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Emerging spots in mobile and mobile service industry across Europe




 Emerging spots in mobile and mobile service industry Europe


Emerging spots in mobile and mobile service industry across Europe

   To identify emerging spots with the help of statistics is of course not a simple thing to and it is not so easy to provide the full picture. In order to make the picture as good as possible, several different statistical analyses have been the input into our analysis and combined with expert knowledge about the mobile industry and mobile service sector.

   There will of course be other places and regions across Europe that could be regarded as emerging, but since this report has been created with the objectives of presenting some findings and also to try to learn something about conditions, policies, success factors etc. we have drawn the line at 20 spots. This also makes it easier for the reader to draw their own conclusions.

   We have considered different types of regions across different parts of Europe. This provides a comprehensive picture of the mobile and mobile services industry across Europe. If we had only concentrated on statistical data the result would have been slightly different, with cities like Rome and Prague appearing higher on the list. Instead, we have taken into account aspects such as: start-up culture, support for SMEs and development within the mobile industry as well as a ranking of Venture Capital companies and as a result, the picture is different.

Assumptions made

   Finding hotspots in Europe regarding mobile services and usage of these services with a connection to a clear regional strategy is not easy. But, in order to find 20 interesting spots, we have used the following assumptions:

  • There is a correlation between high smartphone penetration and a large number of mobile services
  • Places with existing mobile industry have also developed a high ratio of businesses within mobile services
  • There is a clear correlation between a high mri (Mobile Readiness Index) and a high level of mobile services

10 different indicators:

   We have used 10 indicators to identify emerging spots on a scale from 1 (lowest) to 10 (highest):

General impression Included: ranking amongst US VC companies, number of articles in relevant publications, general impressions from start-ups in the city.
Start ups Number of start-ups in the field of mobile gives the ranking. However, what the start-ups say them-selves about the region is also important.
Clusters Well defined policies and support from public authorities give a higher ran-king. Taking into account complicated bureaucracy (like in Italy and France) also affects the indicator.
Informal structures A large number of "bottom up" activities (like we see in places like London, Berlin and Malmo) give a higher ranking.
Formal support Well defined policies and support from public authorities give a higher ran­king. Taking into account complicated bureaucracy (like in Italy and France) also affects the indicator.
Events If the region is able attract international events within the field of mobile gives it a higher ranking.
Industrial history and synergies Those regions that have a history within the field of mobile and mobile tech­nology rank higher. Rankings also reflect the R & D intensity in the industry (higher intensity will give a higher ranking).
Financial tools and support Access to capital will give a higher ranking, but also tax systems (and levels) will affect the ranking. The general picture from VC companies is also taken into account.
Market A high smartphone penetration and easy access to market gives a higher ranking. The indicator also reflects how well internationalisation strategies within the region are implemented as-well as a ranking on mobile readiness index.
Knowledge Being close to a well-known university with a history within the field of mobi­le technology gives a higher ranking, together with the general access to, for instance, developers within the field of mobile development.

The spots in no particular order 


   Berlin is one of the fastest growing communities in Europe in the field of mobile and mobile services. The number of start-ups is high this has resulted in the attraction of a large number of venture capital companies.

  • Together with London Berlin is the hottest place in Europe right now when it comes to mobile/start-ups
  • A lot of start-ups within mobile services
  • Several cluster organisations that support the mobile industry
  • A crowd-sourced environment
  • No clear regional policy
  • A very fragmented environment


   Catalonia, with the city of Barcelona, have for many years regarded themselves as the capital of mobile, especially since the region has the largest event within the mobile industry - Mobile World Congress - and all the infrastructure around it. The region is also very well developed when it comes to public policies even though the output in some sense could be seen as disappointing.

  • Hosts Mobile World Congress, making it the mobile world capital
  • A concentration of start-ups in for instance the 22@ area
  • Clear regional policies and cluster organisations Benefits from long term development
  • Hasn't had the development you would expect considering the amount of money invested
  • "More talk, less hockey" feeling
  • Only a few very concentrated spots



   Madrid has the largest ICT cluster in Spain and one of the largest in Europe. During the latest years, the region also has been growing fast when it comes to start-ups and ecosystems for SMEs.

  • Highly ranked in studies, for instance the PricewaterhouseCoopers’ study
  • Attracts a lot of capital
  • A growing start-up community
  • A traditional mobile industry structure
  • No real tradition in the field of mobile
  • No large interest from international investors
  • Lack of high profile companies
  • Low penetration of smart phones


   The traditional mobile industry and, more latterly, different mobile services are very strong in Finland especially in the capital region – Helsinki. A number of new companies like Rovio (creator of Angry Birds) have turned the spotlight on Finland as a country that can not only create hardware but also applications and services.

