In Tech City's IPO Quest, Cambridge Could Hold Answers

Photographer: P. Wolmuth/Report-Digital-REA via Redux

The area between Old Street roundabout and Stratford is being targeted by the Tech City Investment Organisation (TCIO), a government agency set up to encourage growth in the digital economy, web-based companies and IT start-ups. Close

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Photographer: P. Wolmuth/Report-Digital-REA via Redux

The area between Old Street roundabout and Stratford is being targeted by the Tech City Investment Organisation (TCIO), a government agency set up to encourage growth in the digital economy, web-based companies and IT start-ups.

It's a virtuous circle in tech: A startup goes public, making millionaires out of the founders and others. In turn, they reinvest that money in local entrepreneurs, who may go on to achieve success themselves and fund the next wave of innovators.

But the problem for London's Tech City is the entrepreneurs have yet to get that cycle started. Despite the emergence of high-profile companies such as Mind Candy and Songkick, none of the hub's startups have gone public.

Achieving a breakout IPO will be "the true measure of Tech City's success," according to Ben Drury, the co-founder and CEO of 7Digital, an online music service located in that area.

To help kickstart things, Drury and others are looking for answers from the U.K.'s original tech hub, which sits just 80 kilometers (50 miles) north of Tech City -- Cambridge.

Aside from boasting a world-class research university, Cambridge is the birthplace of some of the U.K.'s biggest tech companies, such as chip designer ARM, which surpassed $23 billion in market value earlier this year.

"The U.K.'s got a new ecosystem in east London, but we aren't learning from our pre-existing tech heritage," Drury said. "The two areas need to share knowledge and collaborate more openly on ideas."

A spokesman for the University of Cambridge said that collaboration is "at the heart of the Cambridge cluster," and the university lets outside companies, including those from Tech City, use its lab equipment and other facilities.

Tech City could use the help. Among the challenges, a shortage of talent tops the list. A recent survey of the area's startups found that 77 percent of them believe a lack of skilled workers was hampering their growth, according to research firm GfK. Also, 29 percent said a dearth of capital was causing them to miss significant expansion opportunities.

Despite its proximity, accessing Cambridge's business and academic know-how may not be easy. While the university's spokesman says that collaboration is the mantra, tech investor Hussein Kanji has had a different experience.

"Cambridge University has a pecking order that is completely proprietary," said Kanji, an alumnus of Stanford University, which played a central role in the growth of Silicon Valley and is known for its culture of openness. "The hierarchy kind of works against itself, and if you're an outsider, you're an outsider."

The university's "us versus them" mentality extends into the investment environment, Kanji said.

"In investor meetings I've noticed Cambridge guys get annoyed that Tech City gets the publicity it does," he said. "Cambridge's angel investors remain in Cambridge, and there's a resistance to outside capital. It's extremely insular."

One group that's trying to change that is the Cambridge Angels investment group, which announced an effort earlier this year to hold events designed to build bridges between the two tech clusters, according to Business Weekly.

Another group attempting to forge stronger ties between Tech City and Cambridge is Entrepreneur First, which tries to lure talented graduates to London's startup scene, and away from the well-beaten path of a high-paid job at an investment bank or a law firm. The program, which counts Google and Microsoft among its partners, provides graduates with mentoring and office space, as well as access to its network of investors.

"Undergraduates are going to peel off and end up in these companies," Kanji said. "Cambridge will sit up and take notice when that happens."

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