The Difference Engine: Give Up And Move To London

So I came about an article about The Difference Engine, which is attempting to be the YCombinator of Europe. I'm going to have to completely and utterly disagree with Mike Butcher here when I give some pretty pointed advice: they should give up right now, this minute, this very round of startups and escape Middlesbrough and move to London.

Editorial Note: If you're offended by some soft Southerner capping on The North, or, worst of all, an American bashing everywhere in the UK that Isn't London, just skip ahead to the comments and start bashing. You won't like the rest of this article, and you'll just start flaming the comments anyway, so save yourself some time.

Mike, you're 100% wrong that Europe is somehow Exceptional when it comes to siting of startups.

First of all, let's deal with the whole "YCombinator Of Europe" thing. YCombinator started out in Cambridge, Massachusetts, which already had a pretty large startup tech cluster. Then they started doing the program half-and-half with Silicon Valley. And then they finally gave up and moved the whole thing to Silicon Valley. They already had experience with several rounds of startups, and several rounds of exits. They saw that the #2 tech cluster in the US, and possibly the world, simply didn't have a big enough ecosystem. Yet somehow Middlesbrough does?

Second, let's deal with the whole "Don't Have To Be In London" thing. You're right, there are a number of European startups that are coming from NotLondon. Mike references Dopplr (Helsinki, but then also has a big London-based office) and Spotify (Stockholm, though how much of a scrappy startup they can be with the most opaque ownership and funding sources in the world is debatable). I'd add a number of Baltic-based startups to that list (like Erply). None of them started out in London, that's very true. But they all did start out in their country's gravity well for top talent.

One thing that strikes me as an American about Europe is that the vast majority of countries have one super-dominant central city that acts as a major pull for talent throughout the country, and which is usually the capital city: London (the UK); Dublin (Ireland); Paris (France); Copenhagen (Denmark); Prague (Czech); Stockholm (Sweden); Helsinki (Finland); Amsterdam (Netherlands, though this almost deserves an asterisk since the whole Utrecht-Rotterdam-Amsterdam cluster is one massive metropolitan area). Probably the place with the least sort of concentration is Germany, with its multiple nearly co-equal metropolitan areas.

All of these places are the dominant suck of talent from their respective nations, and produce the types of network effects that you need for a wide variety of knowledge-based industrial sectors. To me, it's no wonder that you're getting non-London-based startups out of these cities, rather than also-ran cities in each of the countries (how many startups are coming from Marseilles, Brno, Arhus, Den Haag, Valencia? Probably not more than a few). You need to be where the best pool of talent is.

So let's focus on what you need for a successful startup:

• A Pool of Skilled Talent: While The Difference Engine may be able to get these people on the ground in Middlesbrough, what happens when the team needs to go from 2 to 3? What happens when it needs to go from 3 to 10? Where are they going to get the talent? They'll have to leave Middlesbrough, that's what.
• Sources of Funding: This is a longer-term thing for an incubator, but you need to have the sources involved relatively early and often to make it a success; YCombinator flew the Cambridge guys to Silicon Valley just to give them experience with the funding scene, and Cambridge already has quite a few big name VCs. Middlesbrough? How many European VCs have ever been there?
• Entrepreneurial Culture and Mentors: You've got the guys directly involved with The Difference Engine, but what about other people who have run the whole cycle a few times and can act as passive or active mentors?

I contend that none of this is present in Middlesbrough, and quite simply never will be. All of them are present in London today. The single best thing that The Difference Engine could do in order to help its startup founders is to move to London next week.

And here's the best part: it's not going to stay in Middlesbrough. That's right, it's moving to Sunderland. Which means it'll end up with the types of back-and-forth that mean neither place ever sets up any type of cluster effects. Smacks to me of the type of thinking that's led to the European Parliament splitting its time between Brussels and Strasbourg.

Here's what this is, plain and simple: Yet Another Regional Development Agency Thinking One Industrial Park Will Rebuild Its Economy. How many cities and regions say "well, if we just setup an industrial park, we'll all of a sudden be the Silicon Valley Of X"? How many cities, regions, and countries say "well, if we just setup a small venture capital fund we'll build a new tech cluster?" I've seen it all before. And it turns out that the top three sponsors of The Difference Engine are all councils and a regional development agency.

Tech clusters happen organically. They can't be willed into existence by any government or development agency.

Look, I give Middlesbrough and Sunderland councils props for trying to convert their cities from the Grim Northern spots that they're known to be. But they're being, I think, disingenuous to their founding participants.

If you care about the actual founders, rather than just about wasting development funds, get your founders out of the North and into London immediately.

If you're a founder considering The Difference Engine, my personal recommendation is to ignore it. Move to London, get yourself a desk in a shared office in the Shoreditch or Bankside area, and go to town. If you're the type of person ready to do a startup, you'll probably learn more hanging around the vibe than you would sitting in the Grim North for a few months.

London Startup Office Financials

Astute readers will know that I'm the CEO of OpenGamma, a (semi-)stealth mode financial technology firm funded by Accel Partners. Longer-term readers will know that I'm a huge backer of London as a startup hub for all of Europe. A big part of navigating the London working environment is handling our pretty unique property market; I think our most recent past will be useful for someone else out there.

OpenGamma: Pre-Closing

We got our term sheet in the last half of July. Now while some people will argue that VCs take all of August off, our team didn't, and we knew that we had to work aggressively to make for a fast, clean closing.

The OpenGamma founders are a motley crew:

• Elaine, our chief quant, had been unemployed while intentionally working through a quite enforceable non-compete.
• Jim, our head of software engineering, arranged his end-of-contract to be the end of July, with lots of solicitor advice to ensure that there wasn't a binding and enforceable non-compete.
• I was just ending a contract at a major international Investment Bank (astute readers will have heard of this as Big Bank B).

I argued that we needed a space that we could all be together just to make sure that all the various legal moves that resulted in the incorporation/Series A dance were pulled off okay. Although Jim and Elaine weren't sure, as CEO, I won.

Because up until then we were operating still out-of-pocket, we went with the cheapest serviced office that we could get away with. That basically meant one of the myriad of serviced offices along Borough High Street, and came down to 400 pounds per desk per month. That, to me, is the lowest you can possibly go for a private space in Zone 1 London.