  • Long tradition in the field of mobile
  • Very high smartphone penetration
  • High profiled brands in the region
  • A growing start-up community Clear cluster organisations
  • Very dependent on one large brand (Nokia/Microsoft)
  • Uncertainties in regional and national policies
  • Traditional industry focus
  • Weak start up traditiones


   Even though Greece has been through several years of hard financial times, the region of Thessaloniki has created a vibrant start-up community within mobile services. There is a growing start-up mind set supported by regional policies, which probably will lead to even further growth in the future.


  • Very concentrated region
  • Strong focus on mobile services
  • Strong policy level involvement
  • Weak financials
  • Low smart phone penetration (and Internet penetration)
  • Weak tradition in technology start-ups


   Stockholm is one of the places in Europe with the longest history in mobile technology. During the past years it has made a successful switch from traditional mobile industry to growth within the mobile services industry.

  • High smartphone penetration
  • Well-developed start-up community and culture
  • Good access to finance
  • Long tradition within mobile and mobile services
  • Very fragmented community
  • Low presence of cluster organisations
  • Lack of regional innovation strategies involving mobile


   The 3rd largest city in Sweden (Malmo) combined with the largest university in Sweden (Lund) has enabled the region to emerge as one of the most vibrant places within mobile technology and mobile services in Europe. This is demonstrated by the fact that several companies have been bought by Apple, Microsoft, Intel and Huawei during the last few years.

  • High smartphone penetration
  • Regional innovation policies that involve mobile
  • Focused and active cluster organisations
  • Long tradition within the mobile industry
  • Highest (per capita) number of mobile start-ups in Europe
  • Dependent on one large brand (Sony Mobile)
  • Low access to finance
  • Too much technology focus


   After the shut-down of the Nokia R & D facility in 2010, the start-up scene in Copenhagen has had one of the fastest growth rates in Europe. The sudden access to knowledge in the market gave a boost to the mobile sector in the city, combined with a large interest from US investors.

  • High smartphone penetration
  • Large start-up community (especially after the Nokia shut down)
  • Good access to finance
  • Strong creative industry
  • No presence of mobile actors
  • Mobile not part of the regional strategy
  • Weak tradition within mobile start-ups


   Together with Berlin, Inner London is currently the “hottest” place in Europe when it comes to mobile start-ups. Heavy investments from the UK government in infrastructure in Shoreditch for example, combined with the best access to finance in Europe have provided fertile soil for the growing start-up community.

  • Strong access to finance
  • Clear connections with creative industries
  • Large critical mass in start-ups
  • One large concentration (Silicon Roundabout) of tech start-ups High smartphone penetration 
  • No governmental support to cluster organisations
  • A very fragmented region
  • No tradition in mobile technology


   With Sophia-Antipolis the Nice region still has a concentration of advanced ICT research and mobile technology within Europe. Even though the research park has had some setbacks when for instance IBM scaled down, the startup community got an injection through access to knowledge.

  • Well-structured regional policy
  • Highest ranked ICT-research in Europe (Sophia-Antipolis)
  • Growing start-up community Strong cluster organisations
  • A very fragmented start up community
  • Lack of large brands within mobile
  • Too much technology focus

PARIS (Ile de France)

   Paris has the largest ICT cluster in all of Europe. Of course this means that the Paris region is emerging in the mobile sector. It also has a good concentration of start-ups in mobile and mobile services.

  • Well-structured regional policy
  • Strong cluster organisations
  • Good access to finance
  • Tradition of highly developed technology solutions The largest ICT cluster in Europe
  • Weak tradition in SME growth
  • Tradition of using non-standardised solutions
  • No “early adopter” tradition


   Amsterdam always gets a high ranking on innovation and support for startups. The city has been active when it comes to attracting mobile start-ups. It also has a very well defined strategy for attracting ICT companies in general, which has paid off lately.

  • High ranking in different innovation scoreboards
  • A fast growing start up community
  • High smartphone penetration
  • Good connections to creative industries
  • No tradition from mobile industry actors
  • Depending on one large MNE (Philips)
  • No regional mobile policy agenda

ESTONIA (Tartu and Tallinn)

   As one of the emerging countries in the former Eastern bloc, Estonia has shown that national policies work as a way of boosting the economy and start-ups. Also, the large availability of public e-services have provided a boost to the growing start-up community that we now see in Estonia.

  • Early adopters of technology
  • Very high ranking on innovation scoreboards
  • Large number of public mobile services (for instance polls) Large number of start-ups
  • Low access to finance
  • No large MNEs to support SMEs


   The capital region of Poland has the country’s highest concentration of mobile technology companies and has developed a well-defined strategy in how to build a start-up community within mobile services. Access to knowledge in the Polish capital is also good and public infrastructure investment has been high during latest years.

