry shortly before our General Election this year. It strongly reinforced and complements the Start up Manifesto from COADEC published shortly before and the Report “Connected Cities” from Jim O’Neil’s City Growth Commission published in July.

All of them in their own way tackle a series of policy initiatives and developments which UK Tech companies perceive they need to take effect to enable them to grow and prosper in the UK in the context of what is a global digital revolution which we are all experiencing and which TechUk’s Presdent Jaecqueline de Rojas has described as “Irreversible and Unstoppable”. In each case they want to build on success.

In a non political way everyone is now singing from the same hymn sheet. Let me tell you why.

Access to Finance and Commercial Advice

First we need to ensure that Tech companies at every stage-start up and beyond have access to the Finance they need to grow and can stay in London. This has been the subject of a great deal of activity in the past 5 years

Over time UK start up Tech companies have a benefited from a range of Government investment and support schemes giving them access to early stage equity finance through the Government’s Seed Enterprise Investment schemes. It’s one of the most generous early stage tax breaks available anywhere in the world

Tech companies have also benefited from a range of Government investment and support schemes, including the Business Growth Fund, Enterprise Capital Funds (ECF)and the Enterprise Finance Guarantee (EFG),

It is in two stages of equity finance where we are behind Silicon Valley and Nasdaq in New York. Problem of business accessing finance to achieve scale.  There is a danger of businesses moving to the US at this funding stage. A recent report by Sherry Coutu on Scale Up highlighted this saying:   “There is a lack of follow-on capital in the UK, compounded by short term investor mind-sets”

In response the London Stock exchange has created the new High Growth Segment to encourage companies to list here which is having an impact. It has also developed the ELITE programme of structured engagement developing and supporting ambitious private companies through their next stage of growth.

(Partnered with Imperial College Business School) ELITE delivers a three part service of education, business support, mentoring and access to an ecosystem of professionals fostering growth Companies enter an 18-month programme to give them a mix of education, training and direct contact with Europe’s financial and advisory community. Elite shows company management teams how to get access to the most suitable funding to help them grow, which could be VC investment, private equity or stock market flotation

As regards debt finance with very limited exceptions the banks are failing SME’s and start ups. They are only really interested in established businesses.

But in different ways BgF (Business growth Fund) and BBB (the new British Business Bank) go some way to addressing these issues. since its launch in 2011, BgF has directly invested over £400m of growth capital in more than 70 British scale-ups, with more than £200m deployed in the past 15 months. The British Business Bank has invested almost £150 million in a number of growth finance funds and lenders in the UK scale-up sector

There is however the government backed Start up Loans company that has made 33,000 loans for start ups since 2012 amounting to £181 million. The average loan size is £5000.

The Start Up Loans Company was established in September 2012, when Lord Young identified that if self-employment was rooted in the British mentality and considered as a viable career path this would lead to increased job creation. Their mission is to ensure the provision of affordable finance, free mentoring and support for those who cannot obtain funding from alternative sources.

The Start Up Loans Company is supported by the British Business Bank, with a further £330 million of government funding confirmed. 51% of loans have been to the under 30’s.

Then there is Crowd funding is beginning to have a real impact. Loans through UK Crowd funding have hit the £2bn mark at the end of last year.

Nicola Horlick:

“Crowdfunding is all about cutting out the middle man and allowing small businesses to get the funding they need without banks taking a slice of their margins in fees from when firms take out business loans,” she said. “For savers, these ventures offer the potential for much greater returns.”

It is good that funds such as Funding Circle are receiving government support through the Business Finance Partnership scheme (BFP). But in the wake of British drone startup Zano’s recent bankruptcy after heavy funding from Kickstarter questions are being asked about the crowd funding model.

There is more to be done however . There is no magic wand but we should be facilitating new entrants to the banking sector, including through public procurement policy, so that there is much more choice and variety of competitors in banking, in particular business banking .I hope that the many new challenger banks such as Metro, TSB etc now emerging will make a difference but it should be much easier to establish a new bank and to switch Bank accounts especially when the customer has an overdraft.

