Is there a new Palo Alto in the UK?
The flourishing UK tech scene + antifragile supply chains + The Fed
It’s London Tech Week so I have been attending events and speaking to people about the long-term prospects for the UK. The good news is that there is plenty of optimism about the quality and quantity of start-ups emerging across the country. About £12.4 billion went into tech companies in the UK in the first five months of the year, more than any country apart from the US, as I flagged in Monday’s edition. The bad news is what you already know – businesses are under pressure from rising inflation and the slump in global markets. Oh, and there is plenty of unhappiness about the transport network, especially trains in northern England.
The most interesting event I have attended looked at whether north-western Europe can create a New Palo Alto. The original Palo Alto is, of course, the city at the heart of Silicon Valley. New Palo Alto is a concept introduced three years ago by the venture capital firm Local Globe and its founding partner Saul Klein. This slide from a presentation by Dealroom at the event shows you what New Palo Alto could look like, stretching from Newcastle to London to Paris and to Amsterdam…
This area includes seven out of Europe’s 10 most valuable tech companies, 44 per cent of all unicorns in Europe, seven of the world’s top 30 universities, and quick train links between all the key locations. In other words, there is a huge potential. The idea behind New Palo Alto is to attract more investment into the area and drive collaboration between different businesses, investors and VC firms, creating an ecosystem similar to the original Palo Alto, where talent, advice and money are everywhere. While competition between countries and cities is inevitable, so is collaboration, even after Brexit. For example, Dealroom’s presentation showed how more than 90 per cent of large Paris-based start-ups have hired someone from London. More than 70 per cent of similar-sized London start-ups have hired someone from Paris.
The history behind the original Silicon Valley is fascinating and I encourage you to check out the episodes that The Rest is History podcast did on it with Marc Andreessen. You can find the episodes below…
It took decades for Silicon Valley to become what it is today, with investment from Nasa and the Defense Advanced Research Projects Agency (Darpa) playing a significant role in embedding the skills there. As the name of Silicon Valley suggests, the hardware - computers and chips - came before the software and social media. Also important was Stanford University’s desire to commercialise promising research that came out of its campus.
Anyway, the New Palo Alto event brought together local leaders, academics, chief executives, and VC firms. These are some of the key takeaways I took from the event…
While an industrial strategy by the UK government would be helpful, no government should be relied upon to drive growth, especially over the long-term. The modern Silicon Valley has tried to stay as isolated from government as possible. Laura Citron, chief executive of London & Partners, said: “That is the cost of being in a democracy. You don’t always get the government you want.”
Nigel Toon, the co-founder and chief executive of Graphcore, the UK unicorn which designs chips for the new generation of supercomputers, extolled the benefits of his business of not being based in Silicon Valley, particularly the lower competition for staff. “Bristol is a great place to be because it is not Palo Alto,” he said. Toon also said the UK needs to get better at “applied research” and that some promising ventures were being spun out of universities when they were “too small”. Graphcore is one of the most promising businesses in the UK right now, so Toon is worth listening to…
Three US venture capital firms which have hired partners to work in the UK were at the event - General Catalyst, Lightspeed, and the Zuckerberg-backed Iconiq. The fact they were there at all shows how the UK tech landscape has evolved over the last few years. All were optimistic. Chris Bischoff at General Catalyst said of the New Palo Alto concept: “It might be cheesy, but it puts ourselves out there. We should laud the ambition.” On the challenges facing the UK, he added: “I think people can scale here. The question is whether you can build a $10 billion or $15 billion business.” Paul Murphy at Lightspeed said his firm was “absolutely not reining it in” on investments despite the economic environment. He also pondered whether the European tech industry could benefit from “more diversity of thought” compared to Silicon Valley. Seth Pierrepont, who has just joined Iconiq to lead its European investments, said the area is now “starting to see the recycling of talent”, pointing to how the top 15 unicorns in Europe have generated 2,000 entrepreneurs and start-ups. “There is incredibly exciting potential from a talent perspective,” he said.
