Lessons from London: how government is cultivating startup growth in Tech City

New York City’s standing as a global technology hub cannot be disputed. The city has been characterized as a role model for urban tech hubs, and as such, numerous global competitors have been taking notes and have set their sights on taking a bite out of the Big Apple. Unless New York City’s stakeholders continue efforts to advance the growth of its innovation economy through inventive policies and initiatives, it stands to be overtaken by a number of other cities hot on its heels. One of those competitors lies 3,459 miles to the east: London.

THE RISE OF LONDON’S STARTUP ECOSYSTEM

Arguably Europe’s top technology hub, London’s innovation economy is rapidly growing. According to data obtained from CB Insights, between 2013 and 2014, venture capital investment in Tech City—a moniker for London’s tech ecosystem—grew 86 percent to a total of 1.2 billion dollars. In that same period, New York City’s influx of venture capital grew by an impressive, yet lesser, 51 percent."Based on overall investment deal growth, London is seeing significant growth in its innovation economy, more so than New York. This is being driven in part by a strong Fin Tech hub,” said Matthew Wong, a research analyst at CB Insights. “Of course, New York still trumps London in terms of overall dollars invested by a significant amount across numerous industries.”This growth can be attributed to an array of factors, including support from all levels of government. Number 10—the colloquial name for British government headquarters—has launched a series of policies aimed at growing London’s innovation economy over the past several years.

NATIONAL GOVERNMENT STARTUP SUPPORT

At the heart of Number 10’s support of London’s tech ecosystem is Tech City UK – the government-funded cheerleader of London’s digital economy. “Along with creating programs that accelerate the growth of the UK’s digital businesses, Tech City UK focuses on providing information and feedback from the digital business community to policymakers, to inform the development of policy,” said Katy Turner, the organization's chief marketing officer.In recent months Tech City UK’s scope of focus has widened beyond London, a trend highlighted by the recent release of Tech Nation, a report on the UK’s growing technology hubs. Despite some criticism of the organization by industry stakeholders, dialogue facilitated by Tech City UK has led to numerous policies and initiatives, ranging from business education and acceleration to immigration fast tracks, and access to capital.In 2011, for example, the UK government announced changes to its immigration policy and revamped its entrepreneur visa. While not perfect, the policy overhaul was embraced by London’s startups and strengthened the tech talent pipeline.The British government has also successfully enhanced investment flow through the launch of the Seed Enterprise Investment Scheme (SEIS), a tax incentive that encourages investment in high-risk early stage companies. Introduced in 2012 as a complement to the pre-existing Enterprise Investment Scheme (EIS), in its first year, SEIS yielded more than 7,500 investments into approximately 1,100 companies totaling 117 million dollars invested across the UK; 44 percent of those funds went into London businesses.“SEIS, EIS, and immigration reform have had a big impact on London’s technology ecosystem,” said Linus Dahg, an associate at European venture capital firm Wellington Partners. “As startups become less capitally intensive, they can do more with less, making access to seed money even more valuable.”

LEVERAGING LOCAL GOVERNMENT

To further diversify startup funding opportunities, London’s municipal government recently launched the London Co-Investment Fund: a privately managed seed capital fund that intends to leverage approximately 37 million dollars of taxpayer funds to boost investment into the city’s startups. Over the course of its lifetime, the fund aims to stimulate the creation approximately 2,600 jobs and nearly 200 million dollars of gross value added.Hyper-local government bodies—London’s borough councils—are also making strides to grow their respective technology ecosystems. Croydon, located 10 miles south of Silicon Roundabout, is amidst serious attempts to generate economic growth through tech. The borough re-honed a business rate incentive plan to target tech companies, hired inward investment executives, and offered up 20,000 square feet of space and nearly three million dollars for renovation costs in hopes of attracting a major player in the tech community.

KEEPING YOUR FRIENDS CLOSE

Parallels can be drawn between governmental programs in New York City and London—both city and state government in New York have made significant investments in growing the Big Apple’s innovation economy. The marked difference, however, is the involvement of national government.While the US Commercial Service has launched the SelectUSA Tech program—a series of seminars intended to attract European companies to the US—the US federal government engages with private-sector technology interests to a lesser extent."The US Federal government is increasingly doing more to attract international tech talent to the US, especially from the UK and Europe, but the UK government actively participates in domestic private-sector technology initiatives much more so than the US Government," said Daniel Glazer, a partner in Fried Frank’s technology practice.Investment regulations and immigration are key examples. The UK enthusiastically encourages seed investment through SEIS, while in the US, the Securities and Exchange Commission restricts similar investment to accredited investors. Additionally, the S.E.C. has delayed its release of rules on equity crowdfunding, further dampening potential startup investments. Similarly, while UK immigration reform has expanded London’s talent pipeline, in the US, the Startup Visa is stalled in congress.Nevertheless, London’s startup ecosystem has benefited from being less mature than New York City’s; the development of policies have been informed by the past successes, and failures, of other global tech hubs. In that respect, it might benefit New York City to keep an eye on its competitors—especially London.As Mr. Glazer put it, “the support that London government provides at the national and local level has helped London become, potentially, the single best urban center in the world for a very early stage company.” Kai Feder is an economic development and government affairs professional. Most recently, he served as the director of capital budget and economic development for the Office of the Brooklyn Borough President, focusing on strategic investment of capital funds, oversight of capital project management, and development in Brooklyn’s business community. He also served on the board of numerous local development corporations. His experience ranges from marketing and communications to public policy and legal affairs, including positions in both the public and private sectors. Kai obtained his Masters of Public Affairs from the University of San Francisco, and graduated summa cum laude from San Francisco State University, where he studied Political Science and Criminal Justice Studies. A proud native of San Francisco, Kai currently resides (also proudly) in the Columbia Street Waterfront District in Brooklyn.