Public Funding

I was pleased to see in the recent Autumn Statement that that the science budget has been ring fenced and more ‘Catapult’ innovation and technology centres, essentially business innovation accelerators, will be rolled out. This kind of public support is crucial

Commercial Mentoring

There is also a need for more commercial mentoring and support for start ups quite apart from the finance. This includes backing not just micro businesses but individuals as well. We should be giving them more support at the so called “Friends and Family” stage. Some sectors like the British Fashion Councils New Gen programme which identifies talent and nurtures and mentors it towards commercial success are a model of how this can work.

I came across an innovative new business the other day called Entrepreneur First. Unlike accelerators and seedfunders like Techstars, Y Combinator and Wayra, although they have impressive track records, EF focuses on finding and funding talented individuals, not just promising companies and using Venture Partners to mentor them on a weekly basis. They say “It’s only a matter of time before EF produces some seriously big tech companies, possibly even unicorns.” as a result.

Universities

Of course there is a role as well for serious tech, creative and R&D inspiration and help for start ups and micro business and that is where universities with their ever increasing enterprise agendas often come in.

For instance I went to a presentation lat week about The Creative Exchange which is a collaboration between Lancaster University, Newcastle University and the Royal College of art, who bring expertise of their PhD students in digital design to assist micro businesses develop their ideas and meet practical challenges.I know you at Kings are part of Creative Works London in partnership with QMUL and others, also Funded by the AHRC

Thirty-eight London-based universities, colleges, museums, libraries and archives. They work with businesses who are interested in exploring areas such as entrepreneurial development, emerging markets, new ways of engaging London’s diverse audiences, and the development of digital resources and media content. Having seen the Google Campus in Shoreditch in full swing I know that can be a source for help and inspiration too.

Understanding how to access these great schemes and skills for individuals and micro businesses is crucial however and there is more that could be done by government, the tech hubs (Tech City /Tech North) LEP’s and government sponsored catapults in helping them navigate to where university partners can be found.

Skills

The talent available however is far below what we need. Start ups need a mixture of technical and creative skills to develop their new digital services.

The Tech UK manifesto says we need 1 million tech jobs to be filled by 2020 to keep up with demand.

I welcome the mandatory inclusion in the curriculum of coding/computer science from this September for 5-16 year olds, the first in the G20  Also welcome the involvement of the tech sector in Code Clubs. Now of course we have the Raspberry Pi zero for $5 so there’s no excuse for not getting started!

But even if the pipeline from schools and universities is finding the right talent ,. subsequent training and proper apprenticeships are hugely important. We need to increase the number of apprenticeships both post school and university and improve their quality

I don’t know how many of you are from overseas but that said we will still be reliant on the skills of overseas undergraduates and post graduates and we should welcome them. We shouldn’t chase unrealistic targets in trying to reduce in net migration at the expense of  growth in the digital economy. We should remove students from our immigration targets given their temporary status. In particular too we need to go further and reinstatement of the post study work route visa.

Good news on one front however. Attracting the best and brightest tech talent to the UK got easier today as the Home Office has published renewed eligibility criteria for the Tech Nation Visa Scheme (Tier 1 Exceptional Talent).

Following the announcement of plans to revise the criteria on 16th October 2015, the visa route is now officially open for applications under the new eligibility criteria.

This route is now open to candidates, who although assessed against the same criteria, will be considered to have ‘Exceptional Promise.’ This aims to open the route to a broader base of aspiring talent from outside the EU.

We shouldn’t just be talking about skills for entrepreneurs/ start ups, what about the customer, the audience-whatever we like to call them? The Tech Uk manifesto urges that digital exclusion is tackled. We still have many families without access to a computer or to internet facilities at home. There is still a lack of universal digital skills in Britain. 23% of adults lack basic digital skills.

Norway/Sweden by contrast have 97% basic digital literacy. We need commitment by Government to fund the teaching of basic digital skills through initiatives like Martha Lane-Fox’s Doteveryone initiative and Go On UK the digital skills charity she founded to combat digital exclusion.

On skills still I am delighted that industry is becoming less male dominated. We should use all available skills and encourage young women to go into STEM subjects as well as young men.

I mentioned the President of TechUk, we also have a whole range of other prominent women in tech. Eileen Burbridge who is the UK Ambassador for Fintec, Sherry Coutu who I have mentioned and is an important angel investor, Nicola Mendelsohn the V-P of Facebook and Chair of the Creative Industries Council, and not least Baroness Joanna Shields, the former CEO and Chair of Tech City and is now the internet safety and security Minister.