In Which We Run Out Of Space

In the same serviced office block, we were able to expand to an adjoining room, giving us room for 8 people (with one space allocated for servers, scanners, and my Administrative Paperwork Overflow). That seemed fine, until we got to 6 people and had an offer accepted by Stephen Colebourne. Now we had a problem.

Up until then we had been paying for 7 potential workers (building management threw in the 8th for free), at 400/desk/month. But the problem is that the serviced office building that we moved into was full. When we took the initial space it was pretty much empty, but now we had no ability to expand at all. Worst of all, when it filled up, the space that seemed quite fine became completely unworkable.

It was clearly time to move.

Offices, Glorious Offices

We started to look at Proper Offices. We talked with two different tenant's agents, Devono and Carter Jonas, and we chose Carter Jonas as our agents. And we started to look properly.

Things looked very promising early. We found an amazing property right on Bermondsey Street that we liked, but couldn't really afford. We found other properties which were downright miserable compared to the best one, but were in our price range.

And then on a lark we saw a property that had just come on the market earlier that day. Perfect in every way: high ceilings; Victorian warehouse conversion; Geek-friendly museum in the ground floor; great location; cheap rent. This was the place. 2055 square foot (subject to survey of course).

We set our agents on negotiating the best rent possible, and once we agreed on all that, we set our lawyers on the property, started talking to build-out teams, and mentally prepared ourselves to moving.

For those of you familiar with the UK property market, we negotiated a 5-year lease with a 2-year break clause. The standard in London is a 5-year lease with a 3-year break clause, but if OpenGamma is doing well, we'll run out of space after 2 years, so the optionality is worth the slightly worse terms to be able to break early if we're a break-out success. For those of you counting, this cost us about 2 months of rent-free period at the outset of the lease. We also negotiated a 6-month deposit based on bank guarantee, where the industry norm is 12-month cash to the landlord.

The structure of the deal for the location that it's in is:

• A discount on the asked rent over the 5-year duration of the lease;
• 3 months rent-free at the onset of the lease;
• 4 additional months rent-free if we choose not to exercise our break option.

If you're looking at Mayfair or the City today, you'd be looking at 5-7 months rent-free on the outset of a 5/3 lease, and 5-7 months after the break option. The South Bank area is a slightly different market, so we had to look at smaller rent-free periods.

A Tangent on Suitability of Space

Whenever I see Valley or New York firms that have successfully moved into decent space relatively quickly, I'm quite jealous, because their property markets don't work the same way as London's does.

In the states, a general rule of thumb is:

• You move into the office as-is
• If the office isn't in move-in condition, you negotiate what are known as Tenant Improvements to make it move-in condition, and the precise nature are a negotiation between tenant and landlord
• When you move out, you move out of the space in as-is condition (meaning that you just leave all the "structural" stuff in place, but things like cubicles and desks you remove).

What this means in general is that there are a lot of spaces that are pretty much move-in condition if you're not particularly fussy about particulars: they have cabling running to a comms room in the major areas; they have a few offices or meeting rooms; they have connections to the outside world ready to light up.

London is a completely different market. Landlords force a completely vacant turnover; anything you've done once you took possession you have to undo. That means that if you're looking at a 2,000 square foot space, and want to build out two conference rooms and a comms room, you have to remove all those walls when you move out. You have to remove all cabling, all lighting, all electricals, all walls and doors, everything. Whether the landlord would find it easier to rent the space with all that intact is regardless: you have to remove the lot of it.

This means that when you're looking for office space you can't actually find, at all, any "move-in-condition" space unless the previous tenant went bankrupt in the middle of tenancy. And given the different treatment of bankruptcy here, that's actually quite uncommon.

It sucks.

In Which We Get Quotations

We used Carter Jonas' expertise and asked two teams to do a full build-out proposal.

The first company, which seemed to really "get" what we were going for, and which came back with proposals first, finally came back with a quotation for building out our 2,055 square foot converted Victorian warehouse space.

110,000 pounds. Just for the build-out; furniture was another 35,000 pounds.

Our heart sunk. This idea, which initially seemed reasonable, turned into a complete flight of fantasy. There's no way I could warrant as a CEO putting 110,000 into a build-out, 35,000 into furniture, and another 30,000 into a deposit on the property. No way at all.

We worked with the same firm on doing a multi-stage buildout, where we got the most necessary things right off the bat (comms room and one meeting room, and everything else in 6 months after we had a couple of sales), and that initial build-out was still coming in at 70,000 pounds. Plus deposit and furniture. Just to move in.

We had to look at other options.

So we started talking to the guys from Causata, another Accel-backed startup. They've been going for a year longer than we have, and they've spent their entire time in a better class of serviced office than we've been in.

Serviced Offices FTW?

So we started talking to higher quality serviced office providers than we were going with in the Borough High Street area. This would involve moving to second-tier space in the City (e.g. not commute convenience to Bank or Liverpool Street) or second-tier space in the posh parts of the West End (e.g. not convenient to Berkeley Square or St. James).

These buildings were much more suitable to growth companies that don't require bootstrap-levels of expenditure:

• Chairs weren't crippling
• The buildings had space in server rooms you could throw a few machines into
• Phones were reasonable in quality

The thing was that these spaces were coming in at roughly 750 pounds/desk/month (9,000/year). For 12 employees, that ends up being 108,000 pounds per year.

And the best/worst part is that these numbers are based on potential employees in the space. The space in any serviced office is charged at a price per room, with a certain number of desks in it. If the space can support 20 employees and you only have 10 in the space, you pay the 750/month for 20 employees, not 10. So your entire cost savings are based on finding the right space for the right number of employees, and being able to move quickly to minimize overspend.

Capital Preservation Equals Startup Victory?

If you ask any startup, whether well-funded with a major VC backer or not, whether they're happy putting 110,000 into a capital cost on an office, they'll say no. It's a ridiculous predicament to be in.

If you run down the numbers, a Proper Office (even with 110k in capital expenditure) has an advantage (for our space) at 12 desks over the full run of the 2-year initial period, but it's all front-loaded: you have to spend capital to save at the end of the lease. If you stay in the space, in years 3-5 you're laughing at the savings.

But for a startup like ours, 110k works out at 2 months of burn. Now you're in a difficult quandry:

• If you really believe the Next Round is going to happen at a good valuation, you JFDI; otherwise, you're pissing money down the drain.
• If you want to preserve your options to drive for a harder bargain on the Next Round, you want to conserve capital at all costs, even if it means you're spending more per month.

