Tech City News – Issue 8, October 2015 – The Tech Ecosystem Formerly Known as London

Kirsty Styles, senior reporter,Tech City News@kirstystyles1

THE TECH ECOSYSTEM

FORMERLY KNOWN AS LONDON

AUTU M N 2015 • techcitynews.com

SPECIAL repo rtTECH CITY FIVE


We now seem to spend a lot of time

spotting unicorns or hunting dragons,

while also constantly on the search for

those other rare species, the talented

teams who make the fairy tales

happen.

But, just like any ecosystem,

real or imagined, it’s really lots of

interconnected parts working together

over time that make the difference

between success and failure.

A tiny shift and that unicorn may

end up looking like a donkey.

It’s fi ve years now since the

ecosystem bubbling along in Old

Street, Tech City, went from half-joke

nickname to government-backed

initiative.

Of course, this is a mere blip in the

long story of the borough of Hackney,

which this year celebrates the historic

50th anniversary of its joining with

Shoreditch and Stoke Newington.

Would you believe that everyone,

from Hitchcock to Blair, has made the

area we now think of as Tech City their

home?

But Hackney has perhaps changed

more in the past fi ve years than in

most people’s living memory – and

this is really just the beginning.

With six towers planned for

Bishopsgate Goodsyard, a £750m

transformation of Great Eastern

Street, named The Stage as it takes

in the site of Shakespeare’s Curtain

Theatre, along with a 346-room hotel

on the site of Red Market, Shoreditch

ain’t seen nothing yet.

V.0Thirty years ago Hackney had failing

schools, no-go areas and the only

beards were associated with the

Hasidic Jewish community in north

Hackney at Stamford Hill.

Little did the ravers frequenting the

now-defunct Blue Note on Hoxton

Square in the early 90s know how

much their music community would

transform the City, and the entire city,

into what it is today.

“There were a lot of people from

the fi rst bubble sitting around in cafes

pitching,” says Last.fm co-founder

Martin Stiksel. “And there were lots of

companies that appeared but then very

quickly disappeared again.

“We always knew music and

tech would come together, it’s an

obvious way of living, but the whole

industry went sour after the initial

honeymoon.”

Working on what we may now call

V.0 of Tech City startups back in 2002,

Last.fm started in one of the team’s

bedrooms in Whitechapel. There were

devs sleeping on sofas, there was no

startup infrastructure to speak of,

meetups didn’t exist, but after three

years and a graduation into a cheap

Whitechapel offi ce, they fi nally set up

home in Baches Street in Shoreditch.

“There was no Tech City or Silicon

Roundabout and all this kind of

business. It wasn’t to our knowledge

that there was much around there

either,” he says, although the

company’s premises quickly became a

hub for other startup companies.

“It was already the coolest place,

thanks to the music and art scenes that

had grown out of it, but we were just

cheapskates really.”

Four years in, with one million

users, and after a chance meeting at

a digital festival in 2006, Stiksel and

his co-founders managed to bag some

angel funding from now-MIT Media

Lab director Joi Ito and Reid Hoffman,

then in the early years of Linkedin.

Fast forward to 2010 and Last.

fm, having got backing from Index

Ventures before being sold to CBS

in 2009, where it shed its founding

team and got a name-check in David

Cameron’s maiden Tech City speech.

“We only found out later and we

were bewildered that it seemed like

the government was taking credit for

doing diddlysquat. But I guess it was

good news in dire times, light at the

end of the tunnel.”

Stiksel and co are now ploughing

their hard-learned lessons into a new

venture, Lumi, not unlike Last.fm for

news, based in Smithfi elds.

Just as the music scene in

Shoreditch “ate itself”, the former

Last.fm CCO doesn’t hold the place his

company used to call home in too-high

regard.

“It’s too expensive for funky people

now,” he says. “And where we are

now, it’s easier to speak in a restaurant

without fearing people will hear a

secret.”

Stiksel also suggests “poverty

focuses you more. We had to

scrutinise really hard on whether we

needed one developer or two. Now it’s:

here’s Amazon Web Services – let’s get

going. Perhaps things now get done

just because they can be done.

“Or maybe they’re just young kids

who are more at ease than we ever

were?”

V.1Hot on the heels of these, somewhat

unwilling, Tech City leaders were the

likes of Mimecast, Wonga and Huddle.

Founded back in 2006, online

collaborator Huddle co-habited with

six other VC-backed companies,

including Skimlinks, in what is now

the building site that will become the,

rather ominously named, White Collar

Factory on Old Street roundabout.

“We got kicked out so they could

redevelop the building,” says Alastair

Mitchell, CMO and co-founder

of Huddle. “And offi ce space in

Shoreditch is just too hard to get hold

of for bigger businesses.