Clusters

The TechUk manifesto clearly recognizes the importance of geographic and sectoral balancing of our economy . Correct when the Manifesto says tech economy “more geographically extensive than is often recognized”

And this leads to the importance of clusters. Tech City yes-with 15,000 startups last year and the year before.

70,000 people now employed there. The Tech sector has accounted for 30%of new London jobs since 2009.

But there are so many other places,

• Newcastle Silicon Shore,
• Liverpool with the Baltic Triangle
• Brighton’s so called Silicon Beach
• Dotforge in Sheffield
• Software City Sunderland

Yes Manchester, Edinburgh, Leeds, Bristol. Birmingham, and Bath all have creative and tech clusters of different kinds . The role of our World class universities like Kings and their networks and enterprise and spinout activities is crucial in delivering all of this.

But RSA’s City Growth Commission chaired by Jim now Lord O’Neil took the view that too many of the UK’s urban areas outside London are failing to achieve their growth potential. Compared with London these cities are still weak economically. How can we strengthen our clusters?

That’s where the Northern Powerhouse Strategy comes in with development of the city region/combined authorities developed from policies started under the last (Coalition) government. So far we have Liverpool and Sheffield City Regions and the West Midlands Greater Manchester Tees Valley and North East Combined Authorities.

The plan is to devolve more economic decision making to local areas and away from national government. Cities will have greater powers, especially over finance. Currently 90% of tax is collected by central government. That is going to change entirely by 2020 ands city regions will have entire control over their income and budgets by then.

And the Cities are thinking big : I recently spoke at a Conference entitled ” Manchester: From Regional Hub to Global Incubator!”

We also need to ensure much better transport and digital connectivity between our Metro areas outside London for instance and hopefully the investment in Transpennine line will do this along with the creation of Transport for the North.

 International/The EU

We are already the highest net exporter of computer and information services among the G7 countries and our tech/internet economy accounts for a greater percentage of GDP in the UK than in any other G20 country.

We need digital markets to remain open and to break down the barriers to E-commerce across the EU to create a genuine European Digital Single Market. That is high up the agenda of the EU

The tech sector want the UK to help drive the reforms that Europe needs to become more open, innovative and competitive. As a result an overwhelming majority of the tech industry want the uk to stay in the EU.

We should embrace TTIP the US/EU free trade agreement in the offing.

 The Role of Creative Content

There were some areas however where in my view the tech UK Manifesto could have been more explicit.

As well as recognising the need to be at the forefront of the Digital Economy our tech industries ands start ups need to acknowledge the increasing convergence between platform and content or design, between tech and the creative industries. There is no doubt that each sector is increasingly making use of relevant skills in the other.

All this means of course that Intellectual property protection through copyright enforcement is a subject of increasing importance in the digital age both as to product design and creative content. Attracting investment becomes more uncertain and more unattractive without proper protection of this vital asset. Business models are changing rapidly but all to a greater or lesser extent depend on good IP protection.

Digital copyright infringement sanctions need to be enhanced in the digital space. There are other initiatives eg Follow the Money which we could to ensure that infringing websites do not benefit from advertising and credit card company agreements.

However, combating piracy and unlawful copying is not simply a matter for the law. In both our countries we need to combat the idea that copyright infringement is socially acceptable through education and we need to make sure that there are legal ways of accessing copyright works at reasonable cost. Initiatives like Creative Content UK by the creative industries and ISP’s are important

The key too is improved licensing. One of the most exciting developments is the creation of the U.K. Copyright Hub which is a portal by which copyright works of all kinds can be identified and then licensed. It will I hope develop into an international resource. But it needs funding by government to ensure this happens.

Realize I haven’t addressed the fundamental question of our broadband infrastructure. Could talk for hours about this but I will resist the temptation!

Rural areas are still beset by slow speeds. Despite a £1.2 billion procurement programme, we are still a long way from universal high-speed broadband. As a report from the Commons public accounts committee (PAC) last March detailed, red tape and the monopoly position effectively occupied by BT have stymied the programme.

Or housing. The Standard recently highlighted the fact that we may be Silicon City with some massively growing businesses like money transfer World Remit or holiday firm Secret Escapes but they won’t be able to expand if there no where for them to live. So housing policy is vital. We should do much more to encourage the provision of mixed studio/office living space with special tax breaks.