Scattering Shoreditch's startups to the winds may not kill them all – but the creative energy that inspired them has gone

I live in a neighbourhood in London that, for its sins, has been dubbed Silicon Roundabout. This is a particularly weird bit of humour-come-home-to-roost. The term was coined by Matt Biddulph in 2008, while he was working on Dopplr, a startup around the corner from us.

Biddulph noticed that the area – a part of Shoreditch that had already had its digital ambitions brilliantly lampooned in Charlie Brooker's series Nathan Barley – was filling up with tech companies whose founders had put the tech crash of 2000 behind them and were getting stuck in to founding new businesses. In a moment of wry humour, Biddulph said something like, "If this goes on, some awful estate agent will start calling us Silicon Roundabout." And thereafter, it was a standard joke whenever tech people gathered: "Ha ha, it's 'Silicon Roundabout'," with the most ironic of air-quotes.

But irony is easily lost in translation. Before long, Silicon Roundabout had indeed been adopted by estate agents, local councillors and even No 10. Silicon Roundabout became the cornerstone of the government's new Tech City strategy, whose idea was to nurture our little homegrown tech district to see if it couldn't be fanned into full flame. Maybe not one as hot as Silicon Valley, but at least something to add much-needed diversity to the capital's industrial base – which presently consists largely of companies that launder war criminals' money, and companies that exchange this laundered money for empty luxury flats.

I've lived through a couple of these tech-booms; my neighbourhood in Toronto – a collection of illegally rented warehouse flats by the railroad tracks – launched dozens of startups, several of which I worked for. I ended up founding one and moving to San Francisco to run our offices there, during the first dotcom boom. My wife – who also founded a startup in the 1990s – presently runs Makielab, another Shoreditch startup. I've seen booms come and go, in three cities in three countries.

Startups are weird, intense things. Most of them fail. The ones that succeed usually attain greatness by abandoning everything they set out to do and figuring out something altogether new that was only revealed through the disastrous failure of the original idea. They are fizzy. They draw in people – often very talented people – and spit them out again.

A common pattern in startups is to go to work for one, watch it implode and team up with a colleague or two to move on to another startup; repeat several times until you have agglomerated a bunch of people you know, like and trust; then do your own startup with them. Startups are a product of a critical mass of startup-ey people, who get to know each other, and trial-and-error their way through several improbable ideas on their way to discovering unsuspected new opportunities that, occasionally, pay off in mind-boggling ways.

Almost everything that startups do comes to nothing. A tiny fraction of all that activity pays off in ways that beggar the imagination. It's the kind of thing that governments like to pay lip service to, but rarely have much patience for. Governments like to boast of a portfolio of large, nationally identified, successful firms – not thousands of hare-brained schemes whose doom is a near certainty. Still, as the startups proliferated and the investment capital began to flow, governments took notice and began to make interested noises.

And so Silicon Roundabout has metastasised into Tech City, possibly because everyone feels a bit silly saying Silicon Roundabout. New name, same basic idea, but with misguided government glitz. Tech City is very big on "incubators" – places where startups are supposed to grow out of a collection of adjacent desks in a huge barracks of other adjacent desks – and on luring big firms to the East End of London. It's a lot less interested in small, weird companies in small, cheap offices, plumbing the unplumbably weird problem space of late 21st-century capitalism.

But at least Tech City's proponents acknowledge that there is some reason to have tech firms in the area. Hackney council is a lot less interested in the proposition.

Last.fm and other startups were forced to leave their offices after Hackney council approved the demolition. Photograph: Graham Turner for the Guardian

I live on a short street behind Old Street tube station, in what used to be a neighbourhood dominated by exactly the kind of offices I describe. Our windows used to look into the windows of Last.fm; the vacant pub next door used to house a social media startup; and all down the street that our bedroom window overlooks were small office spaces housing literally dozens of the storied Silicon Roundabout startups, including such well-respected firms as Berg.

But in 2010, the council started approving the demolition of these buildings and their replacement with high-rise, commercial student housing that targets wealthy overseas students. The first major development inaugurated a welcome new alleyway that connected a former dead-end with East Road, with an unironic official street sign that read "Silicon Way".

Within months of the unveiling of Silicon Way, Hackney council approved the demolition of all of the small office spaces in its vicinity: a two-square-block razing that saw Berg, Last.fm and all those other plucky startups chucked out on their ears. Berg's new offices – a tumbledown building slated for demolition at the end of 2014 – are strictly temporary, and they say they're fearful they'll be priced out of Shoreditch for their next move. Last.fm has already left the neighbourhood altogether.

The social media startup in the pub is also long gone – the freeholder, Truman Brewery, got fed up with not selling any beer there, and invoked the lease clause that requires the space to be tenanted by someone who'll sell their products. But almost immediately, they sold out to a property developer who boarded up the windows and moved in "live-in guardians".

Live-in guardians and builders are the two growth industries in Silicon Roundabout these days. Hackney council's planning department is quick to hand out permission to large developers with ambitious high-rise plans, and rumours circulate among planning consultants and architects about the supposed revolving door between jobs in planning and developers' offices.

When offices in Old Street come down, rents for the remaining office spaces tend to go up. Photograph: Luke MacGregor/Reuters

On paper, Hackney council is conservative of the neighbourhoods and their "street scenes". Our request for permission to put a leaning glass greenhouse on our otherwise useless, perpetually flooded balcony was turned down because it would "interrupt the vertical symmetry" of our (extremely asymmetrical) building. And when the giant, derelict office building beside us – long home to the music publisher Peters Edition – was bought up by property developers, Hackney sternly handed down a thick list of all the modifications it would need before it was habitable (little things like getting rid of the asbestos and putting in a fire exit).

However, the council failed to enforce any of these as the building morphed into an illegal hotel for students. Hackney has a chronic problem enforcing its rules – as we learned during night after night of party wall-drilling sessions, culminating in a six-hour jackhammer serenade on Christmas Day.

When the offices came down, the rents in the remaining office-spaces in the vicinity went up. My own office, 10 minutes away in a business centre off Kingsland Road, went up a third this year. Three of the companies on my floor left Hackney altogether. My wife's startup fears a looming, major rent-hike that will force it to move, too – with the local office supply disappearing nearly as fast as the local affordable housing supply. The scrappy startup businesses are clearing out in bulk.

These startups are good and useful in a way that cheap, pump-and-dump student housing created to serve a short-lived education bubble isn't. They bring in a diverse set of people with diverse retail needs, supporting a wide variety of services that transient students have no use for. But more importantly, they're good for the country. They are an alternative to a brain-draining exodus to the San Francisco Bay area. They hold the potential for the creation of good jobs and local firms that pay local taxes and nurture local talent.

Startups are local. They are about the circulation of talent and ideas at speed, through invisible personal networks. Scattering Silicon Roundabout's startups to the winds may not kill all of them, but it forecloses on many of the startups that are yet to come. The conversation at the pub and in the sandwich shop that leads to the next big thing will now never take place, because the conversants are working in offices at opposite ends of Stratford.

Silicon Way now opens out into a building site that will shortly house hundreds of students (while the bubble lasts). The startups that gave it its ridiculous, hopeful name are gone. And unless Hackney decides that it wants to preserve Silicon Roundabout's tech sector, that ridiculous name will soon be the only thing high-tech about the neighbourhood.

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