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You do not need to buy A Silicon Valley? A response to Paul Graham

Imran Ali just pointed me to a blog post by Paul Graham of Y-Combinator titled "Can You Buy a Silicon Valley? Maybe". Even before I finished reading the second paragraph I knew I had to respond to it. So here I am reading and responding to Paul Graham. If you agree or disagree with what is written below, please do not hesitate to leave a comment. 

I do not buy Paul’s argument that having a first-rate university in a place where rich people want to live will create a Silicon Valley. If you take Manchester (UK) as an example, University of Manchester is a first-rate university (23 Nobel Laureates) and there are plenty of rich people living in the suburbs of Greater Manchester and Cheshire. As far as I am concerned, Silicon Valley is a one-off, and whilst we all aspire to create Silicon Valleys, what is important is to create ecosystems for sustainable economic activities through innovation and enterprise. This is exactly the vision of Northern StartUp 2.0 (NS20).

Y-Combinator’s equivalent in Europe is SeedCamp founded by Saul Klein of Index Ventures. It concentrated on UK startups in the first year, but second year saw significantly higher proportion of European startups participating in the competition.  In the UK, the hotspot for tech startups continues to be London, especially for internet and mobile related startups. If you compare London vs. key regions of the UK, you will find that most startups in regions are funded by regional VCs whose capital originates from European and UK Government funds channelled through the Regional Development Agencies (RDAs). This is not true with respect to London, due to a large number of private equity and venture capital firms based there. How do you draw London based private equity and venture capital firms to places like Manchester? The answer is through NS20, which has so far brought Internet Capital from NYC, and DFJ Esprit, SeedCamp and Advent Ventures from London. We are showcasing the best of northern talent through Dragon’s Lair events, the next one scheduled for 26th March 09. 

Paul argues that the only way to retain best startups in a city is to ensure sufficient funding for number of rounds. The regional funds in the UK are reliant on conditions such that the funds have to be invested in 3 years. In addition, most funds are run by very conservative investment managers resulting in startups seeking funding from London and elsewhere. Therefore, I can only conclude that no single city outside London and perhaps the exception of Cambridge and Oxford have sufficient funds to retain quality startups. A number of Oxford startups have moved to Silicon Valley looking for warmer pastures in terms of funding. Two such companies are YouNoodle and Auctomatic. I had the privileage to meet founders of both companies whilst taking part in Webmission08. These companies prove the point Graham was making.

We do not see Silicon Valley as a competitor unlike perhaps Oxford. If we see a competitive city, it would have to be London. One of the issues I am trying to address is to allow local startups to meet locally instead of meeting in London through events organised in London, which happened before the birth of NS20. Lot more greater awareness is needed to multiply local activities.

Graham speaks about self-sustaining chain reaction. I call this developing an ecosystem, and this has become the mission of NS20. I did not start NS20 to develop an ecosystem for tech startups. The first event in Nov 06 was organised with few aims in mind:

  1. Find few fellow tech entrepreneurs I could speak to for knowledge share
  2. Find few stories outside London for TechCrunch UK to blog about

From humble beginnings, NS20 grew to be a community of more than 1400 people today. Until last week, it was a one man’s mission. Both Phil Tapsell of TechVenture Solutions and Tom Cheesewright of The-Lever are volunteering to help me drive NS20 forward.

NS20 activities directly help Manchester more than any other city, yet there is no public sector support to help fund its activities. NS20 can deliver a much improved service to accelerate the growth of the ecosystem, but to achieve this, it is fundamental it has either public sector funding or significant sponsorship from the private sector. However, I am glad to confirm that lack of funding will not result in the death of NS20 – it will only slow down its ability to infulence.

Buying startups as Paul suggests might work for another US city, but I doubt it will ever work in the UK, nor any UK city will ever dream of it. Eventhough that NS20 is over two years old, it is only since Jan 09 that I have decided to treat it as a business instead of just a hobby. With the help of Phil and Tom, I am hoping to draw a strategic plan of how we could help startups in a better way than I have done in the past two years. Some of the work I have initiated since the start of 2009 includes:

  1. Introducing funding through Non Executive Directors – The partnership with First Flight Placements is helping to achieve this. A number of NS20 startups are going through this process as we speak
  2. Introducing a top 20 services such as accountancy and audit services at a heavily discounted price. We will soon be in a position to announce this through Horwath Clark Whitehill. I am hoping that it will extend to other essential services such as legal, etc

Graham also mentions about startups doing disreputable things, especially around pronography. I think he is speaking about one of his greatest Y-Cominator funded startups called Scribd which used pornography to drive initial traffic and then ban pornography once it achieved critical mass. A strategy I would not be interested in associating with, but it worked for Scribd, and I personally have no issue about it.

What above also shows is that ecosystems also need brilliant marketers. In Manchester, the RDA take pride in supporting new media businesses. At present, other than funding innovation centres, the RDA does not seem to have a strategy of supporting tech startups. This is creating even a greater need for NS20 to deliver support for tech startups. In addition, NS20 also intends to glue the various public sector providers and innovation centres including key universities in order to fulfill it’s self-impose remit of building an ecosystem. The Dragon’s Lair series of events is seen as a catalyst for this activity.

To conclude, I do not believe we need to build a Silicon Valley, but do have a need to create a sustainable ecosystem, where not just the knowledge transfers take place, but proven entrepreneurs such as founders of, Freeserve, Late Rooms and et al continue to invest locally. In terms of NS20, the work has only just begun. It is your duty to be part of this community if you wish to bring economic sucess to North.

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