It's a tough decision. Clearly (having seen the plans) the right choice for us is the full build-out, but are we willing to sacrifice the additional two months of burn for the optimal working environment over 2-5 years?

What We Did

What we ended up doing was a bit anti-climactic.

First of all, our second build-out firm finally came through with a quotation. 55,000 pounds for everything (from a requirement perspective) that the first firm did. Also, came in at 21,000 for furniture, including pretty darn good chairs. That changed everything.

So we ran the numbers. Turns out that if we assumed that a second round of funding was coming, paying all the fixed costs, no matter how noisome to me as a founding CEO, made sense as of 18 months into a two-year lease. And once the board told me "do what's best for the company over the next two years," that was a done deal.

It was tough though, because we knew all along that from a qualitative perspective, the space in Bankside was the right choice. What we needed was to be able to justify to ourselves and our board that we were sinking the right amount of capital into the right space to put the company on a trajectory that we didn't have to mess about with offices again. That point is quite important, because if you're growing rapidly you don't have the time to deal with this stuff.

Conclusion

If you want to boil all this down to a series of sound-bites, here they are:

• The UK property market is dysfunctional in requiring tenants to restore the space to an uninhabitable shell on move-out;
• This makes finding suitable startup office space in London a PITA;
• ALWAYS get competitive quotes on EVERYTHING because you never know just how far off different vendors can be;
• Serviced offices in London work out well if you feel the need to be in the City or Mayfair, but less well if you like places like the South Bank [Silicon Bridge] or Old Street [Silicon Roundabout]. Crossover point is about 10 employees;
• Ask Your Board about the relative value apportioned to flexibility over the short term vs. cost savings over the long term. This is what your board is there for.

Anticlimax

We move in in the next 5 weeks come hell or high water (because we've already given notice on our current space, and they've already let it). Wish us luck.

Hardcore Once More

I've mentioned a few times that I've been working on Something Big, and it's time for me to expose myself a little more publicly. It has bearing on the types of things I'll be writing about, so I think it's time to fill in the loyal Kirk's Rants readership.

As most of you know by now, I moved to the UK five and a half years ago after starting my career in Silicon Valley working for pure-technology startups, specializing in the database and web application infrastructure space. When I moved here, I looked at quite a few early-stage technology startups, but ultimately decided to sell out and work in the financial services area. I did this for a few reasons: London at the time wasn't particularly conducive to working in a pure technology startup; financial services were where the Cash Money was at; and I wanted a chance to build a Next Stage for my career. At the time, I felt that working in financial services, given the concentration of financial technology jobs in London, was the right next step for my career.

Over the last few years, I've run the gamut of financial services firms: I started out in charge of the risk management and analytics software for a hedge fund management group; I was in charge of Front Office Technology architecture for a medium-sized derivatives trading group; I worked as a grunt contractor for a Very Big American Bank.

Am I glad I've done it? Most certainly. I've worked with a great group of people, made great friends, and learned a massive amount about how the financial industry actually works. I think it was the right choice for me five and a half years ago. But it's not the right choice for me now.

Since my 6-months at Big Bank B came to an end on Friday, I've taken the Leap of Faith and have co-founded a technology startup. I've joined the circle from Hard Core Startup Geek to Financial Services Sell-Out back to Hard Core Startup Geek.

I can't say precisely what we're doing at this stage, except to say that along the way I've seen a lot of inefficiencies in the way that financial services firms develop software, and I think that we as an industry can do better. I think that financial services are too important to the global economy, and software engineering is too important to modern financial services, to accept the status quo: not only can we do better, but we must do better. Most importantly, I believe that what we as a startup are doing will help.

I'm joined by two exceptional co-founders, and have a network of other technology startups in London that didn't exist a few years ago. As I've written before, London is now a phenomenal location for a technology startup, and what we're doing we couldn't do anywhere else in the world. If you've been on the fence, take the plunge. London is now a fantastic place to do a startup, and this is a fantastic time to do it.

In short, watch this space.

P.S. Maybe I was too entrepreneurial after all.

Index Raises Another Round

TechCrunch reports: Index raises an EUR350MM round. TechCrunch UK continues, and is a better analysis from a European perspective.

As I've said before, perfect time to be investing Euros in London-based firms.

Gettin' My GeekSpace On

I believe that every geek needs some space to, well, geek out sometimes. For me, that involves:

• Doing Open Source coding;
• Playing around with technologies before I'm getting paid cash money for them;
• Coding on the systems for the animal conservation charity of which I'm a trustee;[1]
• Working on any startup ideas that I might have brewing at the moment.[2]

When I was living in Silicon Valley, I always had this type of space. Whether it was a bedroom that I used only for coding and sleeping (and other things requiring a bed), or a guest bedroom I appropriated for a pure geek room, I always had somewhere that I could have a nonstop whir of fans from multiple workstations, lots of monitors [3], and lots and lots of mess without any complaints from the significant other. And then I moved to London and it all ended.

When I first moved here I lived in no fewer than 4 homes in my first year[4]; none of them allowed me to set up a Geek Space. Flats here are small (you pay roughly what you do in San Francisco or Manhattan, but the flat you get for the money is drastically smaller than what you get in San Francisco for the same price [5]). Finally after 2 years we moved into a house where I finally had my Geek Room, but we only lived there for 9 months before we moved into our current home, a minimalist loft.

While a minimalist loft suits us aesthetically, it doesn't combine very well with a geek-friendly workspace. Convincing the other half that the Pawson-esque interior can support a desk covered in cables, books, scraps of paper, and at least 3 monitors (or one huge one) is a pretty hard sell. So I did what most London-based geeks do: I got a powerful laptop.

It's a compelling sell. Get a MacBook Pro and you have a system running Unix with a pretty darn beefy processor and bus. Plus, you can take it out of your cupboard when you want to do work, and put it back when you're done. Surely that's going to be good for coding and supreme geek activities, and support your small-flat aesthetic requriements? Uhm, no. When you're used to a crazy keyboard, a crazy trackball, and at least two 1600x1200 displays, restricting yourself to what you can do on a laptop is virtually impossible to do effectively. Plus, Mac key bindings are bloody retarded for coding (seriously? Steve thinks home/end should mean different things to the rest of the world? Take your mock-turtleneck and shove it, yo). You find yourself thinking to yourself constantly "I could do this faster on a real computer," and that distracts you.

