By Amy Thomson and Matthew Campbell
Nov. 25 (Bloomberg) – British venture-capital investors in recent years have traded the leafy courtyards of Cambridge for the hipster coffee bars and converted warehouses of Shoreditch, a once-gritty East London neighborhood brimming with startups. Now, they're dusting off their tweed blazers and train passes.
Cambridge, home of the university that has hosted scientists from Charles Darwin to Stephen Hawking, and a clutch of tech startups in sectors like semiconductors and big data, is back in vogue, venture investors say. The reason: an increased interest in heavy-duty technology that's more difficult to replicate than the social-media and e-commerce ideas coming out of London.
"We are attending more events there, getting up there more often -- significantly more than a couple of years ago," said Harry Briggs, an investor at London venture firm Balderton Capital. "These things go in cycles; the froth of consumer companies begins to ebb, and people look for more solid business models."
The university town, with a population of 124,000, has some high-profile fans. Mike Lynch, who founded Autonomy Corp Plc in Cambridge, has established a $1 billion venture fund there. Lynch's 2011 sale of Autonomy to Hewlett-Packard Co. for $11.1 billion, Cambridge's largest-ever deal, is being investigated by Britain's Serious Fraud Office for alleged accounting irregularities. Lynch denies any wrongdoing and remains a key member of the British tech community as well as a prominent advocate for Cambridge startups.
Express Train
Cambridge Innovation Capital, a fund affiliated with the university, has 50 million pounds ($81 million) to spend in the next three years. And accounting firm KPMG is creating a $100 million fund for investments in data and analytics that will have Cambridge as one of its focus areas.
Cambridge "is a very powerful brand in its own right, and it becomes a magnet to attract all of these companies," said Alwin Magimay, U.K. lead for KPMG Capital.
Seeking quicker access to its brainpower, investors in the capital are lobbying the government for a new express train line to Cambridge from London's Liverpool Street station, the closest terminal to "Silicon Roundabout," the hub of the Shoreditch startup scene.
That would mean easier visits to the likes of Raspberry Pi, a maker of small, cheap computers for kids that sprang out of the University of Cambridge's computer labs, and Darktrace, a behavioral cyber-security company run by former U.K. cyber defense experts and Cambridge researchers. Lynch's new fund in September made Darktrace its first investment.
Deep Invention
The amount of venture capital invested in London declined in 2012 to 126 million pounds from 131 million pounds a year earlier, while that in the region that includes Cambridge rose for the first time since at least 2009, to 23 million pounds from 19 million pounds, according to the British Venture Capital Association.
The renewed interest in Cambridge is a return to the origins of the British tech sector. The country's earliest digital-age success stories were largely based in and around the town. These include Autonomy, engineering software maker Aveva Group Plc, and chipmakers CSR Plc and ARM Holdings Plc, the most valuable U.K. tech company, with a market capitalization of 13.9 billion pounds.
"Cambridge has always had companies that had deep invention behind them and really deep intellectual property," said Harry Nelis, a partner at venture firm Accel Partners, which has backed London startups such as children's game maker Mind Candy and Wonga, an online loan provider. In Shoreditch, "people are much more in tune with consumers but they're not always based on deep intellectual property or defensible business models."
`Tech City'
Complex enterprise applications such as the analysis of huge volumes of data and the provision of processing power over the Internet are in fashion. The global market for analytics software is expected to grow at an annual rate of 10 percent through 2017, according to Bloomberg Industries.
Recent government efforts to promote the technology sector have largely focused on London. Prime Minister David Cameron has backed "Tech City," a four-mile swath of formerly run-down neighborhoods stretching from the edge of the financial district to the site of the 2012 Olympic Games.
The government last year pledged 50 million pounds for a new London startup incubator, and has hired ex-Facebook Inc. executive Joanna Shields to promote Tech City. Google Inc., Amazon.com Inc., and Cisco Systems Inc. have all taken space in the area or are planning to do so.
Still, while London has grabbed attention with consumer-focused companies like Mind Candy and Wonga, Shoreditch has yet to produce a large, successful initial public offering.
Just-Eat
Ideally, Cambridge, London and the smaller tech hub around the University of Oxford will become complementary, rather than competitors, said Saul Klein, a partner in London at Index Ventures, which has backed companies such as game developer King.Com and Just-Eat, an online food delivery service. He envisions a relationship similar to that of San Francisco and Silicon Valley in California, where a 35-mile journey links the academic hub of Stanford University with the capital-markets expertise and talent pool of a big financial center.
Klein points to AlertMe, a startup whose software manages heating and electrical systems, as an example of that approach. With roots in Cambridge, it has offices there and headquarters in Tech City, drawn by London's skilled staff and Cameron's support for the area.
"I think of it as a golden triangle -- if you look at the distance covered between Cambridge, Oxford and London, it's the same size as the physical distance in Silicon Valley," said Sherry Coutu, an angel investor who sits on the University of Cambridge finance board and runs a program that connects Silicon Valley entrepreneurs with counterparts in the U.K. "I like to think of it as a powerhouse connecting innovation in Oxford, Cambridge and London, and we all benefit from knowing one another."
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