The expected returns from "want[ing] to go and work at companies like McKinsey, Goldman Sachs or Google" are both greater and more certain, so perhaps the individual young people are acting quite rationally in the UK?
For context I spent years in my 20s doing start ups in London, and undoubtedly would have been better off financially now if I'd worked for some soul-sucking consultancy instead. I do agree with him that raising money in the UK is quite hard.
Yeah, but I think it’s also true in the US (even more so as pay from the non-startup careers is higher). Maybe one should ask why it’s so much more common to do the irrational thing in the US than the UK.
Could be house prices again. You really cannot survive on ramen and hope to live anywhere close to London. I know that SF is not good either, but the US does have other cities with less of a housing crisis.
A key part is that in US you take less risk because investors are taking more risk - as described in the article, in UK the conditions you'd get for early funding push more risk towards the founder as most UK investors simply won't accept as much risk as US investors routinely do.
Remember you have to normalize for population size. And when we say the US we really mean one small part of it. People in the US often move to California to start their startups, they don't necessarily stick around in the part of the US they're currently in. This is largely due to the VC ecosystem there which makes "irrationality" relatively safe vs everywhere else in the world where it doesn't. Tom's article makes this crystal clear when he says:
> The downside of early-stage investing is that you lose 1x your money - it’s genuinely not worth worrying much about
The only potential downside is only losing all your money, what kind of stick in the mud would care about that?
So anyway, we might ask why is the VC ecosystem so much stronger in California than in the UK. But a lot people don't like to think about that because the answer is so obvious: in the 70s when Silicon Valley was getting established and the flywheel of founder->startup->success->sale->VC->founder was spinning up, the UK was mired in socialist hell with rotating power outages, militant unions toppling governments, four-day working weeks and an IMF bailout. At that time making a startup was entirely pointless and a VC fund literally impossible, because the top tax rate on investment gains peaked at 98%. You could invest in startups but the deal presented by Labour was: if you lose money you lose it, if you gain money you still lose it.
Thatcher and then Major beat back some of the most extreme aspects of this, and in this period the top level tax rates were systematically reduced to more normal rates. But Britain of the 1980s was still drastically more investor-hostile than the USA and there was no venture culture as a consequence. In particular the practice of granting equity in startups was not really known (notable exception: ARM, one of the few successful tech startups the UK has ever produced).
Even today British governments routinely levy so-called "windfall taxes" to grab the profits from companies that are doing well, the moment they have an opportunity to do so politically. That culture gap is ultimately the major difference. The idea of a windfall tax in the USA is hard to imagine, I'm not sure it's ever happened.
I think your population size argument is something like:
- SFBA has ~2% of the population of the US
- London has ~10% of the population of the U.K.
- the populations of the areas are similar (ca 7e6)
So for SFBA to feel full of startups, you can get away with e.g. 0.2% of the population of the US doing tech startups in the Bay Area at any one time, but for London to feel similarly full of startups, you would need 1% of the population of the UK doing tech startups in London at any one time.
Is that the point you are making about size, or is it something else? Network effects in VC?
Nothing so fancy, I just meant that a bigger population size will inherently create more successful companies. But your stats about population density are interesting, thanks!
I don't see how this affects innovation. Labor interests need to be taken care of too in a startup-friendly economy. In fact, I will probably never work for a startup simply because of the lack of safety net here in the states. That's a risk founders don't seem to consider too thoroughly - the lives they're entangling with their experiment.
People weren't choosing short weeks because they wanted leisure time. It was because there wasn't enough electricity to work five days a week due to Marxist miners unions shutting down the power stations.
Also on checking it turns out I misremembered. The UK went to three day weeks during this time:
TV stations were also required to shut down at 22:30 to conserve power. Bodies went uncollected, hospitals shut down, TV stations routinely went dark even when there was sufficient power. It's impossible to overstate the apocalyptic state of Britain in this era. You can read about it here:
The government was so left wing any thought of building a high tech ecosystem was out of the question and even keeping existing 1930s era industries was hard. Whilst the Americans were building Intel the British were living through something from a disaster movie. The 1980s were spent partly repairing the damage. By that point the US tech ecosystem was well under way.
Thanks, this is interesting. I can appreciate there being a balance of these two economic extremes. I think for the US, it needs more socialist policies so people's lives aren't ruined for things outside their control. E.g., going bankrupt at 24 over medical bills (happened to me).
For context I spent years in my 20s doing start ups in London, and undoubtedly would have been better off financially now if I'd worked for some soul-sucking consultancy instead. I do agree with him that raising money in the UK is quite hard.