Plus, I'm easily distracted. If I have a room all to myself, I can properly geek it out and ignore the distractions of being at home. If I'm in a corner of the general space I might be more social, but I'm constantly going to be distracted by being at home, and looking to just chill out on the sofa. Not conducive to being geeky.

This didn't impact me quite so much until recently: my previous two cash-money gigs were extremely laid back, and had no problems with my doing my own stuff on down-time as long as I got the job done. In addition, my jobs required me to constantly evaluate new technologies for addition to the company's recommended technology base, meaning I was being paid to play with emerging technologies. Current cash money gig? Not so much.

So when I found out that there was a desk up for rent in a shared office in Shoreditch, I went to meet the guys, and I signed up. I'll have a desk in a room with James Governor, James Stewart, and Matt Patterson. Admittedly they're there mostly during the days, and I'll mostly be there evenings (on the way home) and weekends, but I'm pretty excited about the chance to have a suitable GeekSpace where I can prevent my geek-self from intruding on my home life, and be able to geek out with others (again, previous jobs had more people conducive to doing this during business hours than the current gig). All this for less than I spend on beer in a month.

I think this probably a pretty good model that other geeks in suitably expensive domiciles might want to follow:

• Find a cheap room reasonably close to where you work, or in between where you work and where you live;
• Rent the room and network access;
• Split the costs between the lot of you.

You get the best of all worlds: a space you can geek out, and no home-life strife. What's not to like?[6]

I'll be posting more about this as I get myself fully embedded, and as I learn some good rules on combining an off-site GeekSpace with an at-home life devoid of real workstations. Consider this an experiment in work-life balance for the geek set.

Footnotes

[1]: You'd be shocked at the level of paperwork and data management even a simple zoo would need, and how little of that appears to be general enough that you can pay someone to take the burden off your hands. I'm shocked at how charities a little bigger than we are, without a software engineer available, are able to comply with the requirements.
[2]: Of course officially I have none of these. None at all. Nothing to see here; move along, move along.
[3]: Ever tried to make sure sure an Ikea desk isn't going to collapse under 2 21" CRTs? Can be quite nerve-wracking...
[4]: My personal life got very complicated when I moved here. If you don't know me personally, that's all I'm gonna say; if you do know me, you know what happened.
[5]: 750 square foot for a 2br being a luxury? Seriously? London's that crowded? I don't think so. It's more that the planning system is so insane here that once you get the chance to build anything you cram in as many units as you can in the space. For a place that isn't a concrete canyon/jungle like Manhattan, it's a bit ridiculous, really.
[6]: This isn't relevant to the Silicon Valley set of course. What self respecting Silicon Valley geek doesn't have the ability to setup a Geek Space at home? None.

TechCrunch Reply: VCs Shouldn't Only Fly To Emerging Markets...

(Context: TechCrunch saying the US is played out in VC funding.)

First off, allow me to correct one thing, about the confusion between high growth and high tech. Yes, VC funding is about high growth. But more than that, it's about exponential growth triggered by a capital infusion, which is what technology investment is all about: pay money down to write software, and you can sell infinite numbers of copies for only the cost of sale, which is lower (hopefully) than the cost of writing it in the first place. Otherwise, you're in Private Equity land, which is completely different.

But let's take the analogy farther. Why do you think that investment is going into China, India, and Israel? China and India are growing middle classes and have indigenous growth markets, as well as a hinterland (SE Asia for China, Pakistan/Bangladesh for India). What about Israel? That's the one that teaches you something illustrative, because I don't think anybody would really assume that Israel is very well able to effectively do business with its local hinterlands (for a variety of reasons I don't think I need to spell out here).

Israel tells the whole story of why the others are there: lots of skilled engineers who can't/won't migrate to Silicon Valley, and a culture of entrepreneurship.

Hmmmmm.....that sounds familiar..... Oh, wait, now I remember why!

So taking the TechCrunch approach, here's why London is somewhere else you should consider:

• Growth Industries. Remember, London is able to service as a financial and technology centre all of the expanded EU. You think Romania isn't a potential target for growing in transport, consumer goods, all that?
• Immigration Issues. Again, London draws from all over the EU already, and we also can't make it to the US.
• Stable Regulatory/Legal Framework. Okay, so this is a little different than it used to be given regulatory chaos everywhere, but we have an excellent legal framework and strong property rights and laws that understand and can defend against violations of intellectual property.
  
• Bonus: You like London. Okay, let's face it. You're a rich VC. London's very very suited to taking money from super-rich people. Why do you think we have so many Arabs and Russians and other assorted billionaires here? Because we're good at providing avenues for you and your significant others to spend money on a regular basis. Bangalore? Not so much from what I hear. [1]
  

If you're looking at Israel, you should be looking at London.

Footnotes:
[1] Yes, I know I'm incredibly oversimplifying. My point here is that London caters to literally hundreds of dollar billionaires on a daily basis; Bangalore, Tel Aviv and Guangzhou don't. They're getting better, but London's been a billionaire plaything (to a point that makes it impossible for those of us not in that level to live well) for at least a hundred years, and it shows. Trust me, you don't want to have those problems.

Blaine Cook, Northern Ireland, and London Tech Scene

(Context: Blaine Cook talks to some Times hack about the Northern Irish tech scene).

The Delaware Thing

First of all, allow me to correct the conception that people incorporate in Delaware because it has no corporation tax. This is fallacious, though it has a basis in history. It used to be the case that a corporation's state of incorporation did affect its taxes in a meaningful way. At that time, Delaware attracted a lot of incorporations due to tax arbitrage.

More importantly today, there is a lot of law that depends on your state of incorporation, because of the Federal system in the USA. Therefore, since there used to be so many firms that incorporated in Delaware for tax reasons, there are a lot of judges and precedents and case law in Delaware, so lawyers in other states all know Delaware law on those matters more than their local law. Therefore they recommend their companies to incorporate there, because it makes the playing ground far more level and understood.

Nothing to do with taxes these days, which are based on your legal nexus and primary business sites.

Sorry, every time I read something like that it makes me want to smack the urban myth out of people.

"Does Nothing Work In This Country?"

