Great to see the government actively supporting the startup ecosystem

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If you live in the UK you probably saw the announcement from the Prime Minister last week that the government here wants to build a tech cluster in East London that will stretch from Shoreditch to the Olympic Park.  You might even have seen some of the subsequent debate and coverage.

As you can tell from the title to this post I think this is a great development.  Innovation and startups will be the engine of growth for the UK and other developed economies over the coming decades and we need to actively develop our ecosystem or risk having an engine of growth that stalls.  David Cameron put it like this:

The world of business is changing at an astonishing rate. Insurgent companies are taking advantage of thousands of new innovations and millions of new consumers to generate billions in revenue within a matter of years. This is where so much of the promise of new jobs and opportunities lie. That’s why, as part of our strategy for growth, we’ve made a really important decision.

We’re not just going to back the big businesses of today, we’re going to back the big businesses of tomorrow. We are firmly on the side of the high-growth, highly innovative companies of the future.

I have often argued that confidence and feel-good are important elements in a startup ecosystem and this statement from Cameron is powerful for that reason alone.  More people will start and fund businesses if they believe it is what the country needs.

There is a long list of failed attempts by governments around the world to build startup ecosystems and I was encouraged to see that our government seems to have learned the lessons and are focused on enablement not direction or creation (again from Cameron’s speech):

This teaches government some simple things. Go with the grain of what is already there. Don’t interfere so much that you smother. But do help out wherever you can. Help to create the right framework, so it’s easier for new companies to start up, for venture capital firms to invest, for innovations to flourish, for businesses to grow.

There are also some concrete elements to the proposal.  For me the two most important are a new ‘entrepreneur visa’ which will hopefully bring more great entrepreneurs to the UK and the commitments from a bunch of technology companies to set up offices in East London – including Facebook and Google.  This local presence won’t be the same as being next door to their headquarters in the Valley, but it should make it easier to build partnerships and it should also help bring a critical mass of developers to the area.  

We shouldn’t expect results overnight though.  Back in September I wrote about building an ecosystem to rival Silicon Valley and my main point was that an ecosystem has many elements that are in balance and can only grow in harmony.  These government initiatives should help (in fact their very existence is a help) but it will take time.

Finally, £200m has been pledged for ‘equity investment’.  As far as I can tell there are no plans for what this means yet, but if it turns out to be real then the important thing is that it is invested in companies that are going places.  If it is invested in a large number of small companies that then struggle to raise further money and then fail (a fate that has befallen regional funds in the past) we would have a ghost town on our hands.  Getting the structure right so that it is invested well is non-trivial.  The key elements I would look to are making sure the investment manager has a good venture capital track record, setting an investment pace that is consistent with maintaining quality (rather than generating good headlines), making sure that any restrictions on investment size don’t undermine the funds or the companies they invest in, and finally, creating a structure that restricts the investment of public money to situations where private money is also investing.

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