Is England the best place to start your start-up?

For those wanting to set up a tech company, there's a lot to consider. ZDNet takes a look at some of the major start-up hubs in EMEA and what each can bring for those wanting to get their own IT business off the ground. Last up, a look at London.
Written by Jo Best, Contributor

For many in the IT industry, the dream is to set up a tech start-up and grow it into the next Google or Apple. Individual start-up scenes are thriving in EMEA, but from staffing to rent, exit potential to government support, there are huge differences between countries. But which country is right for your fledgling tech company? ZDNet examines some of the major hubs in the region, and what each can bring to the start-up table.

London, England
Europe's top start-up scene is located in the English capital, London Image: Shutterstock

A few years ago, when East London's rents meant would-be start-up CEOs could get office space for cheap not far from where they lived, near bars and coffee shops and 'edgy' street art, something of a tech cluster began to form.

In 2010, the government got wind of the burgeoning start-up scene and rallied it into a press opportunity, rechristening the area Tech City and talking loudly about how the area had potential to one day rival Silicon Valley.

Tech City may be an artificial construct – tech businesses were in the area before the government turned a grassroots movement into a bandwagon – but there's no denying the area is having a moment. It's now ranked as one of only two European start-up hubs among the top 20 worldwide, and the only one in the top 10, according to recent research by Startup Genome and Telefonica (PDF).

"The start-up scene - if you compared it to, say, 2006 - is leaps and bounds different now. Six years ago, there wasn't the volume of service providers familiar with the kinds of deals that were being done, there wasn't enough acknowledgement of entrepreneurs, there wasn't enough media, there wasn't enough of co-location of start-ups so they could leverage each other learnings. Even though there were start-ups being created, the ecosystem wasn't as mature," Carlos Eduardo Espinal, partner at Seedcamp, says.

The Tech City area – also known as Silicon Roundabout thanks to its proximity to the Old Street roundabout - is now home to several hundred fledgling tech businesses (although exactly how many hundred varies depending on who you listen to – figures from 200 to 600 have emerged), as well as hundreds more digital outfits, including online marketers, social media gurus and web designers.

"The start-up scene - if you compared it to, say, 2006 - is leaps and bounds different now" — Carlos Eduardo Espinal, Seedcamp

A Petri dish for start-up talent

There's a lot of young, enthusiastic digital and tech types who both live and work in the area, providing a ready workforce and something of a tech social scene - networking events and talking shops like the Silicon Drinkabout are all held on a regular basis. For those that like a pint and an idea-swapping session, that's all there to be had. (Although I've yet to meet a Tech City start-up worker who has actually admitted to going to one –  East Londoners are too cool for networking.)

When 10gen opened its first EMEA office, it decided to set up shop in Tech City, drawn by the community meet-ups, the proximity of customers, and the mix of people on its doorstep.

"You can get talented people throughout London because people will commute in, but the advantage of Tech City is that it's self-selecting: you're getting people here who want to be involved in start-ups and want to be involved in new technology, and want to innovate. And that's not just from a tech point of view, it's also graphic design, media and all those other areas. The area is a magnet for that," Alvin Richards, 10gen's technical director for EMEA, says.

Among the more familiar digital names around Tech City are the likes of Mind Candy (the company behind the tween entertainment juggernaut Moshi Monsters), gadget vendors Firebox, custom printers Moo, and enterprise collaboration platform and G-Cloud favourite Huddle.

The big boys move in

Thanks to David Cameron's PR blitz – which shone a spotlight on the area if little else – the neighbourhood's profile has been raised no end, and it's now attracting technology's bigger boys: Amazon, Microsoft, Twitter and Google have all opened offices there.

"There just isn't enough space - once you get into that middle space, you're moving out, basically" — Tom Adeyoola, Metail

But while the boom in tech companies - particularly at the larger end of the scale - moving to Tech City has helped cement its reputation as a serious contender for Europe's start-up capital, it has also caused a shortage of office space and had a knock-on effect on the cost of rent, potentially putting off the small businesses that made the area desirable in the first place.  

Retail start-up Metail saw the price of office square footage rise by 50 percent in little over a year. "If you're a company that has grown beyond being five to 10 people, the next phase is a 2,000 square foot office, and there just aren't any in the area... Several other people I know, also looking in the sweet spot of 2,000 to 3,000 square feet, have all left the area. There just isn't enough space - once you get into that middle space, you're moving out, basically," Tom Adeyoola, CEO of Metail, says.

One option for the office-less is the growing number of co-working spaces and start-up hubs that have sprung up in Tech City areas aimed at London tech start-ups, including White Bear Yard, the Trampery and Tech Hub. There's also Google's Campus: opened in May, the seven-storey centre provides office space to start-ups, hosts events and holds mentoring programmes where Googlers share the benefit of their experience.