I feel like I perpetually channel the spirit of Darcy's fiance in the original Bridget Jones Diary film by saying to myself "Does nothing work in this country?" The UK is the country in which nothing works.

Case in point:

That was the view from my back window on Monday. That's a good 4 inches of snow. That effectively shut down the entire London transport system for over 24 hours, and led to at least 2 days of severe system-wide delays.

4 inches of snow. That were fully expected (BBC was reporting it was going to happen at least 12 hours in advance, yet no road gritting/salting was done in advance). That shut down everything.

I showed this photo to my sister living in Chicago. Quoth the sibling: "NOT IMPRESSED!!!!!"

Another case in point: Broadband/cable. There's now one cable operator in this country. Who refuses to lay any new cables anywhere (you don't have cable in your neighborhood? Too bad).

Yet another one: Every Monday the whole public transport system is delayed. Every single Monday, because the weekend engineering works always overruns.

The Bureaucracy Thing

The UK's bureaucratic culture doesn't appeal to Blaine. And it shouldn't. It's retarded in so many ways. Let me give you a few examples:

• For me to start my most recent job contract, I had to provide to 3 different parties the exact same documents, that they all had to individually verify and copy: my passport, my visa, a recent bank statement, and a recent utility bill. I had to run to 3 offices to do this, and it took more than a full day of my time.
• If you ever move to the UK, do not ever forget when you moved in to or out of a particular location. You'll be asked more times than you can imagine for 6 years of addresses, with month accuracy on moves.
• Like many USAmerican men, I use my middle name, exclusively. Don't even write out the first initial anymore. This is fine in the states; here, my first name must show up on everything: utility statements, bank accounts, credit cards, the lot (remember, they all have to match up perfectly, or you'll end up in a situation like I have now, where ING Direct refuses to link up with my HSBC account because the first initial isn't on my ING Direct account, and refuses to accept anything other than a Certified Copy of my passport as evidence, even though they already have a certified copy of my passport on file).
• To be able to drive here, I could have paid my money and exchanged my US driver's license for a UK one. Except that I would have been able to get an automatic only one, and nobody has automatic transmission cars here, which makes the license useless. So now I have to actually go through the whole process starting from provisional license from scratch.
• To get that provisional license, I had to mail my passport to the DVLA in Swansea. The original. There is no alternative to this if you're an American. I couldn't even get on a train there and show it to them in person. They refused to send it back any type of recorded delivery.
• When I moved here, I could put lots of money into my UK bank account, but not get a cheque book or debit card or anything else. All I could do was get small amounts of money out of my account at a Citibank ATM (no others). That's it. But I had to sign up for that so that I could sign up for anything else, because otherwise I wouldn't have a bank account statement going to my home to show everybody else to prove that I'm a Real Person. Finally getting a job allowed me to have a cheque book for the first time. For a year I mostly used my US credit cards (like Blaine).
• Grocery shopping after 4pm on a Sunday? It is to laugh.
• Evening/weekend opening hours for any type of call centre? Nope (and since they're in India, there's no reason for this other than spite).
• You want to do anything at all to your home's exterior? Be prepared to run the planning gauntlet, a system that appears to be explicitly designed to stop anybody from doing anything at all until the end of time.
• When moving into one borough, and attempting to get a parking permit just to be able to move in, we had to go to 3 different local government offices on the day we were moving. The best part? At the parking office, we were told we had to go to the local taxation office because we didn't have a piece of paper they wouldn't post until that day (because we hadn't moved in yet, and thus hadn't triggered the taxation), even though he could see the relevant information on his computer. Best part? He didn't do anything with the paper, he just had to check a box that he had seen it. The local taxation office has a special window just for this.

Unlike Blaine, I've been here 5 years, and this stuff still makes me mad enough to scream at people.

None Of This Matters

Yes, as a USAmerican, it makes us want to rant and rant and rant. And that's a great topic whenever we expats get together and celebrate that most English of traditions: drinking yourself into oblivion on an empty stomach on a week-night.

And yes, every time I go back to visit San Francisco, I sit there and say to myself, "Self, what the fark are you doing living in London, where nothing works, where there's bureaucracy stifling you at every step, where due to the exchange rate you now earn less and where the weather is atrocious?" And then I realize that even if I didn't have family (like Blaine) keeping me here, I'd probably stay.

None of the bad things matter. London is still, no matter what:

• An insanely vibrant, multicultural, safe city (Daily Mail and Evening Standard: shut up; until you've been to a properly dangerous city, shut your pie holes);
• A city that draws talent from three of the best universities in the world (I mean, they're no Berkeley, but I guess Cambridge, Oxford and Imperial are okay for what they are);
• A city that draws talent from across the entire EU (Blaine: most of the best Polish engineers I've seen are in London at this point; the Polish-in-Poland firms are competing against India, not London), none of whom can move to the states anymore;
• A city with the best flight connections of anywhere in the world (there's virtually nowhere that's close enough that doesn't have at least one nonstop flight running from London to it);
• A city that, no matter how hard the Luftwaffe and 60s Architects and Maggie and Red Ken and everybody else has tried to kill it, just won't die.

After everything politicians have done to either actively destroy London, or to neglect it into oblivion, if this were America you'd have Europe's Detroit. You don't. You have London.

And that's why I think that if you can change the perceptions of the people who are already here, you can get a real tech industry going.

My advice to Blaine is:

• Keep ranting. Only way to stay sane.
• Do it down t' pub with other USAmericans when you come into London.
• Don't do it to the press. :-)
  

More on London vs. Valley

Just a quick follow up on this morning's epic rant about London and Funding.

Read this from the Futurist: "Why Government Is Set to Extinguish Silicon Valley."

Whether or not you agree with the argument, he makes four key points here:

• SOX compliance makes it difficult to justify an IPO. No worries about that here, and the London Stock Exchange's AIM still has some IPO activity.
• Immigration Torture. Again, not only do we have all of Europe here, the UK actively encourages anybody who has excellent skills to relocate here from wherever you are under the Highly Skilled Worker program (hint: if you can work in the Valley at all, you qualify).
• California Taxation. Yep, Cali is completely ungovernable and taxes are going to go up a lot. We don't have a split between federal and state taxes here.
  
• Federal Taxation. Yep, your taxes are going up. Ours are as well, but much less on current projections (if nothing else, no matter how broke UK.Gov is, our debt as a percentage of GDP is much less). We also don't have an AMT here to contend with.
  

