Web Startups: The London Scene
Baby-faced British entrepreneur Ian Hogarth stands in a semi-cluttered loftlike space describing the up-and-coming East London warehouse district that's home to his new startup, Songkick. "Across the street is the pub where Jack the Ripper used to stalk his victims," Hogarth says with a shy smile.
Blimey! This Valley Girl is a long way from home.
But for all the outward Britishness of Songkick's digs, when Hogarth jumps up to draw on a whiteboard, accent or no, I feel like I could be smack-dab in South of Market. The company betrays the unmistakable hallmarks of a San Francisco Web startup: the wide-open flat with mismatched furniture; the jeans-wearing founders living on paltry wages; and of course the grand vision of how a single company is going to revolutionize its area of specialization—in Songkick's case, the world of live music.
The company provides comprehensive concert information, from dates to venues to recommendations. Hogarth and co-founders Pete Smith and Michelle You say about 71% of the U.S. population didn't attend a single concert last year—partly because it's not as easy as other diversions, such as going to a movie. That's what Songkick boldly wants to change.
Songkick's founders are emblematic of a new breed of London Web entrepreneur that mixes British restraint, modesty, and rule-following with the irreverence and boldness so evident in the Web hipsters that dominate Silicon Valley. I spent three days getting to know dozens of London-based entrepreneurs and investors. While Songkick, with its roots in the storied Net incubator Y Combinator, stands out as the most Valley-like, it's clear Silicon Valley's unique style is making inroads with many startups in Britain.
London has never been considered a center of entrepreneurship. As TechCrunch UK editor Mike Butcher notes, Europeans are encumbered with the well-worn caricature that they're too lazy and well-fed by the state to exhibit entrepreneurial hunger. More to the point, he says, many are just seduced by the more lucrative and certain path of investment banking. The play-it-safe ethos has long permeated the London scene.
Of course, the dot-com excitement of the late 1990s reached across the Atlantic. But London seemed to catch on late and produced very few home run exits in the form of IPOs or sales. Conservative local investors quickly turned on budding entrepreneurs, and computer science and engineering students at Cambridge retreated to the safety of banks, law firms, and consulting companies. U.S.-based venture funding receded and investments in Europe plummeted.
Not everyone gave up on Europe. Angel investors are still rare in London, but a few venture capital firms have placed some smart bets. Among these are Accel Ventures, Index Ventures, and Benchmark Capital, which has a London investment arm called Balderton Capital.
Index Ventures is the emerging powerhouse that backed Skype, MySQL (BusinessWeek.com, 1/17/08), and Last.fm (BusinessWeek.com, 6/25/07), all of which went on to big sales. Index has also invested in Songkick. For its part, Balderton backed Bebo, recently snapped up (BusinessWeek.com, 3/13/08) by Time Warner's (TWX) AOL for $850 million. Indeed, London companies have been in the middle of some of the biggest Web 2.0 exits.
Overdressed for Success
Index partners Saul Klein and Dom Vidal explain that while London's moment in the dot-com limelight may have been fleeting, it opened the eyes of smart, young people that starting a company was an option. Now, thanks to the experiences of such companies as Skype, Last.fm, and Bebo, more and more kids are beginning to believe they too could become the next Mark Zuckerberg, of Facebook fame, or more appropriately, Niklas Zennström, who co-founded Skype (EBAY).
To be sure, this band of entrepreneurs remains outside the norm in London. There's not so much a tech scene as there are pockets of like-minded cliques whose members spend a lot of time in the Valley—or at least reading up on its ways. A group of 20 or so promising startups is on a pilgrimage to the Bay Area now. "I decided I had to see this place," says the group's leader, Oli Barrett, an event promoter who has never been to the Valley but says he's become fascinated with it thanks to all the stories that start out, "Oh, that's not the way they do it in the Valley."
Many of these up-and-comers could probably use the extra hand-holding U.S. entrepreneurs take for granted. Hogarth doesn't know a single kid from his Cambridge class who is starting a company, and his co-founder Smith still gets calls from his grandmother who's aghast that he's not using his law degree. (Their co-founder You gets off easy; she lived in the Bay Area for a while and her mom was a venture capitalist.)
When Hogarth and Smith went to meet with Y Combinator's Paul Graham, they planned on wearing jeans until Smith's dad gasped, "You're properly trained British gentlemen!" They didn't wear ties, but were still overdressed. Seeing the Y Combinator founders clad in jeans and flip-flops, Smith thought, "Oh, I'm so British!" He covers his face with his hands and blushes as he recounts the story.
An Emerging Startup Pocket?
The fact is, you can start a breakout Web-based company anywhere. But there are few pockets where this happens with any regularity. It's an open question whether the MySQL, Skype, Bebo, and Last.fm acquisitions were coincidental or there is genuinely some Internet scene and momentum building in London. It's also unclear whether any big standalone public companies will emerge from the pack.
In the U.S. and abroad, a little momentum can spur excitable economic-development types to coin monikers like "Silicon Alley," "Silicon Gulch," a term used to refer to Austin, Tex., or "Silicon Wadi," used in reference to Israel. If Google (GOOG) successfully sends rockets to the moon, no doubt I'll field press releases all about "Silicon Crater." But in a downturn, few of these places ever keep up momentum.
There's hope for London yet. While the number of bets placed by U.S.-based firms is declining, the average deal size is on the rise. In 2007, the number of investments by U.S.-based firms in Europe declined for a sixth straight year, to 897, even as the tally soared elsewhere, according to VentureOne, a Dow Jones company. Meantime, the total invested has been rising steadily since 2003, increasing to $4.6 billion in 2007. In other words, there are fewer bets, but the bets are substantial.
That looks to me like the healthy emergence of a market—and not sheer momentum investing that will disappear as soon as a slump hits. After all, most good deals get done when the flood of U.S. venture capitalists aren't paying attention.