For those that have, or want, to look beyond Tech City, there are shared working spaces elsewhere in the city – Innovation Warehouse, for example. And, for those looking beyond London, there's also the possibility of Cambridge – arguably the UK's second tech city - less than an hour away by train.

"We have kept our technology operations in Cambridge and not merged our offices because there's a better talent pool up there. Cambridge is definitely cheaper [for hiring staff], and we can great really great talent out of the universities. The closeness to universities is key for talent acquisition, and Silicon Roundabout doesn't have that connection," Adeyoola says.

For those with hiring on their mind, Tech City has made moves to ease the recruitment process, with the area recently getting its own jobs fair, the Silicon Milkroundabout and, while it may not have Cambridge on its doorstep, there's no shortage of solid local universities: Goldsmiths, UCL, Kings, City or Imperial, for example.

The latter two have their own incubator spaces – and they've got no shortage of company: there are a clutch of incubators focused on London, including the Telefonica-backed Wayra academy, which opened its London HQ doors earlier this year. Seedcamp is also a regular fixture in London, and mobile giant Vodafone has plans to establish its own start-up zone.

A growth in funding

Funding for start-ups in London has "evolved tremendously" over the last handful of years, according to Eileen Burbidge, a VC at Passion Capital.

"There's a lot more early-stage capital available for start-ups now than there ever has been. And there are more options –  there are definitely, in quantitative terms, more early-stage investment firms than there were two years ago or even a year ago. I also feel like there are more business angels who are available too, and they're not just old-school business angel types who are looking for a place to put their money, but people who have been part of the first wave of entrepreneurship in the late 1990s and early 2000s and who want to be involved, give strategic advice and counsel, and also put in money," Burbidge says.

Efforts have also been made by government to make things more welcoming for any UK start-up getting a sniff of success. The coalition is looking at relaxing the rules for businesses wanting to float in the country. There are also tax breaks for investors stumping up seed funding and tax relief for SMEs on R&D expenditure.

"There's a lot more early stage capital available for start-ups now than there ever has been" — Eileen Burbidge, Passion Capital

The government is also keen to attract overseas start-ups, and recently introduced the entrepreneurs' visa, which allows entry into the country for would-be business owners that already have £50,000 in funding from UK VCs, government departments or seed funds.

However, for all its buzz and bluster, there have been few exits from Tech City: while TweetDeck joined Twitter last year in a £25m takeover, other buyouts among companies of any size have been hard to come by in the area. (Exits the size of Cambridge-based Autonomy, bought by HP in 2011 for £7.1bn, are rather the exception than the rule.)

But with the London tech scene maturing nicely, and the first wave of internet entrepreneurs now looking to reinvest their exit money elsewhere, even the smaller exits have a part to play.

"Successes even in the small or mid-range are also important because those often don't take as long – compared to something like Autonomy, where people built the business over more than a decade," says Burbidge. "Sometimes smaller and mid-range exits are actually more important to get the ecosystem percolating and people moving through it, so with something like Tweetdeck – it wasn't a huge exit but there was a decent-sized team, you saw someone could start something, get it to a nice user base and then sell it - it's a great case study."

While the UK is currently undergoing the same economic crisis as many other countries in Europe, it still remains the "favoured destination" for VC funding, according to Dow Jones VentureSource's third quarter figures. Companies in the UK raised €301m through 59 deals during the quarter and, while VentureSource didn't break down how much of that was for tech start-ups, around one-third of funding in Europe is spent on IT – the only industry that saw year-on-year funding growth (although it's worth noting that both the volume of deals and the value of funding is down year on year in the UK. Questions have also been raised over whether there's enough funding available for deals in the under-£2m range).

And while comparing the flow of funding from the UK and the US – or even Europe and the US – is like comparing a minnow and a blue whale, London has links to US VCs, and has the advantage of the shared language and a relatively short hop to the East Coast.

While Berlin, the only other European start-up hub to make it into the global top 20 globally, is closing the gap, London still remains the region's number one.

"In recent years London has burst onto the scene and has become the most successful start-up ecosystem in Europe, producing the largest output of start-ups in the European Union by far. But its output is still 63-percent lower than Silicon Valley. London looks to be well positioned for continued growth as the leading start-up ecosystem in Europe, and first choice for fast growing US start-ups to establish their European headquarters," Startup Genome and Telefonica's report said.

Or, as Seedcamp's Espinal puts it, "London is establishing itself clearly as an epicentre for the tech community globally and will only get stronger."

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