“But fi ve years ago, there were

questions around whether the biggest

EU tech hub would be Berlin, Paris or

Helsinki. And it’s clear London is now

the place to go to start your business

in Europe.”

Huddle has had to move out to

Aldgate and is about to upsize, yet

again, which is no bad thing, when you

think about it.

“London today is certainly a more

mature ecosystem. The fact that we’re

even talking about European unicorns

is an example of a good fi ve years.”

Despite nearly 10 years in the

business, Mitchell knows that “cloud

collaboration” is yet to become a


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special REPO RTDU BLI N

SU M M ER 2015 • techcitynews.com

mainstream idea, although everyone

with an internet connection in the

UK is probably using the cloud every

single day.

“The challenge is that everyone

is trying to do a lot of today’s work

with yesterday’s technology. Most

businesses in New York and San

Francisco are entirely SaaS.”

And as around half of our workforce

will be staffed by millennials by

2020, he believes we’re going to see a

fundamental shift.

“They’re the digital native

generation, social and collaborative

by nature, not just sat at desks using

Outlook. It’s clear the enterprise IT

stack needs a good shake.”

What Mitchell believes London has

been good at in the past half-decade is

“playing to its strengths. Whether it’s

the NHS and health, retail, as we have

the most sophisticated retail market

in the world, or fintech. This reflects

what Britain is really good at.”

In its Agiletowns report, Deloitte

estimates 44,000 people now work

in fintech, of some 200,000 people

Oxford Economics says work in

London’s tech sector.

“But the single-biggest barrier is

that there is still not enough money

for late-stage startups and we’ve been

saying this for the past five years,”

Mitchell says.

“There has been a massive increase

in seed funding, accelerators, angels

and VC funds in the past five years,”

adds Simon Menashy, investment

director at MMC.

“Lots of new capital, support and

mentoring has come into the market

that means London can create and

support an ecosystem of thousands

of startups a year – developing into

proper little companies – and we are

Top: Martin Stiksel, CCO and co-founder of Last.fm and currently of Lumi; Alastair Mitchell, CMO and co-founder of Huddle

Bottom: Matt Cooper, commercial director at Crowdcube

the lucky recipients of fi ve years of

increasing prospects.”

But he echoes Huddle’s concern.

“The area that has changed the least is

Series A and beyond. We look after a

$100m fund and around $20m of that

is invested in the UK. There are only

around 10 VCs in London operating

at this level but I would like to see 10

more.”

“All the unicorns have been funded

outside the UK,” Mitchell continues,

emphasising his company’s plan

to “hopefully fl oat or exit here. The

message is: you should start your

business in London, but ultimately

move somewhere else, which is a

shame. It should be: start in London,

get investment in London, grow, grow,

grow.”

V.2Step in V.2 fi ntech upstart Crowdcube,

founded in 2011 as the world’s fi rst

crowdfunding platform.

“Having more and more fi ntech

businesses scale quickly puts a great

focus on the industry and that’s

been great for us,” says Matt Cooper,

commercial director at Crowdcube.

“London is now the fi ntech capital of

the world, from the proximity of the

City of London offering up top minds

in the world, to the fi nance industry

that’s ripe for disruption.”

But CrowdCube was *whisper

it* not even created in London and

maintains its Exeter HQ.

“We work hard at fi nding talented

people who want a lifestyle change

if they’re going to be moving from

London to Exeter. It’s usually

someone looking for something more

than a tech business in London.

“But there are other people in

the business who want the Silicon

Roundabout vibe, that’s why we

opened up in Dean Street in Soho,

right between the entrepreneurs in the

East and the investors in the West.”

As the brave market-movers in

peer-to-peer investment, Cooper

admits it was Tech City that really

spurred its model along.

“There is a strong pull to London,

not least because all of our customers

and the businesses raising money are

in London and the South East. We’ve

grown up with Silicon Roundabout –

with the incubators and accelerators

– and we’ve got people over there all

the time.”

He says Crowdcube was “right

place, right time, right solution. We

found something traditionally hard for

businesses to do – raise fi nance – and

took it online and democratised it.

There were lots of early Old Street tech

and digital entrepreneurs and so we

went out and talked to them.

“Founders and CEOs now

understand that they don’t need to

speak to the bank manager about

growth capital – they can engage with

and grow their customer-base at the

same time.”

Having just seen its fi rst exit, E-Car

Club, and with the amounts raised on



58

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its platform pushing the £1m mark,

the company is now seeing signifi cant

growth in debt crowdfunding too, as

opposed to equity, but Cooper assures

us the best is yet to come.

That could mean US expansion,

if regulation catches up with the

“forward looking” policymakers here,

as well as a new Manchester hub.

