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Is London Tech City’s ‘phenomenal’ growth just spin?

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David Cameron by World Economic ForumWhen is a technology company not a technology company? Apparently when it’s part of Tech City, the British government’s initiative to promote the East End of London as Europe’s premier startup hub.

The circus rolled into town yesterday as the country’s Prime Minister, David Cameron, stepped forward and announced a raft of new developments and vaunted the success of the Tech City Investment Organization (TCIO) — a group he launched himself one year ago.

The PM hailed the area’s “successful growth”, echoing a statement put out by the group that:

“the number of tech businesses in the Tech City area is now over 600. In November 2010, there were around 200 – indicating an impressive growth rate in the last year”.

But the claim that the number of technology companies in the area has tripled inside a year is not just audacious — it’s incorrect. In fact, the numbers are based on a self-reporting list that has significantly expanded its scope in the past few months — to such an extent that “tech businesses” now apparently include nightclubs and fashion boutiques.

I took a look through the list used for the Tech City Map and compared against other publicly-available information and discovered that, contrary to the official line, only a tiny proportion of these hundreds of businesses were started in the area in the last year. In fact, most were several years old — and many stretched back to East London’s emergence as dotcom hub back in the 1990s.

Even more concerning was the fact that a significant number were not technology companies at all, including Fabric London, a world-renowned nightclub that opened its doors 12 years ago, and a number of fashion businesses based in and around the Brick Lane area. In addition there were a large number of architects, photo processing firms and film companies — few of which would be qualified as technology firms by any normal measure.

And it is not just my examination of the official numbers that concluded they were incorrect. In a separate study by the business search service Duedil, only 200 “real tech startups” — that is, businesses under 10 years old and working on defined technology products — were identified. So TCIO seems to have reached its numbers simply by widening the net.

So how did this happen?

I asked the TCIO for comment, and they confirmed that Tech City Map list was self-reported — meaning that anyone can add themselves to it. But when I spoke to TCIO chief Eric van der Kleij about the figures, he said the growth numbers were drawn from a slightly different data set: a survey conducted on behalf of the Digital Shoreditch organization.

“From the time I took office last year, I always planned to do a proper empirical survey,” he said. “But in the meantime we asked the community to help. It wasn’t us reporting who the companies were, it was them.”

“We feel very comfortable with the 600 number, but it does not include — should not include — hairdressers and the like.”

However, examination of the Digital Shoreditch list shows that it contains the same non-tech companies, such as Fabric, as the broader data set. Van Der Kleij then said that the earlier figure of 200 companies last year was based on a report by McKinsey, and that he stood by the growth estimates, which he said was proof that the number of businesses had “more than doubled”.

“I think what was done at the beginning of the year was accurate,” he said. “I’d never let 10 Downing Street stick these figures out if I hadn’t done some work on this myself.”

I believe the initial figures of 200 companies in the area were under-reported — leaving TCIO in an awkward position when it comes to measuring growth. But there is a significant difference between saying “we are now listing hundreds more businesses than last year” and implying that those extra companies have arrived in the area and generated 200 percent growth over the past 12 months.

London's Tech City Map -- a list of technology businesses in east LondonThe sad thing is that East London is really buzzing at the moment, and there was no need to inflate the numbers this way. Cameron used yesterday to put the ribbon on a number of existing deals with the likes of Cisco, Intel and Google, and announce some others — including the launch of a new London seed fund run by senior figures at Google and IDEO. It’s all good news for the area, and useful recognition for some great companies.

And the British government is doing its part to help startups, including tax breaks for small businesses and fast-track visas for startup investors. Indeed, it would be mad to want anything else except success for them: after all, it has already closely aligned itself with companies like Google, and is working hard to make London known as Europe’s pre-eminent startup hub, ahead of Berlin and Dublin.

But at best it seems the growth figures are inaccurate and misrepresent what’s actually happening on the ground.

Tech City’s doing well, but the truth is much more complex than the headlines about a sudden explosion. East London’s emergence is no overnight success: in fact, the districts of Shoreditch and Hoxton — traditionally the refuge of artists, hipsters and trendy digital media agencies — have been the center of Britain’s digital media industry for nearly 20 years. Indeed, many of the companies on the Tech City list go back to the 1990s or early 2000s. It’s a culture so well-established that even TV shows mocking the area’s new media cliches went off the air six years ago.

There is a real and well-deserved sense of achievement in East London, and one that is growing all the time. But if Tech City wants to be successful in the long term then it has to be realistic, not bombastic.

10 Responses to “Is London Tech City’s ‘phenomenal’ growth just spin?”

  1. jasongorman

    I think the hype stems from a complete lack of appreciation in government and business about what computing really does for our economy. If I were Mr Cameron, I’d be focusing my attention onm the much larger problem of the chronic shortage of skilled software developers that will drive our entire economy forward creating and evolving systems for supermarkets, banks, airlines, TV channels, hospitals and all the other organisations that need software to do what they currently do. if we keep focusing on “digital creative media”, we risk completely missing the point and massively underinvesting in our comouting future.

  2. Bobbie, you raise some good points. That said, it seems that the East London tech start-up community has a VC funding challenge, and less of a publicity inaccuracy problem. When compared to the U.S. market, it’s in need of significant new venture investment.

    Perhaps the launch of the “National Virtual Incubator” project, that Cameron also mentioned, will help to attract some more VC investor interest to the area.

    My point: there’s a potential upside to this evolving story, if you’re more inclined to dig deeper into the government’s press release.

  3. I believe the truth lies, as ever, somewhere in between. For example, the Duedil report, which seems well researched, shows more than 200 “high growth” tech companies and admits it doesn’t include all the startups in the TechCity area. So the true number is definitely more than 200 and less than 600.

    There are also a lot of gray areas and enough new companies starting that an accurate count is not possible. I personally know of at least a dozen startups in the area that have started in the last year, and suspect that the real number is 100 or more. As you say, Bobbie, there’s real growth here in TechCity which is great news for startups and for the UK generally.

    • Bobbie Johnson

      Indeed, Dan. As I say in the story, I’m sure the initial 200 is underreported (and I wouldn’t actually be surprised if there were more than 600 in East london postcodes, which seems to be the broad definition). The bigger issue is how the numbers are presented — and whether the message being pushed out (2-3x growth in a year) is accurate.