Barely a week goes by without some publication or other lauding the virtues of Silicon Valley, with the Economist recently doting on the innovative capabilities of the region.  It’s prompted many other areas around the world to try and create their own versions.

In London, for instance, there is Silicon Roundabout, a tech cluster located loosely around the Shoreditch part of town.  The theory is that by locating closely together, ideas flourish in an environment equipped with all the support required to bring those ideas to market.

A recent study by a UK based incubator reveals that locating in a cluster is not all a bed of roses.  Indeed, it reveals that the shine of locating in London tends to rub off for many start-ups after about a year.

Into the mind of a startup

The study explored the attitudes of around 500 startups in the London and South-East area.  It revealed that attitudes towards London changed significantly as the startup aged.

Whilst in the initial period of operations, many startups strived to be in London, this enthusiasm rapidly waned.  Indeed, within a year, roughly 66% of startups wanted to move elsewhere, with a desire to go back not returning until the business was roughly 8 years old.

The biggest cause of disenchantment with the city was the incredibly high rental costs, with this proving a major stumbling block for growth among young businesses.  Only when the company was relatively mature with stable income did rent become less of an issue.

Interestingly, proximity to like minded businesses appeared to be much less of a barrier to growth, although even this seemed to grow after a year of operation.

“Our findings reflect the start-up journey; a London address provides kudos and contacts when you begin but a year later, the honeymoon is over as bills start to flow in. In a reverse of the seven year itch, our polling shows small firms fall back in love with London only once they’re well established. If London is to hang on to more growth businesses it needs to look again at business rates and affordability,” the authors say.

Of course, the city itself won’t have changed much, but perhaps the expectations of it among startups is simply not met as they mature and grow.  This is especially the case as cash flow is such an important issue for many early stage ventures.

The question therefore is whether the value derived from locating oneself in the cluster is sufficient to overcome the dent in cashflow from higher rents.  For many startups it would appear the answer is no.