Digital clusters capture the mood of the moment – informal groupings of software- based start-ups generating exciting economic activity and technology-based jobs.
The prospect of such clusters is highly attractive to northern cities with strong universities, cohorts of tech-savvy young people and a thirst for private sector job creation.
But given London’s large and increasing importance in the UK economy, can northern cities compete in nurturing globally competitive digital businesses?
They already have. Sage, one of only two FTSE 100 technology stocks and a software supplier to 6.3m businesses worldwide, was founded in 1981 in Newcastle, which remains its headquarters. And the UK’s two biggest tech flotations of the past three years originated in Sheffield. Servelec, a developer of software infrastructure, raised £122m on Aim in December. WANDisco raised about £15 million in 2012; David Richards, WANDisco’s chief executive, is a Silicon Valley veteran.
Paul Smith, director of Newcastle-based ignite100, Europe’s first £1m digital start-up accelerator, thinks there is potential to replicate the success of Sage “two or three times in a decade”.
Ignite100 has just finished its third programme, with more planned. The nine teams from the latest programme, each with £100,000 to support them, are also finalising £1.5m from angel investors, mostly from outside the north east. Meanwhile, Mr Smith is turning Sunco House, a 1920s warehouse in central Newcastle, into what he claims will be the biggest facility dedicated to software start-ups outside Google’s London campus.
“There’s so much latent demand,” Mr Smith says. “There’s a need to crystallise what’s going on here.”
Nobody in the digital sector denies the importance of London, a global city with a huge stock of start-ups and decision makers. But many say the capital has big drawbacks too, notably availability at affordable salaries of the talented people who are digital start-ups’ key resource.
Jonathan Grubin, founder of SoPost, which is linking delivery addresses to social media identity, is based in London but found the war for talent meant “competing against the likes of Google and Facebook”. Now SoPost has twin bases; London and Newcastle. “Newcastle is development, design; London is sales,” he says.
Doug Ward, co-founder of TechBritain, which has mapped clusters across the country, says there is a massive gap between London, then Edinburgh and Cambridge, and the rest. But he concurs: “Innovation happens outside capital cities.”
Mr Smith estimates that excellent software developers, who in London would expect £60,000 to £70,000 a year, are available in Newcastle, where the cost of living and property is much lower and loyalty greater, for £25,000 to £35,000. This gives start-ups more time to survive and develop.
Northern cities all have stakes in digital activity. Lee Strafford, founder of PlusNet, an internet service provider, claims Sheffield, its base, has more tech workers per head than any other UK city, with 50,000 in the sector. Sheffield is also home to Localphone, which offers cheap voice over internet calls, and Inviqa, providing open-source corporate software.
In Leeds, Aql, which operates one of the few data centres and internet exchanges outside London, believes its city can become a centre for financial software. Leeds is also the base for Emis, a listed provider of medical software.
York has about 100 ICT, electronics, software and digital industries business; Middlesbrough has DigitalCity, based on Teesside University’s digital expertise and Sunderland, with technology businesses such as the Leighton Group and 4Projects, has the £10m Software City development and strong connectivity.
Newcastle’s digital technology companies range from Nomad, a global leader in wireless for transportation, to Eutechnyx, a driving games developer, Palringo, a group chat app, and Recite Me, which helps people with dyslexia and those with sight difficulties use websites.
The city’s development of a cohesive digital cluster is partly thanks to successive accelerator programmes over four years. Sheffield last year launched its Dotforge incubator and Leeds is working too on the “boot camp” model.
Newcastle’s cluster growth has been helped by skills availability, thanks to strong local universities, and constant support from angels. These include venture capital groups Northstar and IP Group, whose substantial regional funding and reinvestment have helped leverage backing from elsewhere, including London.
The combination has also attracted digital talent; the latest ignite100 included teams from Argentina, France, Ireland and Spain. “The tide is turning,” says Alasdair Greig, a Northstar Ventures director. “We’re finding people want to stay.”
Givey brings crowdfunding to charity donations
Givey, which is poised to launch a £1m fundraising, through venture capital backers and crowdfunding, exemplifies how a regional digital cluster can be nurtured, writes Chris Tighe.
The business grew out of Dave Erasmus’ concept of a software platform which would increase charitable giving by individuals, matched by employers or brands, by making the whole process quick and easy.
Having heard in 2011 about the planned first programme of ignite100, Europe’s first £1m digital start up accelerator, Mr Erasmus went to Newcastle to take part. One of the programme mentors, Di Gates, who had just left a Newcastle digital marketing agency, liked the concept and joined Givey.
Along with most of the programme’s 10 teams, it secured £100,000 for its early development from ignite100’s backers – NorthStar and IP Group and business angels. Givey has since developed its software and secured a further £750,000 investment in late 2012.
Having launched its business matching engine in September, it is now increasing sales. It charges businesses to use its platform so 100 per cent of donations reaches the intended charities. Givey aims to break even in 2015, with massive growth in 2016 when it plans to launch in the US. Its 2019 goal is £680m turnover. “It’s high growth, high ambition,” says Ms Gates, its chief marketing officer.
Mr Erasmus, chief executive, and David Plummer, chairman, are based in London, where access to big potential customers is easy. Givey is based in Newcastle – a supportive and collaborative tech community, says Ms Gates, and a great place to recruit high quality, committed staff. “North east roots are grounded in hard graft but we’re starting to get an intellectual culture too,” she says.
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