Tech-startups. Why Silicon Valley may not provide the pot of gold London can

22-09-2016 |   |  By Paul Whytock

One of the post Brexit fears expressed predominately by those of a remain demeanour is that the UK’s highly active and successful technology start-ups will suffer the double blow of a lack of talent and funding when the UK leaves the EU. And much of the nervous chatter regarding this possibility can be plainly heard in the Old Street watering holes that serve East London’s particularly dynamic version of Silicon Valley.

Unfortunately this spate of high-tech angst was unnecessarily exacerbated by a recent TV media report suggesting that fledgling British tech-start-ups would do a lot better by ditching London and heading out West to California’s Silicon valley where the coffers of venture capitalist companies where overflowing with cash and the neighbourhood was populated with masses of employable talent.

To some extent this is not an unreasonable theory because there are well-established examples of British tech-start-ups that moved to the US several years ago and have done rather well by it.

But the real question is would it all turn out quite so hunky dory for companies trying to make the move today? The answer in my view is no.

Venture Capital Cutbacks

In the US this year there has been numerous reports indicating that venture capitalists have tightened their financial belts and are restricting the amount of cash they are prepared to invest in start-ups.

In direct contrast, American investors in tech-start-ups during the previous two years had been bullish and the money flowed with the result that start-ups enjoyed the double comfort of not only being able to get up and running but also watch the value of their new company steadily increase.

Significant Shrinkage

However, 2016 has witnessed an opposite trend with financing for start-ups in America shrinking by up to 24%. This is significant because it is the biggest reduction since the notorious dot-com bust years.

In my view this may not be a bad thing. I remember being in the US during the bust period of the 1990s and seeing the negative impact it had on the international electronics sector. In the build-up to that bust vast amounts of money were being poured into tech-start-ups by venture capitalists in what can only be described as a financial feeding frenzy. Little did many of those fledgling companies know it would become their corporate Armageddon. Why was this? Quite simply there where so many start-ups producing so many designs and products for which there was no real market. Some of the ideas where innovative but just did not have any established customer base that actually wanted them. The result was financial collapse for many start-ups.

So maybe the lessons of history have been learnt and it is a good thing that venture capitalist do exercise a more considered and frugal approach to just how much money they put into what appears an exciting and innovative technology start-up.

Britain Has Learnt The Lesson

But lessons in how tech-start-ups should be financially supported needed to be learnt here in Britain as well as the USA and fortunately I think the UK has done that when it comes to getting fledglings to stand up on their own financial hind legs.

Thankfully, long gone are those 1980s days of Thatcherism when Britain's Prime Minister would not give start-up companies a financial leg-up to get them through those first difficult couple of years. The theory then was that every one of them had to prove their own viability with the result the UK lost many very exciting technology projects.

Given the harsh short-sighted lessons meted out by that particular administration I don’t believe today’s Brexiteering Government will be in anyway laissez-faire when it comes to encouraging start-ups and also protecting the flourishing tech firms already operating in the UK.


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By Paul Whytock

Paul Whytock is European Editor for Electropages. He has reported extensively on the electronics industry in Europe, the United States and the Far East for over twenty years. Prior to entering journalism he worked as a design engineer with Ford Motor Company at locations in England, Germany, Holland and Belgium.

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