  • Fast growing SME community
  • Strong regional involvement
  • Clear cluster organisations
  • Low smartphone penetration
  • Low access to finance
  • No mobile industry tradition

BADEN-WüRTTEMBERG (Karlsruhe, Stuttgart)

   With the Karlsruhe Institute of Technology – KIT – the region has the soil for advanced mobile technology solutions and start-ups connected to this. There is also a tradition in building collaborations between large industry actors like Mercedes and young companies emanating from research at the university.

  • Strong tradition within mobile
  • Very high ranked university (KIT)
  • Growing start up community
  • Well organised clusters and cluster policy
  • Low access to finance
  • Weakly positioned within the mobile community
  • No early adaptor tradition


   With the strong economy and concentration of large multinational companies (like BMW and Siemens), the city of Munich and the region of Bavaria also has developed a growing start-up community within mobile and mobile services. Very well defined cluster policies have created a fertile soil for the emerging industry in the region.

  • Well defined cluster policies and organisations
  • Good industry structure
  • Good access to finance
  • Growing start-up community
  • No early adopter tradition
  • No traditional service economy
  • Strong traditional industry focus


   With one of the most prestigious technological universities in Poland and also a young population with ambitions to start companies, Poznan has an interesting emerging environment within mobile technology and mobile services. The cluster organisations have regional support and there are very well defined policies on how to grow the number of start-ups within mobile and mobile services.

  • Well defined cluster policies and organizations
  • Fast growing start up community
  • Very active SMEs with international focus Mobile services part of university
  • classes
  • Low smartphone penetration
  • Low access to finance
  • Growing lack of developers
  • Infrastructure is still not the best


   The region of Lombardia in Italy has a strong industrial background and also some of the largest companies within the mobile industry. The city of Milan has also been able to start combining strong sectors, for instance fashion, with new mobile technology; this has created an emerging start-up community in and around the city.

  • Well defined cluster organisations
  • Connection to mobile industry companies
  • Tradition of mobile companies
  • Growing SME community within Mobile Europe
  • Low smartphone penetration
  • Low access to finance
  • No tradition in using mobile services
  • Challenges with infrastructure


   The old industrial city of Manchester has achieved a turn around and is now one of Europe’s most interesting places for the creative industry, media and mobile services. The combination of different sectors, such as creative industry and mobile has created a strong start-up community in spite of the city’s history which has been focused on traditional heavy industry.

  • High ranking on innovation scoreboards
  • Growing SME community
  • High smartphone penetration
  • Good connections with creative industries
  • Fragmented community
  • No service tradition
  • Lack of national interest (concentrated to London)
  • No early adopter mentality


   Being a region with a history of traditional industry, the city of Düsseldorf has emerged into a city with a vibrant creative industry and a mobile service industry connected to that. Since the access to capital and smartphone penetration in the region is high, the soil for start-ups is favourable.

  • Highest concentration of SMEs within mobile services in Germany
  • High smartphone penetration
  • Tradition within the field of mobile
  • Regional policies and cluster organisations within mobile
  • Low access to finance
  • Weak industry structure
  • Low tradition in supporting SMEs

International Context

   To assess Europe’s real position in the global context concerning start-up communities and the environment is not easy. Additionally, we focus on the emerging sector of mobile services and this is often hard to separate from the general IT industry or even from the traditional industries in particular cases.

   On top of that, the quality of available information and the comparability of datasets from different sources is limited and do not give a consistent picture. The following analysis is an experiment to make comparisons based on open data archives.

Mobile and mobile start-ups: a quantitative analysis using data mining of open access database archives

   This annex is a quantitative analysis of the landscape of European mobile and mobility start-ups using data available in open access databases. The CrunchBase database was used both to research the number of start-ups and to study data relating to funding of start-ups. Data from personal profiles on LinkedIn.com were used to determine the relative order of magnitude of the human resources available in the regions studied. Data from the start-up competition The Europas (Berlin, 22 January 2013) were also analysed.

   For the first approximation, it was decided to use the simplest possible parameters for a relatively objective view of the situation.  There are more than 100 start-up accelerators in the EU alone, and every European region would like to be seen as the new Silicon Valley. To verify these claims it is helpful to begin with an examination of the reality based on the use of simple parameters that are difficult to manipulate.

   In addition to the European regions, this analysis includes, for comparison, data for two of the main regions in the U.S. and for Israel.

