Tech City Hampered by Lack of Investment

Posted on 23 November, 2012 by Neil Bird

Last week we reported that London’s tech cluster, based around Shoreditch’s so-called Silicon Roundabout, is growing at twice the rate of the financial sector. This data came from the Centre for Economics and Business Research (CEBR) which predicted that ‘Tech City’ was poised to overtake the City in terms of economic growth over the coming five years. This week a separate survey suggests this potential could be hampered by a lack of investment.

Silicon Roundabout. The hub of the strongest tech cluster in Europe

The warning comes from Telefónica Digital and the Startup Genome which has found that technology start-ups in London raise 81 per cent less later-stage investment than similar ventures in Silicon Valley. As a result of this, while London has the strongest tech cluster in Europe, it ranks only seventh globally.

The reasons for this lack of investment are believed to be due to a combination of the following factors;

  • A lack of access to finance.
  • A shortage of wealthy individuals willing to invest in young companies.
  • A culture of risk aversion among investors.
  • A tendency among start-ups to concentrate on peripheral activities.

At the same time, the survey found that London is the ‘European capital of innovation’ with job creation in the sector on a par with Silicon Valley. London start-up founders are also reported to be better educated than their American counterparts. In addition London has the benefit of being the top choice for US companies seeking European offices, although this position is threatened by Berlin.

Another finding of the survey is that, while London’s tech cluster is the most diverse in Europe – including more older entrepreneurs than other locations – only 10 per cent of start-up founders are women.

In the global rankings, which are based on several factors besides revenues, Silicon Valley unsurprisingly comes out on top. Tel Aviv is in second place followed by Los Angeles and Seattle. New York City and Boston take fifth and sixth places underlining US dominance of the sector. Making up the top ten behind London are Toronto, Vancouver and Chicago. Paris finds itself in eleventh spot while Berlin can only make fifteenth.

Mayor of London, Boris Johnson, said that east London was a “flourishing environment for new businesses” and that Tech City was now “Giving Silicon Valley a run for its money.”




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