When Eventbrite, a start-up based in San Francisco that sells tickets online, decided to open its first international office, the founders turned to the East End of London.
The British capital offered a thriving music and theater scene, a large work force of young, multilingual college graduates and easy access to both the Asian and North American markets. In October, the technology company moved into a converted jewelry workshop in Saffron Hill, a district that was notorious for crime in the 19th century and inspired Fagin’s Den in “Oliver Twist.”
“London will be our hub for the rest of Europe,” said Renaud Visage, a co-founder of Eventbrite who splits his time among the Bay Area, London and Paris. “It’s a natural progression for U.S. start-ups to move to the U.K., then expand further afield.”
Once a rundown area dominated by derelict warehouses and manufacturing sites, East London has emerged as a miniversion of Silicon Valley, attracting hundreds of technology and new media start-ups.
Rundown greasy spoons have been replaced by hipster coffeehouses that serve $6 macchiatos to trendy customers in their 20s. Local pubs like The Queen of Hoxton and Commercial Tavern now stock high-end European microbrews. Amid the revitalization, the price of office space has jumped as much as 50 percent at some buildings.
“All the start-ups out here are forming our own little community,” said Paul Brine, chief marketing officer for the Web site FarFetch, which provides an online marketplace for high-end European and North American fashion boutiques. “It helps to have a support network as we’re all working towards the same goal.”
The local industry is getting a helping hand from the British government. Last year, Prime Minister David Cameron announced a $23 million investment fund to attract technology entrepreneurs to East London, which the government calls Tech City.
Officials also created an entrepreneurial visa to fast-track immigration approval for non-Europeans interested in starting businesses in Britain, and announced $312 million of equity finance for fast-growing homegrown technology companies.
“Our role is to make sure the right infrastructure is in place to help the tech cluster grow,” said Eric Van Der Kleij, the British government’s “entrepreneur in residence,” who oversees the state-backed Tech City Investment Organization. “My target is to set a date to close our organization because the private sector is doing so well.”
The government’s strategy is starting to pay off. London-based companies attracted $433 million of venture capital in the first nine months of 2011, according to the data provider Dow Jones VentureSource. That is a 25 percent increase over the same period last year and the largest amount raised since the beginning of the recent recession.
The city has also been gaining ground on Britain’s most established start-up cluster, in Cambridge, which has fed off its university to churn out successful tech companies like the chip designer ARM Holdings and the business software company Autonomy .
“U.S. investors are paying increased attention to what’s going on in London,” said David Hornik, a partner at the Silicon Valley venture capitalist firm August Capital, during a recent trip to Britain. “There’s huge interest from companies over here to be funded by established American V.C.’s.”
Silicon Valley stalwarts are considering East London, too. In September, Google announced plans to open a seven-story office building in the heart of East London. The company will use the space to run workshops, show off new products and provide office space for organizations that support local start-ups. Intel is building a computer research lab in the area, and Cisco Systems has pledged $500 million of investment over the next five years, including the construction of an innovation center at the site of the 2012 Olympic Games.
Despite London’s vibrant start-up community, the city still lacks many basics that help to fuel entrepreneurial activity. Mr. Brine of FarFetch said the company had to beg to break its lease when it outgrew its current warehouse office. Eventually, the property owner agreed to shorten the contract.
Bullseyehub, a Web site that helps event organizers promote their shows online, had trouble finding qualified developers and engineers in London as it grew from five people to a team of 28 in less than a year. To fill the gap, they had to recruit a product manager from Silicon Valley with experience in scaling up small tech companies.
“London is a fantastic place to run a business, but there’s a shortage of people who have been in successful start-ups,” said Alex Will, 28, a founder of the company, whose revenue now exceeds $1.5 million.
Britain’s technology infrastructure also may dampen East London’s growth. The country ranks 25th for Internet broadband speeds, according to the Web infrastructure company Akamai . That places Britain — the world’s sixth-largest economy — behind countries like Romania and Latvia.
And even though the country’s new entrepreneurial visa has helped to attract entrepreneurs to London, the system can be too inflexible to entice the best talent, according to Reshma Sohoni, a United States-born partner in Seedcamp, an investment firm that finances early-stage companies.
To qualify for a visa, entrepreneurs must have at least $78,000 in financing in place from registered venture capitalists or the British government. Ms. Sohoni said the Australian co-founder of a start-up that she backed was turned away because he had raised only $70,000.
“The government needs to focus on getting the infrastructure right,” she said. “East London is getting traction with investors. Now we need start-up success stories to convince them to stay.”