   The data presented in Figure 1 are related to all start-ups and not just those in the mobile industry; this choice is justified by the correlation between mobile start-ups and overall start-ups. Almost all the regions analysed have a very similar percentage of mobile start-ups (7–10 percent of the total); some apparent discrepancies, such as those related to Malmo and Rome (13 percent), are not statistically significant (they correspond to a single startup). 

It seems, therefore, that the specific local factors that can encourage the creation of Mobile start-ups, if they even exist, have a relatively minor impact. For this reason, the use of data relating to all the start-ups appears to be justifiable. The main advantage is the reduction of statistical noise.

   An additional advantage is the inclusion of those companies that are not formally in the Mobile category but on mobile platforms and generate much of the revenue, for example producers of video games or social networking applications. 

   Looking at the data in Figure 1, we see at once how the European start-up scene is characterised by a strong polarisation around the cluster of London, the only one with comparable in size to the U.S. and Israeli clusters. The other two major clusters in Europe are Paris and Berlin, and if we consider the total number of start-ups, Paris would seem to be the most promising cluster in continental Europe. However, we shall see, by analysing other data, that the situation is more complex. Berlin has experienced significant growth in recent years and there are great expectations for the future, but it has a long way to go to reach London.

Temporal analysis

Figure 1 gives the sum total of the number of high-tech start-ups that have registered on the Techcrunch site over a number of years. These figures are a reasonable indicator of regional performance in the medium term, but may not accurately represent the recent trends. Accordingly, we analysed in detail the data in the database, studying the evolution of regional performance as a function of time. The full results of this analysis are given in Table 1, and some of the most significant data in Figure 3 and Figure 5.

   We can see that, with the exception of the data of 2013, heavily influenced by macroeconomic factors, the region of London has not only the largest number of start-ups but also the highest growth trend in absolute terms. The growth of Berlin is just as fast as a percentage, but as absolute values is slower, although stable and less affected by cyclical factors, probably also because of Germany’s good economic performance during the period. The performance of the Paris region, on the other hand, does not appear very bright, with a flat trend even during periods of high economic growth. Rome and Madrid in this period show a steady upward trend, but in the case of Rome, the values still appear extremely low.

   The Nordic region that shows the most stable growth over time is Estonia, but, as in the case of Rome, the absolute numbers are very small. In the case of Helsinki, the effect of the Nokia crisis can be seen. Since 2008 a series of layoffs has brought a consistent flow of software developers into the labour market, and Nokia has offered strong economic support to former employees who have tried to become entrepreneurs. This led, between 2008 and 2009, to a sharp rise in new firms, which did not always succeed. The evolution in the following years was not as bright, and between 2009 and 2012 it was substantially stationary, though the layoffs continued. The Stockholm area in this period shows a substantially negative trend, while for Malmo–Lund the trend is fluctuating.

The Europas, European Tech Start-up Awards (Berlin, 22 January 2013)

   As further confirmation of the CrunchBase data, data on the geographical origin of start-ups that participated in the competition The Europas, held in Berlin on 22 January 2013, were also analysed. One advantage of these data is that they pertain to a specific period very close to us and permit us to identify trends.

   Data from The Europas may be less representative than what CrunchBase provides, since participants in the contest are a self-selecting group. A process of self-selection affects even the CrunchBase data, but the reasons why a company registers with Techcrunch are probably more general and shared than those that lead to participation in a contest.

   The data in each case confirms the trends obtained from the CrunchBase data. Berlin as a host city is probably slightly overrepresented. It can also be seen (Figure 6) that the geographic distribution of start-up applications in the mobile industry is very similar to the geographical distribution of all the other start-ups.

1. Financial Analysis

   The number of start-ups in the region is an interesting parameter but, by itself, can lead to inaccurate conclusions. In fact it tells us nothing about the economic success of these start-ups, nor whether a start-up fails to survive as a small business or whether it is unable to raise the necessary funds to expand and become a major company. For this reason, we also analysed the value of the funds raised by the start-up of each region, and the origin of investments.

   The first thing one might notice is that, considering the market for hi-tech start-ups based on the volume of investment, the importance of European clusters of start-ups is further reduced. The amount of capital invested in the start-ups of continental Europe is only twice that invested in the state of Israel alone and little more than a third of that invested in the region of New York.

   In addition, we note that in some European regions access to finance is particularly critical; regions that appeared in the rankings of the number of startups with a small but non-negligible number of start-ups, virtually disappear from the funding map: Brussels, Copenhagen, Rome, Milan, Estonia.

   In some cases this may be due, in the absence of an adequate local market, to the choice to transfer the head office to a country that offers lower taxes and more opportunities to raise capital. This can lead to a bias in the data analysis because all funds collected are allocated to the new company based in Dublin, London, or San Francisco, even if the activity is still developing in the country of origin.

