May 24, 2011 11:22 pm

Stop dreaming of a new Silicon Valley

It sounds like a joke that Britain offers tech entrepreneurs a roundabout, says Philip Delves Broughton

Silicon Valley is the promised land for cash-strapped politicians. Toss a few seeds in the ground and maybe even in a single political term, multi-billion dollar companies can surge up to the heavens. As technology grows cheaper and more powerful, the pace of innovation quickens. Intel and Apple grew quickly, Google much faster, and now Facebook.

Trying to replicate this is an obvious temptation. Many have tried, from cities and states in America to Silicon Fen outside Cambridge and new technology zones in Dubai and Moscow. London now has “Silicon Roundabout”, sandwiched between the City and a revitalised East End, a corner of Shoreditch, which is becoming a magnet for tech companies and investment.

Some in the British government might have been tempted to highlight this on Tuesday as Barack Obama visited London. Both he and David Cameron have shown a proper admiration for the economic fertility of the Santa Clara Valley, which flourished as the financial system crashed. Their administrations are connected through people like Eric Schmidt, the executive chairman of Google. George Osborne, chancellor, recently hired Beth Noveck, the head of Mr Obama’s Open Government Initiative, to do similar work in Britain.

The quest for a Silicon Valley is of course delusional and it sounds like a joke that America offers tech entrepreneurs a slice of California, while Britain gives them a roundabout. But while Shoreditch lacks Palo Alto’s balmy climate, Silicon Roundabout has potential – provided it is allowed to grow on its own terms. Mr Osborne is eager to use technology to increase access to government data and to reduce the cost of paperwork. This should provide abundant entrepreneurial opportunities for tech firms able to crunch the data and manage new government contracts. The government and Boris Johnson, London’s mayor, have encouraged companies such as Facebook and Twitter to expand their London operations.

These are all vital pieces in London’s emerging tech sector. But they will take London nowhere closer to becoming Europe’s answer to Silicon Valley, which is the product of decades of collaboration and investment. Frederick Terman, a professor of engineering at Stanford University credited as the father of Silicon Valley, observed that “for activities involving a high level of scientific and technological creativity, a location in a centre of brains is more important than a location near markets, raw materials, transportation, or factory labour.” He realised there was no use Silicon Valley trying to compete with the east coast. Rather, he developed a strategy of “steeple building”, focusing on technical niches, such as microwave tubes, developing the best research programmes and attracting federal and corporate funding.

In 1939, he backed two star pupils, William Hewlett and David Packard, to start an electronics firm. A flood of federal money later funded the growth of many other companies in that mould, which paired intellectual talent with entrepreneurial moxie and a new, more open managerial style. Venture capital proved the fertiliser on this rich soil. Those who try to replicate Silicon Valley tend to build spaces, offer tax incentives, invest in research universities and hope the rest will follow. It does not. The real lesson is not to waste time dreaming of California. Persuading Facebook or Twitter to set up an office in London will create jobs. It would be far better, though, to nurture a self-generating culture of firms, “steeples” atop London’s already vibrant industries: the Google of finance perhaps, or the Facebook of advertising. Venture capital has a role, but so do Britain’s large corporations, which should be encouraged to help London’s tech start-ups as investors and customers.

The fact that technological innovation is so cheap and accessible means it can be done wherever there are smart people able to do it. The advantage then goes to places where such people wish to live and work. East London does not need Silicon Valley’s institutions. It may even be better off not being so encumbered. All it needs is to be more of what it is already, a venturesome place, open to talent.

The writer is author of ‘What They Teach You at Harvard Business School: My Two Years in the Cauldron of Capitalism’

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