Revolutionary Measures

The Cambridge Cluster – what’s missing?

Cluster (IA)

As I’ve said before, startup clusters are springing up all over the place and that’s great. There’s even one in my village (population 3,000) – well, two startups and a group of support services, including myself.

Clusters encourage innovation, particularly through external economies of scale – i.e. by providing access to the people, resources and infrastructure that startups need but don’t have themselves. And the more startups there are in an area, the lower the price of these services as they are shared across a greater number of companies.

A lot of these clusters seem to be driven from outside, particularly as both central and local governments realise that startup clusters are (a) sexy and (b) cheap. Why not give them a small pot of money/some space/a patronising visit to show you’re supporting innovation?

So, putting cynicism aside, what does a startup cluster require – and how does Cambridge measure up? I’ve been looking at Brad Feld’s work on building a startup ecosystem, based on 20 years experience in Boulder, Colorado. The aptly named Boulder Thesis highlights four things that these communities must have:

  1. They should involve entrepreneurs and feeders (people/institutions like universities, government, venture capitalists, lawyers, PR people). BUT they have to be led by entrepreneurs if they are to truly take off.
  2. Long term. It can take 20 years to build a community, so entrepreneurs need to stick around, even if they’ve built and sold their company long ago. And the same goes for those that fail – encourage them to stick around.
  3. They need to be inclusive, welcoming anyone, no matter what their skills or ideas.
  4. They need to be active, with a range of events and accelerator programmes to help encourage and nurture startups.

That’s Boulder. Let’s compare it to Cambridge.

Firstly there’s a large community of entrepreneurs and feeders in the city (so a tick there) and entrepreneurs are taking a leading role. And given the longevity of the Silicon Fen success story there are plenty of long term entrepreneurs who have stuck around, from Hermann Hauser to Mike Lynch.

It’s the third and fourth points where I believe Cambridge has issues. Don’t get me wrong, there are some incredibly welcoming people in the Cambridge community and some great events/accelerators that nurture startups. But, perhaps because of the size and depth of the community, spanning everything from medtech to green IT, groups can appear disconnected, with everyone focused on their niche. Some of this may come from the research-led nature of many Cambridge innovations, but, even in academia, cross-discipline working is becoming more normal after centuries of specialism. Compare this to places such as Norwich, which has a smaller (but still substantial) startup community that seems more cohesive, with greater communication between disparate companies with radically different ideas.

What Cambridge does have, and that I think is missing from Feld’s thesis, is the combination of new and old blood. The universities, and increasingly tech businesses, attract talent, much of which stays on and contributes to the ecosystem. But enough leaves to make space for new ideas so that things don’t go stale.

So, in true end of term report style, Cambridge needs to try harder when it comes to building a cohesive, overarching supercluster. It has the constituent parts, but what is needed is stronger glue to stick it together and help connect the bigger picture. Let’s see if 2014 brings a solution to this long term problem.

December 11, 2013 Posted by | Cambridge, Startup | , , , , , , , , , , , , , , , | 5 Comments

Cambridge Clever and Shoreditch Smarts

Last week Mike Lynch, founder of Autonomy, announced the first investment by his latest venture, Invoke Capital. It has put money into Darktrace, a security company founded by Cambridge mathematicians. Darktrace uses Bayesian logic to spot cyber security issues by learning what is normal inside a company network and then flagging behaviour that differs from this.mike-lynch

Lynch is a divisive figure, but whatever your views on him, he built Autonomy into a multi-billion pound business, achieving the biggest ever sale price for a UK tech company when he sold it to HP for £6.2 billion. Of course, since then HP has sacked Lynch, written down Autonomy’s value substantially and asked authorities on both sides of the Atlantic to investigate possible accounting irregularities at the firm.

But two things that Lynch said stood out for me. Firstly, he believes too many European tech companies are sold too early in their development (normally to US rivals) – raising tens of millions rather than billions. Invoke plans to change that by investing for the longer term and providing experienced managers to take businesses to the next level.

The second thing he really encapsulated was the difference between Cambridge and Tech City businesses. Speaking in The Economist, he said “What you will find in Cambridge is something which is fundamentally clever, while what you are going to find in Tech City is something where the raw science isn’t fundamentally clever, but its more attuned to the market and the consumer.”