   The region of Berlin improves its financial position in the standings, approaching the location in Paris. Dublin also has a positive performance, while in other regions there are not very significant changes relative to the ranking obtained from the number of start-ups.

   As can be seen from the data in Figure 9, excluding the regions mentioned above, where access to finance is extremely difficult, for the other regions the average value the financing to a start-up appears to be fairly homogeneous. The average value is between USD 15 million and 20 million, a value not too far from the average value of the financing of a start-up in New York (although significantly lower than that of a start-up in Silicon Valley).

   CrunchBase data were also analysed to research how sources of funding are distributed for start-ups in the regions studied. The presence of a high percentage of capital from abroad is an important indicator of the ability of the economy of the region to attract capital on the international market and be competitive. From this point of view, the percentage of capital from the U.S. market is important. In the case of Paris and Barcelona, dependence on local funding seems to be particularly significant. In the Nordic regions local funding cover a slightly smaller percentage, but a significant portion of other loans seems to come from the other Nordic countries.

   London seems to have by far the best ability among European clusters to attract U.S. capital, followed by Munich, Dublin, Madrid, Berlin, and Helsinki.

Human resources 

   The personal profiles on LinkedIn were used to estimate the order of magnitude of technical resources in the regions analysed. The profiles were identified through five keywords for skills in great demand in the field of software development: Java, Android, Python, C + +, iOS. Due to some limitations of the interface of the LinkedIn website, research related to the region of Dublin was not possible.

  The goal was not to find the absolute values, both because the keywords do not cover all possible skills and because registration on the site is voluntary, meaning that it cannot be assumed that all professionals will be recorded. However, given the widespread use of the service among computer professionals, it seems reasonable to assume that the numbers obtained can be trusted to give an indication of the relative availability of technical resources in each market.

   The results seem interesting: all regions that in recent years have been at the centre of important processes of development in the field of start-ups have a high and quite similar index of efficiency in the use of human resources. London, Israel, New York, and Malmo have an index between 8 and 12. Berlin has a slightly higher rate (15), which may be a symptom of the actual beginning of a lack of human resources or an artefact due to a slightly lower penetration of LinkedIn among professionals in the region.

A fragmented system

   As we have seen in the course of the preliminary analysis of the data, the continental European cluster of start-ups in the software industry and digital technologies, and therefore those related to mobile platforms, are very marginal in size in comparison with those in the U.S.
With the exception of the London region, none of the clusters in the EU seem able to reach a critical mass sufficient to create a Continental aggregator that could achieve competitive advantages comparable to those enjoyed by U.S. clusters.

   Considering the dynamics of development in recent years and the financial strength of Germany, Berlin would seem at first sight to be the best candidate for this role. But if we look at the limited availability of human resources (Figure 13), we see that this can hardly be done without hypothesising an enormous migration of skilled personnel, perhaps requiring many years. Similar demographic considerations seem to apply to the Nordic economies. In the Paris region, however, the relatively widespread availability of professional resources, comparable to that in the London area, does not translate into a corresponding number of new businesses. In general, in all regions of southern Europe, the availability of professional resources does not correspond to a rate of creation of new start-ups equivalent to that of London, Berlin, or some northern regions.

   In the near future, we can expect the continuation of a situation of high fragmentation of European clusters dedicated to the development of software applications in general and those specializing in applications for mobile and mobility in particular. Indeed, the presence of language and cultural barriers among the countries of the European community make the transfer of qualified staff much less efficient and rapid than in the United States, where a transfer from one state to another for work is considered perfectly normal. If we want to promote growth in Europe, we cannot limit ourselves to going along with the spontaneous growth of the larger clusters; we must also promote a decentralized growth that allows us to use human resources where they are available.

   To do this we need to build closer working relationships among European regions in order to exploit, at European level, the same efficiencies of scale that occur in single, larger clusters. This is a necessity for all regions, both the less advanced and the more advanced, since the alternative is to remain dwarves in a world of giants.

   Many start-ups have begun to use a mini-multinational model that was once reserved to much larger companies, whether the administration is in London (or San Francisco or, one day, Berlin) and the R&D and production in the country of origin. In this context, the concept of nationality of a company is going to be of limited practical utility, while the ability to develop the human capital of a nation and know how to exploit it will become increasingly important.

North and South success stories

   Looking at the data presented in the annex ”Start-ups Data Mining”, we can see that with respect to high-tech start-ups, including those for mobile and the mobility, only London and Israel have been able to expand at a rapid pace and form clusters at least comparable in size to those of the United States. In recent years, Berlin has emerged as the most dynamic region for start-ups in continental Europe, but in absolute terms, Berlin is still far behind London and Israel and it is probably too soon to think of it as comparable to them.

