Pushing the Roundabout

With the launch on 1 April of HMRC's tax-saving 'Patent Box' scheme, the government has given a clear signal that it is keen to help tech start-ups. But is there more it could do for firms at London's Silicon Roundabout? Stuart Sumner finds out

The UK economy remains stuck in a quagmire. Given that we do not have a Google, Microsoft or Oracle here, the most likely source of succour will be the burgeoning tech start-up scene, epitomised by London’s Silicon Roundabout. Given the importance to the economy of those firms, is the government doing enough to help, and what is the value of the area to the local businesses?

“There’s a lot of value in being in the Old Street area – simply the number of start-ups thinking alike in close proximity is very healthy for us to share ideas and learn from each other,” says James Gill, CEO and co-founder of GoSquared, a real-time analytics start-up.

“Unlike Silicon Valley which seems to be dominated by tech, London brings together people from creative, financial, and technical industries.”

However, Chris Puttick, co-founder of TwoTen, an online protection and guidance service for children, was less positive.

“An over-focus on one small area of London seems not a great idea in terms of the economic development of the country,” he says. “It also drives up the cost of locating there, and of course founders based in London have higher costs already.”

Jeff Lynn, CEO of Seedrs, an online platform for investing capital in start-ups, pointed to the ease of collaboration as a strength of the area.

“Geographic clusters are important to tech start-ups because they help foster collaboration,” he says. “We’re all a bunch of small operations working in relative isolation, and we get lots of value from comparing notes and exchanging ideas with our peers and competitors. And being within walking distance of so many of them makes it a lot easier: we can pop down to campus or over to a coffee shop without devoting a large amount of time to travel. It’s a simple point, but it actually does matter.

“As for the Old Street area in particular, I don’t know that there’s any real magic to it. There are nice places to eat and drink, and it’s relatively good for public transport – all of which is helpful when recruiting employees – but more than anything it’s just where the cluster happens to have formed.”

So the community seems generally positive about the area, but do they believe that it can ever grow to rival Silicon Valley?

“London is in a position to become an ever stronger hub of technical and business development,” says Gill. “What I find most exciting is seeing young businesses in London grow to become substantial companies that can go public within the UK. If every great UK or London-based company defines success as exiting via acquisition to a larger US-based business, then we stand no chance. As we see more UK-based companies file for IPO in the UK I think this mindset will continue to improve.”

Lynn is similarly upbeat. “The critical thing about tech start-ups today is that there is less real ‘tech’ involved in them than there once was,” he says. “Much of the great innovation now is in taking existing digital technologies and applying them to new business models.

“I don’t know that the UK necessarily has a competitive advantage in pure tech – it can certainly hold its own – but the infrastructure of Silicon Valley does matter in that world. But the UK beats the world in businesses like advertising, financial services, film, music and many others. As start-ups are increasingly digital plays within these businesses, I think we’re going to see UK start-ups beat the world as well.”

Damian Kimmelmann, founder and CEO of business information and intelligence firm Duedil disagrees that London can ever truly rival California, but he says there are advantages to being in Europe.

“We have an opportunity to build something totally unique and exciting,” he says. “One of the best things about the UK is being equidistant from the two greatest powers in the world and this makes a massive difference. We should be looking to create something unique and useful in-and-of itself.

“You shouldn’t try to beat the iPhone at its own game; you should look to do something different. There are a lot of things that London has that Silicon Valley can’t and won’t have. There are also benefits to not being in Silicon Valley – a good deal of poaching goes on there along with a tendency for groupthink. If you create start-ups that are made for the UK and Europe they will be a lot more successful.”

Government help

So the start-up community clearly values the hub it created largely by itself, but now that the government has latched on to it, is it actually doing anything to help?

“There are a number of ways the government has been helpful,” says Gill. “Research and development tax credits enable us to claim back a large portion of the amount we pay in PAYE for our team at the end of the financial year. This is a scheme set up to encourage start-ups and innovative tech companies to work on projects that can also benefit the greater economy, but that have a certain degree of risk and uncertainty attached to them.”

Others cite the Seed Enterprise Investment Scheme (SEIS) as a real boon to young firms.

“The SEIS scheme provides excellent incentives for investors to take the risk of investing in start-ups,” says Puttick. “Real start-ups (prototype product, no revenue, few if any users) are a risky bet, so anything that helps reduce that risk a little is great.”

Lynn is even more effusive. “SEIS contains the most generous set of tax reliefs for investing in start-ups available anywhere in the world,” he says. “With as much as 100.5 per cent relief in a given investment, it makes allocating capital to new British businesses a no-brainer.”

Kimmelmann points to the Enterprise Management Incentive (EMI) scheme, as yet another advantageous tax system for start-ups.

“It allows employees to more easily take advantage of entrepreneurs relief and 10 per cent capital gains tax on exercised options,” he says.

Pushing the Roundabout

With the launch on 1 April of HMRC's tax-saving 'Patent Box' scheme, the government has given a clear signal that it is keen to help tech start-ups. But is there more it could do for firms at London's Silicon Roundabout? Stuart Sumner finds out

But it is not all about tax, as all the firms Computing spoke to were delighted by the publicity generated by the government’s involvement.

“The government has been generally working the PR for start-ups as ‘a good thing’, which is raising the status generally, and developing interest from potential recruits,” says Puttick.

Lynn adds: “Sometimes the Tech City initiative is criticised as being ‘just PR’, but my feeling is ‘yes, and that’s wonderful!’. Government is fantastic at generating publicity and getting attention focused on particular topics. When applied to the start-up world, this publicity results in more entrepreneurs and more investors, including many from abroad, paying attention to and getting involved in the space.”

But the story is not all positive. Kimmelmann believes that the government should work to improve London’s communications infrastructure if it really wants to lead Europe in tech start-ups.

“London is really pressed for better internet infrastructure,” he says. “If you want to create a burgeoning tech community, the best way is to invest in infrastructure. More government investment should be directed at improving the internet infrastructure across London.

“In the 1950s the Interstate Highway System in the US brought about a major step-change in industrial output and productivity. We have aging infrastructure here and crap broadband. No matter how many things you do to improve the tax system, if the tools are rubbish, you’ll produce rubbish.”

Puttick is more equivocal, explaining that not all firms want to see government involvement on any level.

“Some would say ‘do more’, others probably say ‘just give us money’ and yet another group would say ‘government should go away, we’re doing fine without them’,” he says. “Me, I’d say there’s only so much government can do without getting in the way of the creativity that makes start-ups successful. On the other hand, some cash would be great.”

Lynn says that the government should start by publicising its own tax initiatives.

“The best thing the government could do would be to publicise SEIS,” he says. “As fantastic of a tax regime as it is, it has got shockingly little coverage.

“To some extent, I fear the Treasury did the classic Whitehall move of working immensely hard to craft an amazing piece of legislation, and then once it was on the books take the view that their job was done.

“Unfortunately, the average person doesn’t read the Budget cover to cover, and if we are to expect SEIS to transform investor behaviour as radically as we’d like, a lot more effort needs to go into publicising it.”

So it seems that the initiative is on track. Rather than seeking to emulate its Californian rival, the community in east London is creating its own thriving ecosystem, aided by government publicity and tax schemes.

@StuartSumner