Silicon Valley Brits: 'We had to leave the UK behind' Dave Lee

North America technology reporter Published duration 21 September 2016

image caption British entrepreneurs have found San Francisco to be a better fit for their ambition

Wearing a lightly-coloured checked shirt, shorts, and with a soft English accent, Cal Henderson delivers a harsh truth.

“It probably would have been impossible to start Slack in the UK.”

Slack, a workplace communications tool valued earlier this year at $3.8bn, is unquestionably one of San Francisco’s hottest start-ups. And, as well as Henderson, the company is peppered with British technology talent.

“Because of the way we built the company, and the money that starting the kind of company like Slack requires, it’s just not possible anywhere outside of the Valley.”

Henderson’s words are tough love. He isn’t writing off the UK’s chances as a tech hub, far from it. But he is unequivocal in his belief that the company he co-founded could not have succeeded back home.

It should make worrying reading for anyone with a stake in the UK’s technology business, and its chances - as we’ve been investigating this week on BBC News - of creating “the next Google”.

I’ve spent time chatting to British success stories in San Francisco’s start-up scene. Some wanted to be a part of this story, others didn’t - but all expressed the same sentiment: Britain just isn’t in the same league when it comes to being able to consistently nurture successful technology companies.

But it could be, one day.

Accidental billions

media caption Cal Henderson: Email killer

In just two years, Slack has cemented itself as a key tool for tens of thousands of companies. Employees use it to share messages and documents and it also plugs into a variety of other services popular in the modern workplace.

Not groundbreaking, you may think, but like all tech successes, the value is in the execution. Unlike so many tools used for workplace communication, Slack is a delight to use.

Investors are throwing money at it. Its most recent chunk of funding - $200m - valued the firm at $3.8bn. The enthusiasm for Slack is bucking the current trend of investors being far cagier about pushing money into new ideas. At a time when pursestrings are being tightened, venture capitalists are tipping briefcases of cash at Slack’s feet.

The company is spending it on growing - and fast. For the duration of their first week, new employees have a yellow emoji balloon tacked to their desks. On the day I visited their offices in San Francisco’s financial district, it was yellow balloons as far as they eye could see.

Such rapid growth in the UK would have been a big challenge.

“The appetite for risk is much lower,” Henderson says. “It’s harder to attract people to what seems like a risky job at a start-up.”

One of Henderson’s co-founders, Stewart Butterfield, is a Canadian educated in the UK. The pair have been through several endeavours, finding success but never quite in the way they intended.

Slack began its life as a quick-and-easy tool created so Butterfield, Henderson and the team could communicate with one and other while they built the real project, a game called Glitch.

image caption A balloon for new employees - Slack is growing fast

When Glitch just wasn’t happening, they gave up. But kept working on Slack.

They’d previously worked together on another project, a online mulitplayer title called Game Neverending. Here too they created a tool to help with the game's development. Again, the game failed, but the tool remained - it became Flickr, a photo-sharing site eventually bought by Yahoo for $40m.

It’s this ability to snatch success from the jaws of failure that breeds great companies in Silicon Valley, Henderson says.

“One of the things that’s pretty obvious as a Brit when you move to California is that the isn’t a lot of cynicism here.

“The British attitude towards failure is ‘oh you’re going to fail, you may as well not try’.

“That just doesn’t exist here.”

Out of the Cotswolds

media caption Andy McLoughlin, the start-up spotter

On the wall in the SoftTech VC office is a poster celebrating the venture capital firm’s 10th anniversary. It’s covered with the logos of the companies in which SoftTech has invested millions. “Onwards and upwards,” reads a scribbled message next to the logo for fitness tracker firm FitBit.

Venture capital is the lifeblood of any start-up ecosystem, and there’s more of it here than anywhere else.

It’s a big gamble throwing money at ideas when you know most are destined to fail. And yet, just shy of $60bn was spent doing just that in the US last year.

Andy McCloughlin looks after $100m-worth of that kitty.

He’s been a partner at SoftTech VC since March 2015. His job is to whittle through the pitches from eager entrepreneurs at a rate of about 10 a week, settling on a privileged few who’ll get what they call “early stage” funding. The idea is to invest “just” a few million for a small stake in a company that might hit the big time. More often than not, they don’t - but the ones that do soar and make it worth it.

That balance of risk to reward puts off British money, McLoughlin tells me.

image caption SoftTech VC was an early investor in fitness tracker company Fitbit

“[Silicon Valley] is just this magical place where people have made money and rather than disappearing into the Cotswolds like perhaps people used to do in the UK, they’re staying very active in the ecosystem and putting that money back in.

“Success begets success, and we just see this continuous virtuous cycle.”

McLouglin’s route to Silicon Valley is also a troubling indicator for the UK tech industry. He co-founded Huddle, a workplace document-sharing and collaboration business, in 2006. When the time came to raise serious money, he felt he had no choice but to relocate to San Francisco (though the company still has a significant presence in London).

“I think we realised that if [Huddle] was going to be a world class technology company, the chances of getting there were going to be much higher here,” he says.

“The US venture capitalists were prepared to move faster, were prepared to take bigger bets.”

Although it has grown rapidly in recent years, the purse for investing in UK technology companies is tiny. In 2015 US companies had access to $60bn, in the UK companies shared just $3.6bn.

To put that into some context, the ride-sharing app Uber last year attracted more investment than the entire UK technology industry combined.

'Six days'

media caption Robyn Exton: Dating app founder

That shortage of funds appears to be limiting the potential for billion-dollar ideas to take off. But it also hurts smaller, niche apps that require investors to be a little more gung-ho.

Her is a dating app aimed at gay women and bisexuals, and launched by Robyn Exton in the UK in 2013. Over the course of the first year, Exton managed to raise $1m. But she needed more.

“When I was raising in Europe it took me about eight months to raise a million dollars,” she says.

“When I came over here, it took me six days. It’s unbelievable the pace that people will move at here.”

image caption Robyn Exton's idea was rapidly funded once she arrived in the US

She says she encountered far fewer restrictions and bureaucracy in getting hold of the money. She says that she wasted months negotiating terms of investment and funding in Europe - time that could have been better spent working on the company.

“Over here,” she says. “You get a piece of paper signed and money gets transferred within two hours.”

'10,000 Not-Googles'

The success of Silicon Valley is built on decades of history. Early military investment followed by innovation brought swathes of money to the region.

While British entrepreneurs in the Valley seem essentially united in their bleak assessments of opportunity in the UK, they also believe great things will eventually emerge - so long as the UK plays to its strengths.

“I think there are some great funds operating out of London,” says Exton.

image caption The UK has to be patient if it wants to nurture a company like Google, Cal Henderson says

“And I think as they continue to grow the tech scene there I think it will get stronger and stronger.”

London in particular has a huge advantage that even San Francisco can’t emulate. In the emerging world of Fintech - financial technology - only London offers that blend of having all the key players in close proximity.

Unlike in the US, where the techies are in Silicon Valley, the banks are in New York, and the policymakers are in Washington DC, in London, all the key components are right on top of each other.

Over time, suggests Cal Henderson from Slack, London’s strengths will begin to bear fruit, so long as people have patience.

“I think the biggest thing that would need to change to create the next Google is to accept that you’ll need to create 10,000 not-Googles first.

“There’s going to need to be a lot of failure before you’ll see success.”