   Our purpose here is to identify and compare the key elements of the success of the two regions. There are two other important contribution in this guidebook related to London. To avoid repetition, the perspective here will be different. The definition of the London region used here is that used by the CrunchBase database of start-ups, an economic cluster much wider than the London Metropolitan Area that includes the Cambridge region. The London Tech City and the Shoreditch roundabout have been extensively covered in the two chapters devoted to London of the guidebook and will not be mentioned here except in passing.

Integration with the U.S. economy

   Both London and Israel have managed to exploit skilfully the special relationships that exist between these countries and the United States. In addition to institutional contacts, a key role is played by the mobility of individuals between the two sides of the Atlantic.

   For Israel, the Binational Industrial Research and Development Foundation (BIRD) that operated under supervision of the Office of the Chief Scientist (OCS) has played a crucial role since its approval in 1975 until the end of the 1990s [13], enticing American Multinational Corporation to R&D subsidiaries in Israel. The combined effect of BIRD and OCS policies in those years was instrumental in shaping the development of hi-tech industry also opening the U.S. market and using the limited available resources of OCS to finance R&D projects targeting the American market.

   Looking at Figure 11 in the annex "Startups Data Mining, we see how, in start-ups based in London or Israel, the proportion of funds from the U.S. of the total funds collected is higher than those of continental European countries. This fact has an importance that goes beyond the mere economic value of the investment, because it is a sign of confidence in these economies, and has significant effects on their ability to exploit the increase in value of the start-up through IPO or acquisition by another company.

Consistent flow of skilled immigration

   Both regions have taken advantage of a stream of highly skilled immigration.

   Israel probably had the most significant flow of immigration with high technical and scientific education in history. In the years following the dissolution of the Soviet Union, from 1990 to 2000, 800, 000 citizens of the former Soviet bloc immigrated to Israel. A very high percentage of these immigrants had higher scientific and technical education; many of them initially did not find a job matching their qualifications. This created a political request to improve the integration of Russian immigrants into the Israeli economy and to use the opportunity to develop a stronger high-tech industry.

   London did not have such dramatic waves of immigration, but for many years the constant demand for IT staff by the city's financial services and clusters around London favoured a slower but still continuous flow of immigrants from Europe and elsewhere.

R&D tax incentives

   Both the UK and Israel offer tax reliefs on the money that companies invest for R&D, as do many other governments around the world [11]. In recent years, the utility of tax relief for R&D has been questioned [6]. Most large corporations that have large incomes and that may distribute the profits between branches in order to maximize the benefits can exploit R&D tax reliefs; for small emerging companies that often have a budget deficit the tool is less useful.

Government military and civilian investments and research contracts

   The need to develop a domestic military industry in Israel created the conditions for the growth of a national hi-tech military industry. Because of the particular geopolitical context, the expenditure of Israel for defence has been very high, reaching 32% of GDP in 1975. It was estimated that during the 1980s, 65% of the national expenditure on R&D was defence related, while only 13% went towards civilian industries [3].

   Considering the order of magnitude of investment relative to the size of the country's economy, clearly investments in the military have in fact created the Israeli high-tech industry.

   In the 1970s the fallout of R&D military research in civilian applications led to the birth of many civilian start-ups. Many of these civilian spinoffs initially struggled to survive, but in the long term, this first generation of start-ups prepared the field for the subsequent expansion of the start-up economy. The Office of the Chief Scientist (OCS) was created in 1969 within the Ministry of Industry, Trade, and Labour, and eventually became an impor­tant player during the high-tech boom. The first Chief Scientist was Yitzchak Yaakov, a Brigadier General of Israel Defence Force (IDF) and former chief of Military R&D [13]. The personal network developed in his previous job helped him to shape the future of the high-tech Israeli industry despite having a very limited budget.

   The first program, which continues to this day, provided conditionally re-payable loans of 50% of the cost for any approved industrial R&D project originating from private industry and aimed at developing a new exportable product.

   After these early pioneering years, the activities of the OCS began to develop in 1984 and especially in 1991-1992 with the establishment of three programmes: Technological Incubator Programme, MAGNET, and Yozma. Technological Incubator Programme aimed to provide technically oriented entrepreneurs with commercial knowledge and to help integration of skilled Russian immigrants.

   MAGNET's goal was to allow Israeli companies operating in the same field, too small to be competitive against multinational companies, to develop cutting-edge infrastructure research. The instrument was the creation of consortiums of small companies and Universities to develop technologi­es that could be patented. It is interesting to note two aspects, the role of Universities in this project and the persistent networking effect also after the end of consortium.

