Last week, a couple of very different appointments in the grand surroundings of London’s Portland Place got me thinking about the UK’s environment for technology entrepreneurs. We’ve always had a strong reputation for innovation, but our ability to continually punch above our weight has been in question for some years.
On Tuesday, I met Sir Ronald Cohen, founding father of the UK’s venture capital industry. I asked him about the ultimately doomed Easdaq exchange, a European equivalent of Nasdaq that Cohen helped to establish back in 1996.
Cohen pointed out that the big difference between early stage tech investing here and in the States is that big firms like Kleiner Perkins don’t exist on this side of the water, evidence that our entrepreneurial system doesn’t cater for early stage companies in the way that it should. “We don’t have the exchanges such as Nasdaq that are required to raise substantial amounts of money for promising pre-profit companies,” he said. Crucially, we also don’t have the installed base of high tech companies in the economy that the US has in Silicon Valley.
It’s interesting to note that Israel has been able to overcome these obstacles by accessing Nasdaq directly and by attracting the likes of Microsoft, Yahoo, Google and Cisco to its shores. As such, it has managed to create an ecosystem that will support the growth of tech startups. We simply don’t have that environment, and there’s a lot of discussion about whether exchanges are important in this respect or not. In Cohen’s view, it is the single most important factor. The existence of an exchange that is specialised in tech and early stage, has a high level of regulation against fraud and is capable of catering to a very large investment community would create this ecosystem, he told me.
It’s true that the existence of such an exchange transforms the risk profile of the venture investor. While AIM provides an intelligent way for a variety of different companies to access the capital markets, it does not do an effective job of supporting early stage tech companies; it caters less for high growth British companies than it does international companies. Yet Easdaq failed because Europe wasn’t ready for it, and countries preferred to promote their parochial junior markets. That doesn’t mean an equivalent market couldn’t work in the future.
After my conversation with Sir Ronald, I attended the launch party for Jawbone, a Bluetooth headset made by Aliphi that eliminates real world noise by accurately separating speech from ambient noise thanks to the company’s patented NoiseAssassin technology. This is exactly the kind of innovation British tech entrepreneurs should be making, I thought. And then I discovered that British co-founder Alexander Asseily was educated at Stanford, Aliphi is headquartered in San Francisco and that it’s funded by American VCs. Sounds like Sir Ronald is onto something.