East London may be the birthplace of a new Facebook

There is no similar cluster to match it anywhere else in the world, despite the efforts of several governments to create one. But there is something stirring in London that could, one day, grow into Europe’s answer to Silicon Valley. It emerged just a few years ago but is evolving fast and on its own terms. These are early days but suddenly people are taking notice of what is happening in a network of streets in east London.

The unlikely centre is Old Street roundabout. Once, if it was known for anything, it was as one of the least lovely road junctions in London. Now it is the hub around which dozens of young web and technology companies have clustered like moths to a light, their founders drawn by cheap rents, proximity to the City and the buzz of bars, cafés and galleries filled with fellow digital pioneers.

The area is nicknamed Silicon Roundabout, a tag that began as a joke on Twitter but has now gained a life of its own. Three years ago there were thought to be 15 technology start-ups in the area. Last year, a survey by Wired magazine found 85 companies. This week, research has revealed more than 100 companies, many hoping to emulate the success of local hero Last.fm, the online music community sold last year for £140 million.

Now the big players are taking notice. Pearson has sponsored TechHub, an innovative venture offering advice, events and facilities for the next wave of entrepreneurs. Google is hosting a party to celebrate the area next week. And internet pioneer turned venture capitalist Sean Parker — the character played by Justin Timberlake in The Social Network — visited Downing Street last week to discuss London’s emerging importance as a start-up centre.

The key question is whether this is just a bubble or the start of something more significant. The signs are that it is the latter — that while still embryonic, this might just be the most vibrant and creative cluster of technology companies to be found anywhere outside of Palo Alto, with potentially huge implications.

Like Silicon Fen, which in just three decades has mushroomed off the back of Cambridge University to employ 43,000 people in 1,300 technology firms, the Old Street nexus sprang up without significant government help. Many of the firms use design to innovate new methods of production, a tribute to London’s globally renowned design colleges. And this organic quality sets the area apart from failed attempts in places such as France and Russia to create their own rivals to Silicon Valley.

Indeed, it underlines the theories of sociologist Richard Florida, who argues that to thrive, modern cities must attract the creative classes, since the brightest and best talents are attracted as much by clusters of like-minded people as by wages. He says it is vital that cities offer a good quality of life and a vibrant cultural scene if they are to succeed — something to be noted by the Government as it embarks on public spending cuts.

Talk to denizens of Silicon Roundabout and they all mention the importance of working and playing together. They share offices, swap staff and discuss ideas over parties organised on Twitter. Several praised east London edginess for keeping them on their toes; some, such as Moo, which employs 60 people printing business cards, give office space to start-ups as a reminder of founding ideals.

Inventive firms such as these could play a significant role in economic recovery, filling any void created by smaller public spending. Research has found that just six per cent of high-growth companies created half of all new jobs over the past decade — which is why ministers should focus on small firms and spend less time hobnobbing with big company bosses.

Arguably, this country has not yet created an indigenous global internet giant, so will any of these firms grow to rival Facebook or Google? Only time will tell. But while government needs to keep off their back, there are some things that can be done to boost their chances.

The intellectual copyright system can be made simpler, since Google has said it could not have started in Britain given our restrictive provisions. The immigration cap should be abandoned since London’s openness to foreigners is a vital part of its success. And we should copy a new law passed recently in France that slashed capital gains on big investments if reinvested in new businesses, an attempt to encourage the sort of serial investors behind Silicon Valley.

Silicon Roundabout may have begun as a joke but if anywhere in Europe can become a hub to rival Silicon Valley, these gritty urban streets could be the place. There is the talent, the sense of community, the space, the proximity to venture capital and the transport links. But it will take luck, good government and, most importantly, several generations of success.

After all, as the fictional Sean Parker tells the founder of Facebook in the movie, we don’t even know what the thing is yet — let alone how big it can get or how far it can go.