    Yozma program, related to VC incentives, will be discussed in the next section.

   The policy of the OCS, on the whole, was described as a Horizontal Techno­logy Policy [17], that is, a policy that promotes technological development and associated R&D irrespective of industrial branch and technology. The development of software and mobile industry was thus not a choice but the consequence of the needs of the electronic hardware industry and military industry.

Unlike Israel, the UK probably has the longest history of technology R&D in the modern world. In the 1960s its research industry was fully developed

and the problem of how to support innovation to improve the competitiveness of the national economy has been at the centre of political debate since the war to the present day.

   It is outside of the purposes of this document to reconstruct the complex history of R&D policies in UK in the last 50 years, but it is interesting to note that, also in UK, military research played in the past a significant role. Mili­tary expenditure [16] was extremely high in the 1950s, around 10% of GDP, and much public R&D was military. Also, although it later declined slowly, it was around 5% of GDP until 1987 [18], still higher than that of other European countries.

   An interesting feature of UK policies is the attention to SMEs, in public procurement as in research contract and grants, even from Ministry of Defence (MOD). An example of this approach is an eBook from the Ministry of Defence (MOD), SMEs: How To Grow Your Business With The MOD (22]. The model of public intervention in R&D studied most in the last several years has been the U.S. with the pervasive action of Defence Advanced Rese­arch Projects Agency (DARPA) [6] to fund research, even on subjects that do not have an immediate military use.

   A major U.S. program, which involves not only the DARPA, but also other Federal Agencies, is the Small Business Innovation Research program (SBIR). It requires that all main Federal agencies reserve a certain percentage of the total extramural research budgets for contracts or grants to small businesses.

   To support R&D in SMEs the UK government created the SBRI, a UK version of the SBIR program [8]. The first version of this program, established in 2001, had several important changes in the years 2005 and 2008. Unlike the U.S. program, there was no obligation for the public agencies to reserve a fixed minimum percentage amount to SBRI contracts. This was emended in the subsequent version, and the responsibility for the program was assigned to the Technology Strategy Board (now known as InnovateUK), improving the overall efficacy of the program [5]. The SBRI program is somewhat similar to the Pre-commercial Procurement of EU Commission, but there are also many differences [21].

   The Catapult program is another recent interesting initiative of UK govern­ment that was already mentioned in other contributions of this guidebook.

Incentives to VC investment

   The governments of Israel and the United Kingdom have created legal and fiscal instruments to encourage investment in venture capital The Yozma program created by the Israeli government and active from 1993 to 1998 was the key stimulus for the birth of the VC market in Israel. It was based on a fund whose mission was to invest in others private funds with a ceiling of 40% of capital. The advantage for private investors was a call option on government shares at cost (plus interest) for a period of five years.

It was not a simple risk-sharing program, but it allowed a multiplication of potential gains for private investors if the investment succeeded. The program has been extensively studied and has become a model for many policies in other countries, but most of the attempts have not had the same success [4]. Many factors contributed to the success of the program, such as timing, the existence of many hi-tech companies that struggled to access finance, favourable conditions in the NASDAQ market, and the con-current rise of the IT economy.

After the end of the Yozma program, the Israeli government launched the Heznek project, which also offered the opportunity for investors to use public funding to multiply potential gain.

In general, access to finance is easier for the London start-ups than for corresponding start-ups in other European regions, probably for London's role in the world finance and its links with the U.S. financial centres. If a comparison is made with the Silicon Valley can be seen, however, that U.S. companies are still in the lead, the London start-ups in fact can raise 81% less capital in the period preceding the final scaling phase [10].

The UK government launched the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS), which offer investors Income Tax Relief and Capital Gain Tax Relief. The SEIS program is particularly interesting because it is specifically targeted to the small and early stage start-up businesses and to small investors [19].

Both these programmes are mentioned in the European Commission "StartupEurope Manifesto" [2] as positive examples.

Soft Companies and Service Companies

   Many small hi-tech companies in the London Region and in Israel do not fit into the standard start-up model. They work as research and consulting companies and their business model is intrinsically less capital intensive so that the cash flow generated by these activities can ensure self-financing without requiring equity financing [7].

   Sometimes these companies can create spinoffs that attempt to develop a product or a service and try to sell it globally like traditional start-ups. When this happens, they may need to use VC financing for the last scaling phase. Compared with Silicon Valley, the entrepreneurs of the London region focus 81% more on consulting for financing their start-up equivalent of Silicon Valley [10].