“There are talented businesses,

entrepreneurs and founders in

Manchester and we’re wondering if it

can replicate London. There isn’t great

availability of early-stage funding,

but there also isn’t great awareness

of alternative fi nance outside of the

South East.”

Alongside this, Crowdcube has

been busy building partnerships with

the likes of Index Ventures. “Five

years ago, a retail investor or a fan

of a business couldn’t partner with

investors like Index and Passion

Capital on the same terms. For

VCs, joining a crowdfunding round

is a great way of validating the

investment.”

Cooper says Crowdcube is ultimately

hoping to “put the public back

into IPO” by facilitating the fi rst

crowdfunded listing via the Crowdcube

platform.

“It’s really great to see that V.2

companies are getting bigger, better

and faster than us,” observes Huddle’s

Ali Mitchell. “There are certainly more

VCs and more money coming into the

UK.”

V.3EY estimates that more than 1,000

international tech investments have

been made in London from 2005

to 2014, and those now joining the

startup ecosystem certainly have many

things to thank their forerunners for.

“I started the business straight after

uni,” says Oxford grad and travel

app founder Alick Dru. “I was meant

to go and work in a bank but the

idea of banking was so depressing.

Fortunately people loved the idea of

Tripr and I already had people offering

me money.”

Having raised an £80,000 angel

round in November last year, Dru

says the company will probably go

down the crowdfunding route for its

next cash injection. “We’ve heard of

some really good success stories on

crowdfunding.”

But the nine-person travel outfi t is

currently working out of a garage in

South Kensington, which Dru calls a

“very good deal”, and while South Ken

is certainly not a northern sink estate,

it’s not ideal.

“We found coworking to be very

expensive. We were three people

and we had to pick: nice offi ce or

grow?” Their unusual offi ce dwelling

is currently composed of a sink, a bar

fridge, a lonely beanbag and a “very

powerful router”.

“There are a lot of options for

coworking and it makes sense for

really small startups we made good

contacts and a talk on R&D tax credit

breaks meant the space paid for itself,

but it’s not viable for us now. There

isn’t really a middle ground: you’re

either renting an offi ce or coworking.”

And Tripr also had a “nightmare”

few months of hiring. “We had some

people who came from the City and

said they had lots of experience but

they had none. And they didn’t seem to

like the hours, or the environment.

“So in the end we went straight

to the universities, tracked down

the computer science groups at

Cambridge, UCL, Imperial and found

some absolutely incredible people.”

“We’ve also got a new female

director who was one of the founding

team of Generator Hostels,” Dru

adds, a relationship that no doubt

demonstrates the buzz of the startup

ecosystem at work.

“Five years ago, people from

government would turn up and say

‘we’re not going to get in the way’

and then spent 10 minutes getting in

the way,” MMC investment director

Menashy adds. “But what’s changed

the most for me is that it’s now cool to

be an entrepreneur. It’s acceptable to

work for a startup and explain that to

your mum.”

He points to the fi nancial crisis,

youth unemployment and changes in

the labour market that mean “the jobs

our mums and dads had just weren’t

available anymore” as key catalysts.

SKILLS CRUNCH“Tech is eating its way into the lower

skilled jobs on offer,” Angus Knowles-

Cutler, senior partner at Deloitte, says.

“Because of automation, high-risk jobs

make up 30% of London jobs, meaning

they’ll likely be gone in 10 to 20 years.”

Outlining the fi ndings of his

Agiletown report, he says that from

2001 to 2014, a mere 13 years, half of

all secretarial jobs have gone in the

city, along with more than a third of

travel agents.

“But for the jobs that are

disappearing, this is more than

made up for – so we end up with

net 300,000 more jobs, 200,000 of

which are high-skilled. In the league

table of global cities London leads in

22 sectors, including theatre, higher

education and professional services.

In the EU, it is the leading high-skilled

city.”

Knowles-Cutler believes that we

need a permanent “chief talent offi cer

to pull all of the strands together,

working with national government,

the Greater London Authority and the

boroughs. And something we have to

tackle is lobbying for an intelligent

visa system. We don’t have the level of

supply, so high-tech digital skills have

to come from outside the EU.

“But we really have to be thinking

fi ve to 10 years out, making sure

that schools, colleges, universities

are producing people into the

workforce who’ve got the skills for

the London of tomorrow.” Indeed, in

The Entrepreneurs Network’s annual

Parliamentary Snapshot, improving

the skills of the domestic workforce

has been the top cross-party priority

for two years running.

In a report for London Technology

Week, Boris Johnson said some £1.5m

has been invested in computing in


schools in the Capital since 2013, but

some of Tech City’s biggest challanges

have been around local education.

While there may be coding courses

aplenty, the Ada Lovelace Academy

failed to get going, the specially-

designed Hackney UTC has closed

and the STEM Academy has been

blasted by Oftsed and taken over by an

academy chain.