So the difference is between Cambridge clever and Shoreditch smart – but (as Lynch also says) we need both if we are going to build strong, vibrant tech sector in the UK. After all there’s no point in clever technology if it doesn’t have a market, while there is a limited opportunity for low IP businesses – we already have enough social networks.

What we need is to bring the two clusters together and develop a mutual understanding so that both can learn from each other, cross-fertilise ideas and even work in partnership. Let’s face it – they are only 60 miles away from each other, just a bit more than the distance from San Francisco and Silicon Valley. Some people in Cambridge have a tendency to look down on any ideas that haven’t originated here (or spent years in development in the lab). In contrast denizens of Silicon Roundabout often view Cambridge companies as too technical, too geeky and taking too long to build in comparison with their agile media startups.

Two immediate things would help this necessary cross-fertilisation. Firstly, a forum to bring the two groups together to share ideas and network, and secondly, a realisation by the government that you’ve got to look at the tech sector as a whole. At the moment a lot of effort goes into TechCity but that needs to be widened to encompass tech companies across the UK (not just in Cambridge, but in other clusters too) with a cohesive set of policies that encourage innovation and longer term investing. Otherwise Lynch’s vision of building billion dollar businesses in the UK simply won’t be realised, and that will hurt everybody.

September 25, 2013 Posted by | Cambridge, Startup | , , , , , , , , , , , , | 2 Comments

ARM about Face?

At the launch of Tech City in 2010 David Cameron stressed that he wanted the initiative to help encourage UK ideas and entrepreneurs and pointed to Facebook as the perfect example of the type of business the area could create. Unsurprisingly given Facebook’s share price issues it isn’t a name that he’s been bandying about recently but the message was clear – content, and web-based businesses are the future for UK technology.

Unfortunately that message is wrong on a whole stack of levels. There is a place for content/web-based businesses (unless it is yet another social network)

ARM Breakout Boards

ARM Breakout Boards (Photo credit: Randomskk)

but as part of a varied ecosystem that spans different technologies rather than as the figurehead of UK Plc. Content-based businesses tend to be lean (so not many high powered jobs), use resources across the world (so not a huge investment in the UK) and can be run from anywhere, making them ultra-portable. Therefore you need a lot of them to create critical mass and actually deliver measurable benefits to the economy, rather than providing appealing photo opportunities.

In contrast, national politicians are a lot less effusive about companies like ARM that provide the technology that underpins real, physical products. In many ways ARM is essentially a software company – it doesn’t make its own chips, licensing its intellectual property to others around the world. And doing so very successfully – with over 20 billion ARM-based chips shipped to date it dominates particular sectors, such as smartphones and tablets.

Comparing ARM and Facebook throws up some interesting statistics:

  • The US social network has more employees (nearly 4,000 compared to ARM’s 2,000)
  • At current share prices Facebook is valued (even now) at $41 billion; in contrast ARM is worth a paltry $12 billion.
  • 2011 turnover for ARM was $781m, dwarfed by $3,711m for Facebook
  • Profits for the same period were $2,851m for Facebook, $350m (£221.7m) for ARM
  • But taking a closer look Facebook’s gross margin in 2011 was 76% compared to ARM’s 94.4%

Clearly Facebook is bigger, richer and earning more money – even if it isn’t necessarily paying full tax on its UK earnings. But once you add in the ecosystem of companies developing applications/chips around each company then the picture changes. ARM is at the heart of an enormous global community of chip companies, design houses and embedded engineers, all developing using its products – and paying royalties on everything they create. It has spawned a number of spin-offs, in Cambridge and beyond, and essentially created a business model that is now widely copied by other fabless semiconductor companies.

So looking beyond the hype, I firmly believe that ARM has delivered much greater benefits to the UK economy than companies like Facebook. It has built up our skills and innovation base, contributed to the formation of the Cambridge technology hub and created opportunities for highly paid, sought after jobs. Now’s the time for politicians to recognise ARM’s success and use it as an example of what UK tech should be about, rather than solely focusing on the latest trendy web-based businesses.

Enhanced by Zemanta

August 29, 2012 Posted by | Cambridge, Startup | , , , , , , , , , | Leave a comment