Le Web is a hotbed of entrepreneurs and startups looking to network, make connections and hopefully bump into a generous venture capitalist.

Consequently one of the topics up for discussion is the differing appeal of Europe’s various startup ecosystems.

I will admit to bristling with national pride this morning when people began speaking of London as the centre of entrepreneurship in the EU, particularly as I’d always suspected that the Silicon Roundabout was little more than PR spin.

To quote Le Web curator Ben Constantini:

Obviously when you talk about the EU startup ecosystem you have to talk about the UK.

So apparently those hipsters up in Shoreditch are actually doing more than just queuing for a restaurant that only serves breakfast cereal.

The pros and cons of Tech City were discussed during a panel session involving these people:

  • Teddie Wardi, senior associate at Dawn Capital
  • Eileen Burbidge, partner at Passion Capital 
  • Jan Reichelt, co-pounder and President of Mendeley
  • Alex Depledge, co-founder and CEO of Hassle.com

In general the panel were positive about the work done to create a startup community in East London and the helping hand given to entrepreneurs.

Burbridge said that other cities could learn from the example set by London, where the government actively seeks feedback from startups so it can build a culture that fosters innovation and new business.

Two useful outcomes of this dialogue were new tax breaks and Visa laws.

Wardi described the two-way dialogue between London startups and the government as “exceptional”, particularly when compared to Nordic nations.

However it wasn’t all positive.

Depledge suggested that Tech City is an excellent branding exercise and has led to companies being able to hire better talent and get more funding.

A screenshot of Hassle.com’s French site

But there are still problems with getting companies beyond the startup stage.

London has done a good job of building up an early stage ecosystem, but businesses are struggling to get beyond the series C funding rounds and begin properly scaling up.

The problems with series C

Hassle.com raised $6m in a series A funding round earlier this year so is in a decent position, but Depledge said the real challenge would come when it tries to raise upwards of $15m in future rounds. 

London apparently lacks the type of VC funds that are either willing or able to provide this level of capital. 

At upwards of $50m private equity firms become an option, but there’s a kind of No Man’s Land in-between.

In fairness, Depledge sees this as a problem that affects the whole of Europe and the rest of the panel concurred. To get investment of $20m – $50m the consensus view was that startups probably need to look to the US or Asia.

Wardi said this was a big problem as it means that a lot of opportunities get missed.

Reichelt said that these investors need to be reassured that they’ll be able to make their money back through IPOs.

But in order for this to happen Europe needs a few massive tech IPOs so investors feel it’s a realistic option.

The cost of living in London

London’s startup ecosystem suffers from the same problems as the rest of the population – it’s a really expensive place to live.

Describing her company’s development, Depledge said Hassle.com was initially setup in Shoreditch three years ago but after a year rents had increased to the point where they had to ship out to Vauxhall (a cheaper, less trendy part of the city).

Despite concerns that she would find it hard to recruit new talent in Vauxhall this hasn’t proven to be the case, so Depledge thinks it won’t be long before startups begin moving outside of London altogether.

The rest of the panel agreed that high rents and salaries were a problem for new businesses, and a knock on impact had been that funding rounds are also getting bigger.

Burbridge struck a positive note on this issue, suggesting that increasing costs show that the market is maturing.

For example, Silicon Valley is an expensive place to run a business, but it still thrives.

Ultimately though, the cost of living might reduce chances for success.

Reichelt said that moving to London is a risky decision for startups as you can probably only afford one shot at success, whereas in Berlin you can have several shots at the big time because if it doesn’t work the first time you can afford to hold out until you get it right.

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