“The tech sector has been slower

than we’d hoped to embrace the Tech

City Apprenticeship programme,” says

Ian Ashman, principal of Hackney

Community College. “This is an

example that gives some credence to

the criticism that the local population

is not benefi ting as much from Tech

City growth as they might.

“However, we’re developing and

shaping the programme all the time to

make sure that it meets the needs of

tech businesses and we look forward

to more companies joining us to bring

more new local entrants, from more

diverse backgrounds, into the Tech

City talent pool.”

Ekaterina Punter, computer science

teacher at the STEM Academy, soon

to be rebranded under the ‘Tech City’

banner added: “Real involvement of

real tech employers is what education

in the UK needs. Working in tech is

cool and the best way to let young

people know about it is to give them

work placements in tech companies

or invite them over for a career talk.

London needs more programmers:

help schools to make them.”

Further to this, a proposed civic

space to be opened on the roundabout

that City Hall had secured £50m for,

and would be used to help get 10,000

people coding, was also scrapped this

time last year.

“Tech City has really dissolved,”

says Ali Mitchell from Huddle. “The

cluster is spreading west, over to

Farringdon and King’s Cross. And

there isn’t as much community spirit –

because everyone is so spread out.”

“One of the biggest risks we see to

London’s future success is the cost of

housing,” warns Deloitte’s Knowles-

Cutler. “There are lots of young,

highly-educated people coming into

London but it’s a real struggle as the

cost of housing goes up and up and up.

“But who owns the problem? We

need a strategy that looks at the

availability of housing, making the

planning system more effi cient, and

public and private partnerships.”

Although Boris Johnson’s 2020 Vision

for London outlined the need to build

40,000 homes per year, earmarking

brownfi eld sites, we’re currently only

delivering around half of these.

The London Enterprise Panel, led

by the Mayor and bringing together

key stakeholders from across the

city, likewise identifi ed this problem

in its London: 2036 report. The

group believes £1tn will need to be

spent between now and 2050 to

accommodate population growth.

Deloitte has started subsidising

deposits and rents for its new young

staff via a partnership with the

Olympic Park’s Here East project,

which, along with long-awaited high-

speed broadband, is one of the biggest

promises from David Cameron’s 2010

speech that is yet to be fully realised.

“For Tech City fi rms, housing is

hugely important to the growth of the

London economy and our approach at

Deloitte doesn’t solve their problem,”

Knowles-Cutler says.

INTERVENTIONBut entrepreneurs like Lastminute.

com’s Brent Hoberman, V.0 headliner,

have mixed views on government

intervention. “Tech City has a great

brand and has been very good

internationally to get the message

across that government is very serious

about leading the world in Europe. But

it’s good that growth has gone beyond

East London – that was my issue with

the whole idea,” he says.

And on future government

intervention to address continued

gaps, like space, Hoberman adds:

“Space is key but we have a lot of

incubators and more coming, along

with advice and mentors. Do we need

government to do it? I think that the

private sector can address this.”

So, the ecosystem that is, or was,

Tech City has broken beyond its East

London roots, which, just as in the

wild, has knock on effects to local and

wider interconnected elements.

There are now more than 70

coworking spaces and upwards of 30

accelerators across the apital, which

are becoming increasingly specialised

to meet more sophisticated startup

demands.

UKTI’s Tech City body has

expanded too, heading up north, and

looks to have stayed within the £15m

budget set out by the PM half a decade

ago, racking up around £8.9m of

spending, largely in salaries.

And building on the devolution to

the regions Boris Johnson has now

approached communities secretary

Greg Clark to ask for greater powers

over areas like skills, transport and

housing.

Oxford Economics believes that

the tech sector will bring in £18bn by

the end of this year, demonstrating at

least in pure fi nancial terms a success

you can’t reallyargue with. Investor GP

Bullhound, likewise, has picked out 17

much-mythologised unicorns, largely

in fi ntech, that it thinks will break the

$1bn mark.

Questions remain on where we go

after fi ntech. Can we, as Boris Johnson

suggests, be the cleantech capital of

the world? How can London compete

with Asia and the US to back the next

big world-changing companies? How

do we make sure we have the space,

skills and homes that we need to help

entrepreneurs get there?

And, fi nally, although we may be

beating Silicon Valley, do we think the

tech sector is truly representative of

the audiences it serves across class,

gender and ability? If not, is it our

responsibility to change that?

This is certainly not the end of

the tale of Tech City, perhaps the

sequel will be called: ‘Tech London:

this time we kind of know what

we’re doing’? ■



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Tech City News – Issue 8, October 2015 – The Tech Ecosystem Formerly Known as London