Recreating Palo Alto, Silicon Valley and all the complex factors that came together to create one of the biggest technological revolutions in modern history is impossible. Trying to do so by artificially grouping together a collection of countries and cities is ostentatious. However, the fact there is something to promote at all, and people to promote it, tells its own story. The UK is well positioned to take a more central role in the global technology industry with its own stories, people and businesses.
Justin King, supply chains and resilience
Justin King, the former chief executive of Sainsbury’s, spoke to Andrew Neil this week for the latest episode of Tortoise’s The Backstory with Andrew Neil podcast. I have included a link below. King said in the interview that the biggest change in his 40-year career in the retail industry has been the “integration of the supply chain”. He added: “When I came into the industry in 1983, that’s when I joined the graduate training scheme at Mars, Mars’ biggest customers were wholesalers, were cash and carries. There was an intermediary between the manufacturer and the retailer and in a very large part that intermediary has gone. The relationships now between supermarkets are direct to manufacturer, in agricultural products often direct to farmers.”
This gives an interesting insight into why the Covid-19 crisis and surging inflation have created such unique challenges for businesses. I wonder if we will now see a rethink about supply chains, with concepts such as just-in-time manufacturing ditched in favour of more resilient models, and intermediaries brought back to help find alternative options for retailers. Apple is already rethinking its supply chain by signing up more manufacturers outside China. Others are doing the same. William Hague touched on this topic in his superb column for The Times earlier this week, explaining how governments, businesses and households should explore new ways to be resilient.
These discussions have prompted me to start re-reading another of Nassim Nicholas Taleb’s books – Antifragile. This book explores how we should try to grow stronger in the face of chaos, stress and uncertainty, not break. The book feels more relevant than ever. Many businesses have been too fragile, too optimised and broken as soon as the world has taken an unexpected turn.
A chart that helps you understand the world
It’s a big day for markets and the Federal Reserve, which is considering increasing interest rates in the US by 0.75 percentage points for the first time since 1994, according to a report on Monday by The Wall Street Journal, which spooked markets. We will find out what the Fed has done at 7pm UK time. The Bank of England will announce its latest decision on interest rates tomorrow. The graph above shows US interest rates over the last 40 years. As you can see, we are still at historic lows relative to rates before the financial crisis in 2008. Nonetheless, the era of cheap money looks to be over, with more rate rises to come…
You should also read this
Qantas has started dismantling one of its Airbus A380 in the latest stage of the downfall of the superjumbo (Australian Aviation)
Softbank could list at least some of its stake in chip designer Arm in London as part of a secondary listing. This story comes amid a push from the UK government to encourage Softbank, which bought Cambridge-based Arm for £24.3 billion in 2016, to bring the listing to London rather than the US (Bloomberg)
Coinbase is cutting 18 per cent of its employees, 1,100 jobs, in the latest blow to cryptoworld. The New York Times has taken a look at the pressure on crypto companies big and small amid the sharp fall in markets (New York Times)
Bedfordshire-based Hybrid Air Vehicles has agreed to supply 10 helium airships to Air Nostrum, part of IAG, the parent company of British Airways. The airships could eventually be used for short-haul passenger routes (Telegraph)
Goodbye Internet Explorer. Microsoft is turning off its web browser today… (Telegraph)
And finally…
The Lincoln Lawyer has become a much-needed hit for Netflix and it was announced yesterday that the show is coming back for a second season, just like Squid Game earlier this week. The show is based on books by Michael Connelly and having just finished the series myself I would say it is worth your time. The premise is interesting, as is the insight into the inner workings of the courtroom. Fans of 24 will also enjoy the sighting of Tony Almeida, aka Carlos Bernard. There are perhaps too many strands to the story at times and too much setting up for future series. However, it just about works…
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Graham