Start-ups compete for software developers

When KashFlow, a start-up based in southeast London, approached a software developer about a potential job, the chat took less time than expected.

Before hearing anything about the role, the developer cut the conversation short: "If you're not going to offer me over 50 grand I'm not going to talk to you. Any less and I might as well be a painter/decorator.

The attitude is common, says Duane Jackson, chief executive at KashFlow, which produces cloud-based accounting software: "There's this expectation out there that they'll be showered in gifts.

"I'm not sure expectations match up to reality in London."

Wage inflation is rampant among start-ups in and around Silicon Roundabout, the nickname for east London's fast-growing tech hub. Salaries at start-ups in the UK have risen 8 per cent since the start of the year, according to Adzuna, the job search engine, as start-ups compete with banks, established technology companies and stringent visa rules for a limited pool of developers. The result is that the average salary for a new position at a start-up is now almost £40,000.

Supply and demand lurks at the base of the problem. "Excellent developers in London are scarce," says Andrew Hunter, co-founder of Adzuna. "Even if you're average you can charge above-market rates because there are simply too many IT jobs to fill and not enough developers."

A freshly graduated developer with a specialism in Objective-C, the main programming language used by Apple products, can expect a starting salary of about £45,000, according to Adzuna.

The wage inflation is pricing out some UK start-ups. KashFlow, for example, moved the bulk of its development to India, employing nine developers and engineers in Pune, with three in the UK. This halved its development costs.

"We were reluctant to, as you hear so many horror stories about outsourcing," says Mr Jackson. "But with offshore, we own the team. With outsourcing you're giving it to someone and crossing your fingers."

Adzuna, based in southwest London, also "offshores" its development, but to Greece. "There are a huge number of IT jobs in the UK and very few people to fill them," says Mr Hunter. "We need more computer scientists in the UK."

It is, however, less of a problem for better-capitalised companies.

"It's just what it costs," says Tom Allason, founder of Shutl, an online courier service based in east London, which is planning to launch in the US from early next year after securing funding from the investment arm of logistics group UPS, among others.

Wage demands from developers have increased by about 50 per cent since 2009, when the group was founded, estimates Mr Allason. Yet these salaries still pale in comparison to wage expectations among start-ups in the US. "It's nothing like Silicon Valley, where you'll pay $150,000 plus stock options," he says. "[In London], we're competing against banks and start-ups with no money."

Whereas talented developers would once head only to established technology companies or to the City, now they are willing to work for a start-up – albeit at a price – argues Pete Smith, who runs Silicon Milkroundabout, a recruitment event for young tech companies. "Start-ups are able to get in front of the very best people in the UK these days," says Mr Smith. "That wasn't the case five years ago."

Wages on offer down the road in the City still dwarf start-up salaries for developers, but other factors are tempting young developers to Silicon Roundabout.

"There's no question the work in a bank is less interesting," says a recruiter for a large investment bank. "Plus, they can turn up in jeans and trainers."

However, competition for talented engineers and developers is set to increase. The continuing expansion of cash-rich groups such as Amazon, Google and Facebook in London heaps further pressure on smaller groups, with limited staff budgets. Just this week, Facebook opened a base for software engineers in London – its first outside the US. Starting with just 20 engineers, the office will focus on mobile technologies and machine learning.

Stringent immigration laws mean that importing cheaper developers from outside the EU is not an option for start-ups. "We simply can't do that," says Ivan Zlatev, chief technology officer at MarketInvoice, which provides an exchange for invoice discounting. "We would need to apply for a sponsorship licence and there is financing and time involved."

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