Errol Damelin: The London tech scene must embrace risk and innovation

Wonga may be controversial, but no one can deny the tech credentials of its founder, who writes exclusively for us here

We’ve asked more than 30 of London’s business leaders how they think Britain can create economic growth, opportunity and innovation. Read the full publication online: Securing Britain’s Future.

Read our interview with Wonga founder Errol Damelin.

Breakthroughs require bold thinking and adventurous investors. Let’s make the UK a world leader in backing disruptive ideas

No-one is under any illusion these are challenging times for both businesses and individuals, as our economy tries to overcome the impact of the financial crisis and the recession that followed. The debate rages about the merits of deficit reduction, fiscal consolidation and economic stimulus – and will continue to do so, with little prospect of reaching consensus.

At the same time, the pace of the global race for markets and talent shows no sign of slowing – a fact not lost on the Prime Minister, judging from recent remarks and his international itinerary. Nowhere is competition fiercer than in the technology sector, where barriers to entry are relatively low and the pace of change is incredibly fast.

Disruptive new players regularly emerge from nowhere to challenge incumbents, offering new business models and innovative services. Think of Spotify, eBay, and Skype to name but a few companies that have changed the way we all go about our daily lives. Wonga is part of this trend, innovating in the financial services sector where, despite its importance to the UK economy, consumers and small businesses have seen very little significant change or improvement since online banking became commonplace a decade ago.

The essentialness of experimentation

So why is the tech sector so dynamic? I would argue it is because technological innovation is constantly testing the boundaries of existing business models, experimenting with ideas and new ways of creating value. For a time at least, entrepreneurs can break free from the deadening effect of bureaucracy and regulation which does so much to stifle innovation and slow down growth. They can challenge old assumptions and start with a blank piece of paper.

It is no coincidence that Silicon Valley leads the way. More than £5 of venture capital is invested in new US companies for every £1 invested in European companies. According to the Bruegel Institute, since 1975 over 70% of innovative new companies worldwide have been set up in the US. The environment in Silicon Valley actively encourages entrepreneurs to take risks, explore new opportunities, and sometimes to fail. But often to succeed – establishing the companies that go on to become tech giants like Amazon, Google and Facebook.

These are all now Fortune 500 companies, and none of them existed 20 years ago. That is real growth and, in the US, such success is celebrated – encouraging a new generation of entrepreneurs to make the next leaps forward.

London needs the freedom to create

Of course, Britain has great advantages when it comes to competing in this global race too. We sit on the priceless asset that is the meridian, locating us perfectly at the start of the American morning and the close of the Asian day. London is also the world’s most truly global city, a magnet for talent and investment from all corners of the globe.

As the warm glow of the Olympics fades into memory, London’s enhanced reputation as a place for the world to gather is no less precious than its reputation for financial wizardry and legal integrity. The world loves London. Yet if we turn our backs on the things that made us successful as a nation – depriving entrepreneurs of the freedom they need to innovate and create, to build the businesses that will compete with the rising powers in Asia and Latin America – then the world will look elsewhere. And we will fail to ever rebuild or secure our nation’s future.

KEY POINTS:

• Global competition in tech is fierce due to low barriers to entry and the pace of change
• We can learn from Silicon Valley where there is a wealth of VC funding and risk-taking
• London must remain open to world talent
• We must protect the freedom for our entrepreneurs to innovate and scale businesses

We’ve asked more than 30 of London’s business leaders how they think Britain can create economic growth, opportunity and innovation. Read the full publication online: Securing Britain’s Future