Still think London isn't a desirable place to locate a startup?

Want a London Tech Sector? Invest In Startups

I've written previously about moves to set up a London TechHub, and I've spoken disparagingly (some might say "ranted") about it. Since then I've been made redundant and spent my time helping out an Open Source project and generally embedding myself in the local AMQP community. I'm a lot more optimistic than I once was.

Basically, I've been hanging out every day in Silicon Roundabout, and it's starting to feel pretty interesting. It's got some of the things that the rest of London lacks:

• Public third-spaces have free WiFi and power points all over the place. Contrast this with a standard central London Starbucks. [1] The only big difference between London and San Francisco is that in London the wired third-spaces are pubs; in Silicon Valley they're coffee shops.
• Lots of Class-Z office space. Nobody's trying to tear down everything they see and put in Marc Jacobs boutiques and Class-A office space. The fact that there's office space that's actually affordable is a big plus.
• Lots of startups. There are all kinds of small tech and media companies around seeding each other with ideas. People working here know each other and can meet up easily for beer after work and weekday meetings.
  
• Lots of Vietnamese restaurants. Maybe it's my personal experience, but grabbing the team and going to get Pho for lunch is part of the Valley experience to me. [2]
  
• People doing deals. Everywhere around there are people obviously getting Deals done. Funding deals, consulting deals, hiring deals, it's all happening. You can feel it.
  
• Non-traditional-appearance people. Artists, piercings, nobody wearing business attire, it's all there. Much more techie than the traditional City/Wharf culture.

And here's the thing: none of this has happened with any type of TechHub coming into being. It just happened organically.

Fund Firms To Build A Tech Cluster
You want to know what would make this really gel? More funded startups.

There's a general sense these days that any new tech startup requires like 2 guys, some Merb/Rails, a couple of MacBook Pros, EC2, and you'll have a million users overnight. Why take funding? Why invest? Why not wait for commercialization?

Because you take the long view. Because you realize that creating a culture of early stage startups requires a culture of entrepreneurship. And because you know that only funding companies leads to spreading that culture of entrepreneurship to new people. And, even more importantly, because there are a lot of ideas that actually do require more than 2 guys + laptops; they require some pretty substantial up-front investment to pop, but the pop is probably going to be bigger as a result.

But that takes ideas that require funding, and a willingness to invest in early stage companies. There aren't a lot of angels around at the moment (if nothing else, the financial implosion hits them first), and London's been so expensive that most techies of sufficient quality don't have enough savings to bootstrap for a year. So you need a bunch of people looking at interesting IdeaCos, and investing in them.

The Kirk Story
Perhaps the most important thing that happened to me to incubate my personal culture of entrepreneurship was taking a startup job straight out of University (Go Bears!). That changed my worldview so dramatically that when I then went on to work for WebLogic (just after BEA acquisition), I thought that 2000 person company was monstrous and bureaucratic. I couldn't wait to get back to a startup.  That's how you build a tech community: you infect people with the startup bug. [3]

When I moved to the UK from Silicon Valley for personal reasons, I wanted to continue that culture of startups, that constant entrepreneurship. But when I looked around, I realized that the only way to live with a reasonable standard of living was to dive into finance. [4] VCs I met with tried their hardest to get me on board with one of their portfolio companies, and even asked me whether I had an idea they could fund (which I didn't, and even if I did, I didn't have the local network at the time to put a deal together). I viewed working in finance as the best chance I had to build a life for myself in London working in software development. [5]

I think things have changed. I think London is the place, and now is the time.

Why London Now?
So if you're reading this far, and you have a few quid to invest, here's why I think this is exactly the time to push hard-core into technology companies that require up-front investment in London:

• People Are Available. The Credit Implosion has really started to hit financial IT. [6] This makes the calibre of people that you need to do startups available, and it's only going to get worse/better from here. Infect them with the bug, make it clear that they can do tech startups and be able to live in London and maybe have something pop, and you've got a culture going.
• Sterling Is Worthless. $1.366 as of Friday close, even worse in Euros. Nobody denominates VC funds in Sterling. Invest here while you can. Seriously, even alpha developers here are earning at market exchange rates monstrously less than they are in the Valley or New York.
• We Have The Basics. WiFi/Power Points, Vietnamese Restaurants, Cheap Offices, Public Piercings, it's all here. [7]
• We're Not USAia. We can draw on skills (language skills, cultural affinity) from throughout Europe [8], we understand European culture isn't the same as California, and we can better target consumers and businesses in Europe/Middle East/Africa. North America is roughly 350MM people, EMEA is circa 1000BN (maybe more).
  
• We Speak English. Even the Americans here (guilty!) speak some bastardized form of the Queen's Tongue. For global businesses, where you want some real language skills and native English, we can put it all together in one location.
• GMT Rocks. We have business hours overlapping with San Francisco, New York, Moscow, China, and (at a stretch) Japan. It's one reason why finance firms flocked here, and tech firms can leverage it too.
  

So if you're thinking that this might be a good time to invest, trust me, it is. If you're thinking of looking into firms here, do it. If you're thinking of opening the taps, you're thinking along the right lines. You don't even need to fund entrepreneurs here immediately, just getting your existing startups to open offices in London and giving the employees equal equity stakes their their Valley cohorts will go a long way towards equalizing the situation, and you'll still be able to take advantage of all the advantages above.

I fervently believe that if you infect enough Londoners with the startup bug, we won't get cured. We'll be just as driven as the Valley folk. You just have to infect us.

But don't think that you're best served in making a big PR splash, opening a fancy office, and then not investing. It's still embryonic here, and you're going to have to help entrepreneurs by funding people you feel have talent (but maybe not just yet...) just as you would in the Valley. Make a long term commitment, and take advantage of current troubles to make it a cleaner short-term bet. You'll find that you have a stable of entrepreneurs and experienced techies that can really make great things happen.

