Newcastle is failing tech entrepreneurs. What can we do about it?

It was great to see Newcastle chosen by Rough Guides as their top place to visit in 2018. It’s a great reflection of the uniqueness of the city.

From a startup point of view? We wouldn’t even make the top ten.

Over the last two years I’ve watched the energy and life slowly ebb out of the startup community in the NE, and out of Newcastle in particular, and seen plenty of our best talent leave for Copenhagen, San Francisco, New York, London and Manchester.

We’ve just lost Tech North to an initiative with less focus, the next round of JEREMIE funding has been put on hold. The coffee shops are devoid of founders working on the next big startup.

Last month, at the final of Tech North’s Northern Stars contest, there were 20 finalists from the North of England — and not one of them was from Newcastle. In the same week, the Prime Minister invited guests to Downing Street to celebrate the UK tech industry. Where were the founders representing our city?

Talk to the investors, entrepreneurs, lawyers and accountants in the region — they all say the same thing: where have all the startups gone?

I’ve spent the past 12 months in cities like Bristol, Manchester, Edinburgh and Belfast; it’s provided an insight into the strength and momentum of their tech clusters. And here’s the real heartbreaker — we had a solid lead over all those cities 5 years ago. We had one of just two accelerator programmes outside London, we had VCs actively investing, angel investors too. We enjoyed the support of the tech press, and we saw London’s VCs visit of their own accord, without being strong-armed by a development agency. Now? We’re now trailing far behind.

There are great success stories here. It’s brilliant to see companies like PHG, Orchidsoft, Zerolight, Leaf.fm, Moltin and One Utility Bill grow their businesses here in Newcastle. But given the trajectory the city was on five years ago, we should have 10 times that number of high-growth companies.

We can keep drinking in the stats and the stories about what a vibrant ecosystem we have in Newcastle. The fact is the startup scene is on life-support. We can’t begin to address the challenges when we keep blindly telling everyone how good we’ve got it.

There’s no single factor, but from talking to founders and investors from across the region, here are the most common theories:

The first round of JEREMIE funds made a huge impact in the NE. Sadly, it’s now over a year since there were funds available to invest, and we don’t yet have a date for when the money committed to JEREMIE 2 will be available.

We also have a poor record for successful entrepreneurs becoming angel investors and supporting the next generation of entrepreneurs. This is established behaviour in other cities; I know of at least a dozen such deals occurring in Manchester in the last 6 months alone.

Ignite has operated five accelerator programmes in the past two years, none of which have been in the North East because we couldn’t secure enough funding here, from VCs or angels — in contrast to the programmes in London and Manchester which were oversubscribed.

We’re lucky to have organisations like Dynamo and Digital Union in the NE, but they primarily represent the needs of corporate technology companies and creative digital companies respectively. The fact is we have no independent body representing the needs of technology startups.

There’s no shortage of inexperienced mentors in the region whose hearts are in the right place, or who will give you their time in exchange for a fee, but we’re sorely lacking in mentors who have credible experience in the sector — you can’t support high-growth technology startups with generic business advice or vanilla workshops on PR.

In the past, Ignite alumni have been supported by a high-calibre of battle-scarred entrepreneurs from across the region and beyond, but this type of experience needs to be freely available to all startups, without an invoice at the end of it.

The NE is blessed with some of the best universities in the world and they have impressively high retention rates — but this isn’t true of the best technical graduates, snapped up by consulting firms and corporates across the world.

To build great companies you need great talent, and as a region we struggle to attract and retain that talent. Right now, there are significant technology startups considering leaving the cities they were established in, because there is neither the talent nor the environment to support them.

It’s great to have organisations like Accenture, HMRC, Leighton and Sage in the region, but they’ve been recruiting heavily over the last few years and are able to offer good salaries to talented individuals. This makes it much harder for people to justify taking a risk on joining a small company in the hope that one day it might become huge. Take away the probability of local investment, and few will ever take the risk again.

This is the most controversial theory, but probably because there’s truth in it. We have ambitious founders and entrepreneurs here, but as a city we haven’t put together a coherent plan for who we want to be — or what we want to achieve — in the next 10 years.

I’ve been involved in plenty of strategy discussions about how we’ll be a connected city, a smart city, a great city for tech skills and jobs. These are positive things, but they’re also the very least we need to do. It’s like saying that we need electricity, railways and roads in order to build our economy. These are the foundations, not the ambition.

The council has started to take this more seriously in the last two years, but there’s been little in the way of co-ordinated action or support. Do we really have to wait another two years for power to be devolved to a super-mayor before we stop squandering this opportunity?

There’s no magic bullet to fix all this, but it isn’t enough just to look at what the other regions are doing. Every city in the country is positioning itself as a tech hub, focusing on developing tech skills and building a fast network infrastructure.

In order to take the lead, or even just keep up, we have to do something radical. We need to do more than pay lip service and actually put this at the centre of future policies.

Now is probably a good point to answer the question that many will be asking — why the need to focus on tech startups? Surely it’s more important to focus on scale-ups or something like manufacturing?

Technology scale-ups can drive a huge amount of growth in an economy, but if you don’t have 100 viable startups being created every year in the city then you won’t have any viable scale-ups to support down the road. To be clear I’m talking about technology companies (product-based, highly scalable) rather than digital service companies (e.g. agencies, technology resellers etc) as these have the potential to drive the largest growth in jobs and value in an economy. Established companies and digital agencies may grow 10% in the next year; startups can grow more than 10x in the same time.

It’s also about profile. VCs don’t travel to Newcastle to meet established companies. The FT and tech media aren’t interested in corporates doing more of the same thing. Yes, startups are risky, but they excite people; they offer new ideas and huge potential. Startups are a city’s canary in the coal mine — they signal growth and potential, and that attracts investment, which in turn increases the quantity and quality of both entrepreneurs and talent.

This isn’t a comprehensive list, but I hope it will be the start of a conversation that leads to action, rather than more generic enthusiasm and hollow soundbites. We need to be realistic about the situation we’re in, if we want Newcastle live up to its potential.

Yes, 2018 will see new accelerator programmes and new co-working spaces launch in the city — but accelerators change nothing beyond the short-term if the environment doesn’t support their alumni, and more co-working space is irrelevant if there isn’t a pipeline of tech companies to pay rent.

Think about this: the poster child for Newcastle’s technology scene is Sage — and I don’t need to tell you that it’s the only tech company in the FTSE100, because we repeatedly shout about it to journalists, researchers, visiting dignitaries, and anyone else who’ll listen. As if it’s a good thing.

It’s not, not anymore. Sage was founded in 1981. When I talked about our lack of ambition? Well here we are, resting on 36 year-old laurels. We must be able to do better.

We have the ability to nurture and develop our environment to create a new Sage every five years, create hundreds and thousands of jobs and lead the way. We can be the spark that lights the fire under our local and regional economy. We genuinely have that potential.

So what are we going to do about it?

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