By Marcus Leach

Research published today (Tuesday) by Telefónica Digital and the Startup Genome has shown that, while London’s startup scene is the largest and most prosperous in Europe, it still pales in comparison to areas such as Silicon Valley and Tel Aviv.

The study of technology start-ups found that London has the strongest 'cluster' in Europe, but ranks just seventh in a global league behind Silicon Valley in California, Tel Aviv in Israel and a number of other US cities.

Data supplied by 50,000 start-ups around the world revealed that London firms raise 81% less later-stage venture capital than their counterparts in Silicon Valley.

The researchers said this was down to a lack of venture capital funds as well as of so-called 'super angels', wealthy individuals who make significant equity investments in young companies.

“Tech City has changed a cheap and dreary part of East London into a creative, vibrant space. However, in order for it to reach the heights of Silicon Valley, it needs to get more private sector expertise from people who understand technology," Robert Marcus, CEO of QuantumWave Capital, an investment bank for technology start-ups, said.

"So far, too many Politicians have been jumping on the bandwagon without taking the necessary advice from private companies to make Tech City a long term competitor to the valley.

“A positive future for the project depends on the city and country not reverting to big government as it truly begins to take hold. The project needs to remain tightly connected to private sector expertise, to people who have a heritage and a track record in technology and a propensity for risk.”

The study also found that London start-ups tackle smaller markets than their American peers, are less likely to work full time on their start-up until they have 'proved' their business model and are more focused on peripheral activities such as consulting.

However, the report did identified London as the “European capital of innovation”, with job creation per start-up as high as firms in Silicon Valley, and founders that are better educated than their American equivalents.

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