Silicon Valley here? No way

It will create riches beyond most computer boffins' wildest dreams. The Facebook flotation, which could value the social networking phenomenon at $100bn, will also jam Highway 101, the main route through Northern California, with shiny Porsches as software engineers gain the opportunity to cash in their shares in the company. House prices in the vicinity will rocket too.

In Britain, the prospects for creating our own Facebook are just that – wild dreams. So is the wealth creation on a grand scale that the digital economy promises to deliver. Mark Zuckerberg went from an idea in a dorm room at Harvard to creating a company with 845 million monthly users in just eight years. But it's not just Facebook. Voucher firm Groupon, Zynga, which creates online games such as Farmville, and LinkedIn, a professional networking website, have all seen vast growth in very short timeframes. It is no coincidence that all are based in America.

Why can't Britain create digital leaders of its own? The question has vexed London financiers and politicians for years. The latter have mostly satisfied themselves with a few quick-fix ideas, creating token photocalls with groovy young people to boost their image.

What is going wrong? According to Google executive chairman Eric Schmidt, our education system is holding us back. Speaking last year at the MacTaggart Lecture at the Edinburgh International Television Festival, he shocked the crowd when he told us Brits: "You invented photography. You invented TV. You invented computers in both concept and practice. Yet today, none of the world's leading exponents in these fields are from the UK."

The UK boss of computing and printing giant Hewlett-Packard, Nick Wilson, agrees with him. He says: "In Korea, every kid is getting an iPad, but in the UK 14-year-olds learn more about technology outside of school than inside. Facebook should be taught in schools. Our kids aren't getting the practical skills in schools that they need to compete in the business world."

The government is trying to do its bit. Last month, Business Secretary Vince Cable announced the Connected Digital Economy Catapult centre – a hub for the best innovations in the digital sector.

But many argue that skills are not the main issue. Simon Clark, managing partner at technology investor Fidelity Growth Partners Europe, says: "We have the ingredients for great companies here. We have the best engineers and technical skills, we have entrepreneurs and we have patient capital. But there are issues with funding. The venture capital end is very good but the public side – raising money from the stock markets – is very much harder."

The sheer amount of time it can take in the UK to raise funding has also been an issue. Phil Cox, the London-based head of UK, Europe and Israel for Silicon Valley Bank, says: "Technology companies in the UK take a long time to grow. Look at ARM Holdings. It has taken 15 years to get it to the scale it is now. In the US, a company can grow to $100m revenue in a matter of two years.

"In order to get that, you need a marketplace but you need a lot of funding at an early stage. The US investors just have deeper pockets. Some of them are active here but not on the scale they have in the US."

It takes time. Building winners also creates a virtuous circle. Those involved in the early success of online payments firm PayPal – sold to auctioneer eBay for $1.5bn in 2002 – have become backers of later California success stories. Business angel Peter Thiel was an early backer of Facebook; Reid Hoffman went on to set up LinkedIn.

Our domestic technology scene also suffers from a very British fear of failure. Our willingness to sell out as soon as success strikes has marked out Britain as a great place for deep-pocketed Americans to go shopping.

Last FM, an online music provider, was sold to CBS. Michael Birch's Bebo, an early social networking service, was gobbled up by AOL in 2008 – having already moved most of its operations to the US. On a far bigger scale, Autonomy was tempted by the largesse of HP last summer for £7.1bn. However, Errol Damelin, the founder of online lender Wonga.com, says there is no reason why the next Facebook can't be built here.

He says: "We have entrepreneurs who are more diverse than what you find in Silicon Valley. The government is beginning to be supportive, we just need to stop being so pessimistic.

"But we also need more role models. There are smart, young people here in the UK, but we need good role models to show them what can be achieved here."

Who knows – one of today's start-ups might just yield the next social networking billionaire.

Hot Gossip: The rise of Luluvise

Alexandra Chong, 30, the daughter of a Chinese-Jamaican father and a Canadian mother, came to London in 2003 to study law at the London School of Economics. She planned to hotfoot it back to sunny Jamaica as a lawyer after her studies but the exciting world of London start-ups was too hard to leave.

She joined music licensing company Ricall, and then moved to Upstream.

In 2009, after a particularly successful Valentine's Day date, Chong came up with an idea that became Luluvise.com.

She wanted to update her friends on all the gossip, but they were spread across the world. Facebook wasn't personal enough. Three telephone calls, a slew of BBM, texts and Skype calls later, she thought to herself: "Why can't I tell this story to all of my friends at once?" And Luluvise was born.

Chong resigned from her job in April 2010, and Alexios Vratskides, the CEO of Upstream, became the company's first angel investor. The business raised $1m and is targeting both the UK and US. The network, just two months old, has 12 staff based in a start-up hub in White Bear Yard in east London.