A panel of Silicon Valley veterans told London Mayor Boris Johnson that in order for the city to maintain its burgeoning start-up community, larger UK firms will have to start buying local companies.
The panelists, which included US-based venture capitalists, executives and entrepreneurs, said that maintaining a healthy ecosystem in Tech City will mean keeping home-grown firms local rather than exporting them to Silicon Valley.
To that end, British firms will need to become the ones making the acquisitions start-up founders and venture capital investors rely on for their 'exit strategy'.
"The challenge is, if you look at our last seven exits, all of them happen outside the UK," explained Steve Schlenker, managing partner at venture firm DN Capital.
"If anything, we should encourage the companies in Britain to buy British. The native British large enterprises should take the risk."
The risk associated with start-up acquisitions, however, is not something many UK companies are accustomed to.
Panelists told Johnson that while Silicon Valley firms such as Google, Intel and Cisco are no strangers to the process of overpaying in the short term for a strategic acquisition, European companies are far more risk-averse with their thinking.
As Johnson noted, the start-up community in London is thriving. Backed by a substantial investment in network infrastructure and the development of office facilities, the city is looking to build from its natural assets – such as its diverse culture, iconic finance markets and active nightlife – to lure in young innovators.
To maintain that thriving community, however, venture capital professionals urged the Mayor to close the city's lifecycle by encouraging the big players to provide an exit strategy that does not require sending key technologies and innovators to Silicon Valley.
"How many people at the BBC have bought businesses that came out of the UK on prices that were not based on profit or loss?" Schlenker asked Johnson.
"Why did Summly sell to Yahoo and not BBC? Because nobody there wanted to pay $30m to a 17 year-old."
In driving that shift, however, Johnson may need to push some of the biggest names in the UK to overcome a historical aversion to risk and turn their thinking towards the long-term strategic investments that come from acquiring promising start-up firms and their technologies.
"This is not about technology companies paying large sums, it is about strategic acquisition of technology companies," said Julie Hanna, chair of the board at micro-lending group Kiva.
"The reason disproportionate sums are paid for firms like Summly is they are being paid on their strategic value."
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