   For many years Israel has been one of the first destinations for offshoring software projects by U.S. companies. This has led to the growth of a network of small consulting companies that eventually may give rise to start-ups.

Dynamic and fluid work market

The London area has traditionally had a very active dynamic IT job market both for contractor position and for permanent positions.

   This has had a series of positive effects on the start-up clusters:

  • There is increased circulation of information and best practices, transferred by the people moving from a job to another.
  • The potential risk for would-be entrepreneurs who leave a job as employees is reduced because if the start-up fails, it is easier find a new job.
  • It is easier to find skilled workers (although the cost will probably be higher than in other regions).

   It has been shown [15] that inter-firm mobility is an important factor in the emergence of new technology clusters and one of the main channels for transmission of knowledge within the cluster; it can therefore be assumed that the high mobility characteristic of the London job market helped the rise of London's ICT cluster.

A widespread popularity of entrepreneurship value

   The role of the entrepreneur is socially recognised both in England and in Israel to a much higher degree than in other countries. This creates the conditions for a larger number of young talents to attempt to create new innovative companies.

Training and education

   In the area of London and in the confining regions, in a circle of less than 100 km, there are six of the top 50 universities for computer science and information system in the world. Although some universities in the U.S. are ranked higher, there is no place in the world with a higher density of know-ledge.

   The prestige of Higher Education Institutions in the area surely played an important role in the choice of Microsoft in 1997 to open the Microsoft Rese­arch centre in Cambridge, 15 years before the opening of Google campus in 2012.

   Higher Education Institutions have played an increasingly significant role in undertaking R&D within the UK, with activity in the sector increasing in value by £3.3 billion (86%) in real terms between 1995 and 2011. OECD data show that in 2011, Higher Education contributed around 27% of the total R&D undertaken in the UK, compared to an average of 19% across the OECD area [19].

   After some initial resistance on the part of scientific faculties, computer science found an important place in the curriculum of the Israeli universities. The Israeli researchers initially had given strong theoretical contributions to Computer Science and algorithms, but it was only after 1973, with the transfer of U.S. military equipment and U.S. aid, that the Computer Science Technology in Israel came into its own development [20].

   The Israeli Army established its own central computer unit (MAMRAM) and a sub-unit, the School for Computer Related Professions (CRP School). The role of the CRP School [14] was crucial in the creation of the Israeli computer industry cluster, not only for the level of training but also for the personal relationships developed during military service, so helpful to young people when starting a business.

  Cybersecurity start-ups exploited the training and the work of their founders in the Israeli Defence Force Information and Communications Technology (ICT) Branch [1].

Start-up accelerators and shared working spaces

   In the London area, there is a very wide choice of Seed Accelerators and Start-up Accelerators, going from branches of such international chains as Seedcamp, TechStars, and Microsoft Ventures to more specialised initiatives, such as Bethnal Green Ventures, using technology to solve social or environ-mental problems. All these accelerators offer seed financing, tutoring, and office space to a selected number of start-ups for a limited period, usually in exchange for a share of the company. Shared spaces are a different solution: Hoxton Mix, Google Campus, Co-work, TechSpace, and others offer desk spa­ces and services for an affordable price. Google Campus also offers events and opportunities to meet financers.

   The trend towards shared working spaces is a necessity in a city of sky-rocketing rents. The Tech City project worsened the situation in this regard, but it is also an opportunity to meet new co-workers and broaden contact networks.

   Israel has a good number of start-up accelerators and shared spaces, even if the supply is not as rich as London's. Some accelerators, such as IDC Eleva-tor, Dreamit Israel, or Up West Lab, provide for a stay of one to three months in New York or Silicon Valley.

Brand construction

   Israel and London have placed a great deal of attention on creating a "brand" to sell their regions as the best places for innovation. Certainly some of this is hype, but it is part of a sensible marketing strategy that amplifies the competitive advantage for the regions.

The lessons from the London region and Israel

   Many features of the regions of London and Israel are so linked to the history of those regions that they cannot be translated into instructions mechanically applicable elsewhere. For example, within the European regions, there is no other financial centre comparable to the City of London, and fortunately European regions do not have the national security problems of Israel, with the corresponding need to invest heavily in military technology.

   Despite their completely different histories, some common patterns are recognizable in the two regions: integration with the centres of ICT economy in the U.S., a strong state expenditure (military) in the initial development of high tech industry, direct support to private R&D to correct "market failures" not only with "neutral" fiscal actions but with active policies, an attention to SMEs and their role in innovation, a central role for Higher Education Institutions, and a consistent flux of qualified immigration.

   Those patterns have value also for the other European regions that are trying to create or improve clusters of companies in ICT and in particular mobile and mobility.


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