Monday, 20 October 2014
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How silicon is our valley?

The UK is great at inventing new technology but poor at commercialising it, so the common way of thinking goes. We’d be better off if we adopted more of a Silicon Valley approach, then perhaps the next Intel or Facebook would be British and give a much-needed boost to the economy while creating a whole new culture of entrepreneurism.

But what would this actually involve? The Royal Academy of Engineering was so keen to find out that it sent one of its global research fellows, Andrew McCalister, to find out and this week he addressed the Academy’s annual research forum with his findings.

One of the big problems that UK startups face is a lack of money. In 2009, private investment in new companies totalled £3.9bn in the US and a mere £15m in the UK. What the UK does have, said McCalister, is several public funding bodies that tend to judge ideas for new technology on their scientific merit, rather than the commercial values applied by private investors later on.

’If we brought some of that commercial evaluation forward and combined it with the technological, could we get more companies through to successful market entry?’ he asked.

He then highlighted what the commercial criteria were that a new business needed to satisfy, according to a survey of Silicon Valley investors. At the top were the product itself but also making sure a company had the right technical and managerial people and checking there was a growing market for a product. These things were seen as far more important than issues such as competition, knowledge creation and whether the product is already making money.

Finally, McCalister noted there were several key cultural differences in Silicon Valley, crucially, that failure isn’t seen a bad thing or a sign of a lack of business skills. ’Failure has very much negative connotations here but it’s almost seen as a badge of honour in Silicon Valley if you’ve failed before because you can spot future failures quicker,’ he said.

He also noted that a better sense of community and less hesitance to make introductions than in the UK helped to speed up business and allow easier access to feedback from experts.

Of course, identifying these differences is one thing, but trying to change the UK to match California is another. As one technology investor suggested to me after the lecture, Silicon Valley is a very different place to the rest of the US, nevermind the UK, and it would be too simplistic to try to graft a different culture on top of our own.

McCalister suggested we start small, encouraging schoolchildren to start their own companies (and get used to failure) and building on our research base by getting engineering undergraduates to create more products. He also argued that a larger web sector would be less risky for investors and provide quicker returns, which would then foster confidence and create more wealth for re-investment in hardware and physical technology firms.

But it’s also important to note that several of the ideas he discussed are already coming into play in the UK, and it’s become a much more attractive environment for technology startups in the last few years.

’We have a world class research base and very good technology transfer capabilities in universities,’ Tom Hockaday, managing director of Oxford University’s Isis Innovation, told me. ’We also have some very good clusters, especially around Oxford, Cambridge and London. In Oxford, we have a very buzzy network between Isis, the Saïd Business School, academics and investors.

’We’re pretty good at setting up new companies. Now it’s important to shift the spotlight onto how to turn small companies into big ones. There’s also very little investment finance that is long-term and patient enough for the technology time scale.’

Unfortunately, it does always come back to money. Without willing investors it doesn’t matter how many enterprising engineering graduates there are. And with the global economy so unstable, it’s not very likely we’ll see a surge in wealthy individuals looking to take more risks.

McCalister’s idea was to make more commercial use of the funding available through public bodies. The idea of academic grants being decided based on the researcher’s business plan would probably provoke a roar of outrage, and justifiably so. But the UK does have a public agency already looking at the commercial case for engineering research in the Technology Strategy Board.

Typically, much of its money goes to consortiums of established firms led by a major company, and rules on state aid prevent it from giving competitive advantage to UK businesses. But the TSB is starting to do a lot to foster new small and micro companies, from introducing them to private investors to providing grants for R&D to firms that haven’t yet brought any products to market.

It’s easy to say that the UK just doesn’t have the cash or the culture to produce its own Apple and maybe we never will. But what we do have is precisely what could help our relatively small pot of money go further and create new ways of doing business: innovation. Besides, when scientists suddenly say they’ve detected particles travelling faster than light, then impossible seems like a pretty useless word.


Readers' comments (2)

  • Silicon Valley was built on decades of US government funds being handed to companies to undertake real research in-house (ie very little was sought in terms of 'deliverables'). From these, small spinouts were formed by people tired of corporate bureaucracy.

    US companies buy from such startups. UK companies simply don't. Hence UK startups find it much harder to attract investment.

    It might interest you to know that among Stanford graduates it's now regarded as much riskier to work for a large corporate than a garage startup. If a corporate sinks, you have to wait a along time for a similar company to emerge. If you have gained startup skills, however, there is now a huge raft of small companies (succeeding and failing) who will be happy to hire you.

    To create an unsinkable raft in the UK, we need to encourage corporate buyers to take some risk and *spend* money on the products and services of our startups.

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  • In fact, a downturn can be a good time to attract private investors. With return on money elsewhere almost imperceptible and traditional 'safe' investments proving to be shaky, otherwise risky startups can appear very attractive indeed.

    So perhaps the problem lies elsewhere, either in communication or as suggested in the transition from start up to world leading.

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