A detailed study of technology start-ups found that London has the strongest “cluster” in Europe, but ranks just seventh in a global league behind Silicon Valley in California, Tel Aviv in Israel and a number of other US cities.
Data supplied by 50,000 start-ups around the world to Telefónica Digital and the Startup Genome, a research project, revealed that London firms raise 81pc less later-stage venture capital than their counterparts in Silicon Valley, reports The Telegraph.
The researchers said this was down to a lack of venture capital funds as well as of so-called “super angels”, wealthy individuals who make significant equity investments in young companies.
The study also found that London start-ups tackle smaller markets than their American peers, are less likely to work full time on their start-up until they have “proved” their business model and are more focused on peripheral activities such as consulting.
Rajeeb Day, founder of London-based recruitment start-up Enternships.com, said: “A lot more needs to be done to improve access to early stage financing. Generally investors [here] are more risk averse, require far more validation and are less generous with valuations compared to those in the Valley.”
However, the researchers identified London as the “European capital of innovation”, with job creation per start-up as high as firms in Silicon Valley, and founders that are better educated than their American equivalents.
The UK’s leading cluster of tech businesses, east London’s “Tech City”, was praised for having the same “healthy mix” of customers, ranging from consumers to small and large businesses, as Silicon Valley.
London also currently benefits from being the first choice of US companies looking for a European headquarters, although a threat that this position “could be supplanted by Berlin” was identified.
Michael Varsavsky, chief executive of Spanish firm Fon, a “crowd-sourced” Wi-Fi network, said the investment issue affected tech clusters across Europe:
“The three hottest start-up cities in Europe right now are London, Berlin and Stockholm, but there is start-up activity all over the map. The challenge is that there is no Sand Hill Road [the heart of the US investment industry] in Europe. We need to have a critical mass of venture firms to build a more robust start-up ecosystem.”
While just 10pc of tech start-up founders are female in London, this makes it the most diverse of Europe’s start-up clusters. The UK capital is also home to the oldest founders of any European tech hub, with an average age of 36.
The research said Silicon Valley remains the world’s largest and most influential start-up “ecosystem”, but added that clusters of new businesses in Latin America, Europe and the Middle East are now beginning to “challenge [its] domination”.
Boris Johnson, Mayor of London, said that a “flourishing environment for new businesses” had been created in east London and that “we are now giving Silicon Valley a run for its money”.
The ranking, which is based on factors including revenues, a business model analysis, experience of the founders and market information, was as follows:
1. Silicon Valley
2. Tel Aviv
3. Los Angeles
5. New York City
13. Sao Paulo
16. Waterloo (Canada)