Footnotes:
[1] This sounds utterly trivial and stupid, but it's a real sense of the types of people you expect to be hanging around. If you've got free (not wireless-company-paid, not pay-per-day) wifi, and power points, you expect people to be hanging around and doing stuff. Stuff that involves the intertubes.
[2] My tips: Song Que in the Kingsland Road Vietnamese strip; Green Papaya if you're willing to voyage way out to Deepest, Darkest Hackney for fantastic food; Cay Tre if you want to stay close to the office.
[3] People from Radik have gone on to Yahoo!, Google, Intel, Duke University, VMWare, Nuova, TellMe Networks, Gunderson Dettmer, Intuit, MobSpin, LucidEra, Required Technologies, ..... A good startup has a fantastic alumni legacy.
[4] Yes, I've told this story before. Forgive me for becoming my mother.
[5] Have I mentioned I'm unemployed yet? Sorry, that mother thing again.
[6] Hey, still unemployed here!
[7] Just to point out, this is largely from my recent experiences in Silicon Roundabout/Hoxton. There are a lot of similarities with Bermondsey, which is where I'd personally put a firm I founded (mostly because Hoxton Square takes much longer to get to from where I live), and has a pretty similar vibe (if smaller). If only it had a reasonable Vietnamese restaurant...
[8] EU Free Movement of Labour doesn't just apply to Polish Plumbers, it's also applies to software engineers and business guys from everywhere in the EU.

A London TechHub? Don't Be Daft

After Rob Knight gave a shout-out to me in a blog entry, I didn't realize that other people had been talking about trying to set up some type of "TechHub", and now apparently they're talking about doing it in London.

People who have seen me in full-on rant mode down t' pub may recognize this as one of my favorite topics, and one on which I completely agree with Rob Knight in that London is perhaps the stupidest place in the UK to do it, bar none. Don't get me wrong: there are definitely technology firms doing quite interesting work in London, and there are a lot of people that I admire working for technology pure-plays here in London. And that's great. But you're never going to have anything near Silicon Valley style concentration of technology startups or firms here.

Micro-Cluster or Macro-Cluster
Your first question is whether you want a micro-cluster or a macro-cluster. I think the current plans for a Tech Hub are on the micro-cluster form: it's a building or two nearby each other where you can put lots of tech startups in one area. And what does Mike think you need for this?

• Great transport links
• Nearby cheap hotel
• Super-Fast broadband
• Hot-desk facilities

Uhm, Mike, do you just realize that you've essentially invented the business model for Regus? Simple fact, none of those things is unique to technology startups whatsoever. And in fact, none of the most successful startups that I know of has ever had such ideal digs right off the bat. Wanna know why? Everybody wants them.

And when everybody wants them, the cost of them goes up. And that means that startups get priced out of being able to move straight into them. My startup started in the cheapest office space we could get, which was a serviced office in an industrial park in San Mateo, with shared T1 access and no static IP and no public transport and right at the intersection of two freeways which were always massively crowded so you had to commute at odd hours. Because it's what we could afford. And we even had a 7-figure seed round under our belts!

Providing prestige office accomodation for startups doesn't make any sense because they'll be priced right out of moving into them.

So where do startups end up clustering by their very nature? Places which have some of the above, but are not Grade A office space for a variety of reasons. Places like Old Street and Hoxton and Shoreditch and Bermondsey. Oh, and look, those places already have quite a few startups naturally gravitating towards them.

Places like the TechHub already exist, in every way you can imagine, it's just that you can't afford them if you're a tech startup.

The Valley Is Bigger Than London
Okay, so let's reconsider as a macro-hub, where we're trying to figure out how to replicate Silicon Valley rather than Palo Alto. That requires scale. Lots of it.

When you talk about The Valley (and not the San Fernando Valley from whence comes pr0n) [my best recollection was that The Valley essentially spread from San Mateo down to southern San Jose and across to include parts of Fremont; if you include San Francisco and Berkeley you're talking about a huge area] you're talking about an area that that's about 35 miles across. That's pretty much the entire size of Greater London from Heathrow to Upminster.

One of the advantages for many people there is that you can largely pick where you live relatively independently of where you're going to work. When I was there I worked in San Francisco, San Mateo, Burlingame, Menlo Park, and Cupertino. I lived that entire time within a 1 square mile area. You can easily settle down in Cupertino or Sunnyvale or Mountain View and have the entire Silicon Valley employment system available to you. Admittedly, this is part of the whole car/freeway culture, which sucks royally, but can you say the same for London? No.

London is completely impossible to navigate in over any moderate distance whatsoever in a car. So let's stop that route right now.

Let's look at the public transport map then. In fact, the public transportation system of London is irredemably designed to do exactly one thing: get people to and from their jobs in the City, and to and from their playgrounds in the West End. And it can't even do that. You want to go from Non-City-Location-A to Non-City-Location-B via public transportation? Oh, it is to laugh. If you can do it at all, it's going to take you an eternity each way. I had a 45-mile door-to-door commute from San Francisco to Cupertino once. Took me 45 minutes each way. My current commute (from Fulham to Bank) takes me longer than that. For what, 5 miles? And I'm following the direction of the transportation system. For me to go play Table Tennis on Sunday, to go about 2.5 miles, takes me 45 minutes each way in a bus. For 2.5 miles.

In this respect, the outer/inner London system acts as a fully centralized Silicon Valley: you can settle down anywhere with a train into central London and just stay there, as you move from City-job to City-job. More on that next.

Staff Up, Yo.
So let's say that you did want to create a macro-cluster of tech firms. I would say that the #1 hurdle you have to face is this: How do you make it relatively easy to get about 20 A-list software engineers in a startup quickly. Let's look at each of those in turn:

Relatively Easy. By this I mean that your hit rate on qualified candidates isn't less than 1% (which is roughly what my hit rate on CVs to interviews was just after the Dot Com Boom ended as everybody who was pretty marginal in the valley all went looking for jobs at the same time).

20. I pick this because I think if you're looking for a team smaller than this, you could probably do that almost anywhere. And I know that modern programming languages and techniques are making it easier to do more with less, but you've still got a requirement for about 20 technical people overall, whether it's hosting, configuration, testing, the works. To get something that's really good in a commercial context still requires a fair number of people.

A-list. Startups aren't amateur hour. Well, they are in Web 2.0 (oh, snap!), but not in the real world. Bring your A game, yo.

In a startup. This point is critical because you have to get people who are willing and able to work for a startup and in a startup environment.

Quickly. Is it going to take you 12-18 months to ramp a team that quickly? Fail.

What's going to block you in every single one of those criteria? The financial industry.

Follow The Money
Where are all those people that you want working in London? The financial services industry. Why? The money. Why are we such money-grubbing whores? Because London's expensive.

