The government's announcement of a £50 million investment to revamp London's 'Silicon Roundabout' has been largely welcomed by the industry, with the obvious benefits of better facilities and greater support for entrepreneurs being highlighted. But the government needs to be very careful not to price local start-ups out of the area.

Shoreditch is one of the more run-down areas of London, and it is for this reason that a cluster of technology start-ups originally formed there - because office space was relatively cheap. A recent report by Knight Frank Research revealed that technology, media and telecoms (TMT) companies acquired more office space in the City of London than firms in the financial sector during 2012.

Around this time last year, Matt Evans, founder of Solid State Group and director of the Hoxton Mix, warned that if the area became too gentrified, start-ups would simply move further east and the area would lose its “cool vibe”.

At the time, his concerns were dismissed by the Mayor of London's digital advisor Kulveer Ranger, who said that if investing in east London helps to “lift” the UK's technology sector then it should be thought of as regeneration, not gentrification.

With this £50 new million investment, however, the risk of gentrification is particularly acute. Under the government's plans, Old Street roundabout will be given a complete makeover and “transformed into Europe’s largest indoor civic space,” including an auditorium, new state-of-the-art offices, boardrooms, labs, workspaces, a 3D printing centre.

Looking at some of the responses to today's news, it is clear that many people are bubious about the project. Although local companies are crying out for better infrastructure (fibre broadband and 4G connectivity is still scarce), building a flashy new centre for start-ups is seen by some as an “ego project”.

As if to illustrate that the government's investment will help entice high-tech firms to the area, the Tech City Investment Organisation (TCIO) pointed to an array of corporate commitments to the cluster from the likes of Microsoft, Cisco and IBM. However, this just highlights the fact that it is the smaller firms that are more likely to be squeezed out, as demand for office space grows.

If property prices in Shoreditch rocket, it will not be the end of the world for start-up companies - they will simply move further east (developers in Stratford and the still impoverished areas surrounding Canary Wharf are probably salivating at the thought), or out of London altogether. Indeed, many believe that the government's investment should be directed at technology clusters outside of the capital.

However, it would be a catastrophe for the government if its investment resulted in a mass migration of start-ups out of Tech City. The TCIO therefore needs to make sure that money is invested in the right places - primarily into better infrastructure that will give technology companies of all sizes a real incentive to stay there.

This, together with the attraction of being part of a “community” of IT professionals that can bounce off each other, provide mentorship and partner on specific projects should in theory be enough to keep start-ups in east London, but the government needs to tread carefully to avoid shooting itself in the foot.
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