Tech City dreamin'

Are the government's dreams of building a rival to California's Silicon Valley in the East End of London built on sand?

Although disparagingly dubbed Silicon Roundabout, East London's Tech City aims to be Europe's answer to California's Silicon Valley. Last week, this hotbed of tech start-ups in and around Old Street received a major boost when Facebook's European boss, Joanna Shields, announced her intention to leave the social network giant to head up the Tech City Investment Organisation.

"The success of Tech City shows just what can happen when we back some of our most innovative and aspiring companies to grow, helping the UK compete and thrive in the global race," said Prime Minister David Cameron.

However, many of the UK's tech upstarts feel that they cannot get the kind of financial backing that their rivals in the US enjoy.

"From the funding side, I'm not convinced that the EU and the UK are the same as the US," says Elco Jol, business development manager at tech start-up Epicurely. "The US is more accustomed to funding start-ups through different stages of the lifecycle whereas here in the UK it is limited. There are fewer venture capitalists and angel investors around.

"The US funding landscape is more complete, from early stage investment to the angel round and thereafter through private equity. The transition of being a small company to a mature company [is easier] in the financial landscape of the US."

Epicurely is one of several UK start-ups to have benefited from Telefonica's Wayra programme - a tech incubator that invests £40,000 into start-ups for a 10 per cent stake in the business. The start-ups are given six months in a workspace with support and mentoring thrown in. Other similar tech incubators in the Tech City area include Seedcap, Springboard and Google's Campus.

Wayra UK's academy director, Ashley Stockwell, believes that these tech incubators are helping the UK to catch up with the US, but concedes that there is still a long way to go.

"The whole ecosystem, in terms of how you start your business, where you get your support from, where you base yourself and how you get funding, all of this is improving, but we are still lagging behind the US. They are more advanced, particularly from the financing point of view," he says.

Tech City dreamin'

Are the government's dreams of building a rival to California's Silicon Valley in the East End of London built on sand?

But Alex van Someren, partner at venture capitalist Amadeus Capital, believes there is no shortage of full life-cycle technology investors in the UK.

"Amadeus has been doing this for 15 years and we are by no means alone. Of course the US is bigger, so it has more players, but the idea that [a start-up] could go over there and get investment more easily than here is a mirage," he says.

Ben Tompkins, partner at Eden Ventures, also believes the environment for UK tech start-ups is far more nuturing than many make out.

"I don't think London is just a hub for the UK, it's a hub for the EU. It is the best time to be a start-up in London because of the government initiatives for tax reliefs on people investing in start-ups. The city has got great infrastructure, good investors and is often seen as an easy gateway to the US market," he says.

When Computing asked the Department for Business, Innovation and Skills (BIS) what the government was doing to help the UK tech sector catch up with the US, it pointed to its start-up loan scheme.

"Last month the business secretary announced that start-up loans were now open for business, with 1,200 people already having registered interest in the scheme. The Start-Up Loan scheme will help launch up to 30,000 new companies, and the first wave of cash from the £82.5m fund is now being distributed," a BIS spokesman said.

And from April 2013 the government's Patent Box scheme will come into force, lowering the Corporation Tax all firms - not just start-ups - have to pay on earnings from their own innovations - a key source of income for many young tech outfits.

But the fact remains that the tech sector on this side of the Atlantic is still dwarfed by Silicon Valley.

"We don't have huge businesses based in Europe," says Tompkins. "Silicon Valley has Apple, Microsoft, Sun, Intel and now of course Facebook, Google and Salesforce.com - and this is why people say that Europe does not have an ecosystem.

"However, this is changing, with some big firms coming out of Europe with the likes of Spotify, Rovio, Skype and Business-Objects, who are leaders in their fields."

Tompkins admits that start-ups can find it hard to raise their first £2m to £5m but believes this is changing as many US investors are coming into Europe to fund start-ups.

In the meantime, Richard Holway, chairman of research firm TechMarketView, believes that many early stage companies should look at alternative methods to fund their businesses.

"Why don't they ask their customers for annual payment in advance for a five per cent discount - they will be amazed at how many people will say yes," he says.

So while the UK remains behind the US for the time being, the environment needed to nurture the tech giants of tomorrow is developing.