When I moved to London (and it had to be London; I wasn't willing to consider anywhere else in the UK) for personal reasons about 5 years ago, I initially thought I'd go work in a startup or in the tech industry, and I met with quite a few VC-backed firms, and had several meetings with a very prominent London-based VC (who works for a very prominent Sand Hill Road firm's outpost in St. James). His advice stuck with me, and it's never more true. On average, you're always going to earn more in the financial industry with lower variance.

If you play the startup game, over a 10 year period, figure you're going to have one minor pop (acquisition for small money) and one medium pop (acquisition for major money). Assume that you will never be part of a successful IPO (because the chances are so slim that it's laughable). During that period you average £X in annual pay, with those minor and medium pops paying you £Y in total one-off payments.

During that same period in financial services, you'll be earning £A in annual payments, and £B in bonuses every year. In order to make the maths work out, you would have to assume that 10X + Y is more than 10(A + B). It's not. If you're the type of person who's going to be in at the first round of a startup (and thus makes Y meaningful), Y is going to work out at roughly the same as (or even a little more than) 10B. But A is astronomically higher than X.

And the financial industry knows that their competition for top software talent in the UK is the rest of the financial industry, and the technology sector. And they know that by their very nature, most super-strong software engineers would prefer to work in a pure-tech environment where they're not a support structure, but the central pillar of the firm. Therefore, they know that they have to pay them more, and with much lower variance, than they would get in their preferred industry. And they do.

And let's be honest: if someone told you "I'm going to pay you more every year, in fact, I'm even going to pay you enough to own property in Zone 2 in London" versus "I'm going to pay you so little you're going to be renting somewhere 30 minutes from a tube line in Zone 6, but maybe just maybe in 6 years you might do pretty well," it's a pretty easy decision for a lot of people to make.

Which is precisely why Paul Graham likes his serfs to be so young: so that they haven't yet built up any tradition of eating anything other than ramen. When you've been able to afford Nobu, you don't want to go back to nothing better than McDonalds (unless it's on the way home after the pub and you need all the fat and protein you can shove in your face if you're to be functional the next day). You'll do it if you have to, but most people aren't going to choose it.

I guess that's why the vast majority of the people I know here who are of the calibre I worked with in the valley work in finance here in London. And they wouldn't do an early stage startup, because they physically couldn't slash their monthly expenditure to a point that would make the startup pay effective. You might be able to get a few, but 20?

And even if you could get 20, do you think that you could get 400 (20 startups each with 20)? I've been at parties in San Francisco with 400 tech-company software engineers for particular social niches. Do you think you could get 400 A-list software engineers to give up their cushy financial industry salaries and stay living in London on a pittance to work for your startups? Because you'd need at least that to kickstart it.

And this isn't just a London problem. New York isn't a tech industry epicentre for the same reasons. Chicago's interesting in that it has enough financial firms to have spillover effects, but not so big that its gravitational well can't support pure-play technology firms.

Could you just pay startup employees more? Well, how many European VCs do you know who like having their founding team earning into 6 figures sterling before they have a dime of revenue? I didn't think so.

Oh, Noes! The Credit Tsunami!
Oh, wait, the Credit Crisis/Crunch/Quake/Tsunami is going to fix all this by eliminating all the financial industry jobs! My ass.

Bonuses for many are going to temporarily suck. People will be laid off. But I don't know of any strong technologists who have yet been laid off by a financial firm in London (I'm sure there are, but in the transitive closure of people that I know, I don't directly know of any). They're so difficult to hire at the best of times, you want to hold onto them. Don't count on there being such a flood of programming superstars who are given massive severances so they can all start companies at the same time that you can turn back time.

You'll probably see what happened when the Dot-Com bubble burst. You saw all the people who came into the industry (Tech then, Finance now) who really weren't good enough, but who got hired because people needed warm bodies who could do the grunt work (then web coding, now WinForms programming), they'll all go. And a few people who really shouldn't go, but get caught up in a round for some reason or another. And those people will find jobs almost instantly (great Silicon Valley anecdote: I had to delay the CEO of my firm laying me off once because I was on the phone getting a job offer from another firm).

So even if the Credit Implosion results in a different technology employee market in London, you'll just face the problem of identifying the little wheat from the piles of chaff. And that sucks very valuable resources.

If Not Here, Where?
Here's where I (somewhat) agree with Mike and disagree with Rob: Manchester isn't close enough to London. VCs aren't going to want to live in Manchester, and neither are your other financiers and lawyers and all that. They want you to be within a 1 hour drive of their offices on Sand Hill Road in Silicon Valley, which essentially defines where you can have your offices there. And they aren't going to want to get on a plane.

I think you've got an hour-and-a-half to two-hour train journey from central london (which puts you unfortunately in outer-commuter-belt). Places that are interesting:

• Brighton. Has a similar vibe to it as San Francisco, and similar numbers of "creative types." But it's so hemmed in by geography it might not be easy to grow it. And it's horrid in the summer as all the day-trippers come down and invade it (disclaimer: I used to have a weekend place there).
• Bristol. Already has a massive HP lab outside of it, good university town, decent weather, fast trains.
• Oxford/Cambridge. Universities (remember, Palo Alto has Stanford and Berkeley has Berkeley, largely defining why Silicon Valley is where it is) bring young talent who haven't been seduced by London yet.
• Reading/Bracknell. The area was starting to get that way (with all the outposts of US tech firms out there), except that it's really soul destroying and foul so nobody young and talented would want to live there (remember: you can work in Silicon Valley [similarly soul destroying and horrible], but live in San Francisco quite easily. I had a friend working in Reading and living in London and it almost killed him). Maybe if Crossrail had gone there, but otherwise too grim.
  

If Manchester had a super-high-speed rail link to central London, then it would be quite interesting, and it would probably actually really benefit the UK as a whole. But given that the UK can't do new infrastructure, I'm not holding my breath.

Where does this leave us? Well, I think essentially the following:

• London has a geography and transportation system that limits you to locating in central London to draw on enough talent;
• The desirability of London for so many reasons makes any office space suitable to drawing on a lot of talent ridiculously expensive; and
• The financial industry will collectively act to ensure that the type of people you need to do a pure-tech startup simply aren't available at the prices that a startup can afford.

Yes, I'd love a technology cluster inside the M-25. But I'm realistic.