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July 29, 2013

Selling out: How can startups at Silicon Roundabout grow into tech giants?

Tech City firms need more investment with less demands on a quick return.

By Cbr Rolling Blog

Tech City

Tech City has grown rapidly since its birth in 2010, but there are still no signs of the next Google or Facebook emerging from the entrepreneurial hub in London’s East End.

Silicon Roundabout in Old Street was just a cluster of 15 media and high-tech firms five years ago, before David Cameron announced plans to accelerate growth in 2010.

Since then, hundreds of startups have spawned in the area, and around 15,000 now call the general vicinity home.

The government’s investment and growth programme can be and has been widely claimed a success – Tech City is thought to be responsible for 650,000 jobs and it is a hub of creativity and daring ideas.

But despite its reputation for innovation, amongst its countless shoals of fish we are yet to spot a whale or two.

Despite the praise for the government, many spectators believe the problem comes down to investment.

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Last year the coalition passed a series of tax breaks and incentives for SMEs, while the Seed Enterprise Investment Scheme means investors can put up to £100,000 in a single tax year into one or more small companies and receive up to 50% tax relief on the cash.

But still UK startups’ American counterparts are swallowing new London-based firms by the mouthful.

Silicon Valley giants recently bought Summly and TweetDeck (purchased by Yahoo and Twitter respectively for £30m and £25m), and other sales include Myrrix (a data mining startup) to Cloudera and assets of Monoidics to Facebook.

A lot of private investors pour money into a good idea, but demand such large stakes in the business that the company’s own founders lose their personal ties to its success.

Elsewhere, shareholders want such immediate returns that when the offer of a sale emerges, it’s hard to turn down.

Many are beginning to fear that while startup founders are tempted by the numbers of zeros on those takeover cheques, their companies are in danger of failing to reach their potential.

A report by the Science and Technology Committee found in March that the government is failing SMEs, with a lack of capital funding and coherent strategy meaning that startups lack the means and the guidance to become tech giants.

It blamed part of the problem on the regulation of de-risk pension funds, which used to be a source of capital not so intent on seeing an immediate return on investments.

The government has done a lot for startups and will continue to foster their development as more and more entrepreneurs are drawn to the Silicon Roundabout to begin work on the next big thing.

But the fiscal policies need to match the big ideas if we are to see a true multi-billion pound firm emerge from Tech City.

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