Valley angst clouds London’s tech future

January 2, 2014 12:10 pm

Valley angst clouds London’s tech future

By Sally Davies

When the founders of Eatro say they eat and breathe their business, they mean it literally. The three young men are stuffing dumplings with prawns, purple carrots and ginger as they describe how they launched their new online marketplace for home-cooked food from a crowded Shoreditch apartment.But Silicon Valley is still king,writes Richard Waters

“Zifeng and Daniel share a bed in one room, and I sleep on an air mattress,” explains 24-year-old Bar Segal, of his two co-founders Zifeng Wei and Daniel Kaplansky. The trio met as children in Budapest, where their families converged from Israel and China to take advantage of business opportunities after the collapse of communism.

“We rent out the other two rooms on Airbnb,” Mr Segal continues, “so we’re essentially living in London for free. The rent is crazy, so we’re funding a sharing economy start-up using the sharing economy.”

Following in their parents’ entrepreneurial footsteps – and with around £25,000 in funding from family, friends and a start-up loan scheme – Eatro’s founders have so far recruited 30 amateur chefs to serve takeaway food from their kitchens to hungry office workers tired of chain offerings.

The business captures some of the special features of the London start-up scene, particularly around the so-called Tech City area of east London: its cosmopolitanism; its vibrant clutch of early-stage businesses; and the opportunities and challenges of launching in one of the world’s great capitals – not to mention the lengths to which people go to live there.

 

Perhaps the best point of comparison is New York, a city of similar size and global standing that has a much smaller tech sector in terms of headcount.

But London suffers from anxiety about its relationship to the US, particularly Silicon Valley. One worry is about funding, with a relative paucity of European venture capital and a fear that investors care too much about a start-up’s immediate losses and too little about its growth potential.

“There’s a danger if you get a swath of companies coming through for big funding rounds, it might not be there,” says Simon Walker, a London-based partner specialising in venture capital at law firm Taylor Wessing.

Start-ups: one established and one to watch

 

Hailo

Year founded: 2010

Founded by three internet entrepreneurs and three London “cabbies” – drivers of the city’s famous black cabs – Hailo lets journey-seekers hail a licensed taxi from their smartphone. It has expanded internationally to 16 cities and is seeking to “build an ecosystem of services” on the platform, such as helping hairdressers find work on their days off.

DueDil

Year founded: 2010

DueDil collects, sorts and distils company information from around the web using analytics and visualisation, taking advantage of open data policies in the UK and Europe. The idea is to be a one-stop shop for background checks about potential clients, suppliers, partners and investments.

With tech companies attracting lower valuations in the UK market, the worry is that London will drip-feed ideas to Silicon Valley, with its start-ups moving to the US to IPO, or being acquired by bigger American groups – as London’s Shutl did when the algorithm-based courier service was bought by eBay in October.

Yet some observers think that asking “where is Britain’s answer to Twitter?” is to misunderstand the distinctly urban opportunity that London presents.

“Many web businesses nowadays aren’t about creating platforms for the whole world,” says Jay Bregman, co-founder of fast-growing London-based taxi app Hailo. With mobile devices bringing online and offline experiences closer together, he thinks, entrepreneurs need to understand the local nuances of where they operate.

The opportunity to mingle with people from around the world goes a long way to offsetting the city’s eye-watering property prices, says Mr Wei of Eatro. “It’s beautiful that every second person in London isn’t British,” he says. “Every night we look up what’s happening online, and go to networking events or cooking classes or yoga to meet people.”

These observations lend weight to the government’s promotion of Tech City – an area whose rebranding three years ago, along with the launch of a well-funded public sector agency, Tech City UK, was met with some cynicism.

But attitudes have mellowed, and tax-break initiatives such as the Seed Enterprise Investment Scheme and the cabinet office’s commitment to using more small, digital contractors, have attracted praise. Between 2009 and 2012, London’s digital sector grew at 2.7 times the rate of other industries, according a recent Tech City UK report.