This year has certainly been tough. As I write parts of the UK are into their 2nd lock down with the Prime Minister now urging UK Citizens to work from home for the next 6 months and the already slowing economic recovery likely to go into reverse. Sectors in the “proximity economy” such as hospitality, commercial property and live entertainment are now facing a big bout of “creative destruction” with only those firms with the lowest overhead liabilities, deepest pockets or most understanding creditors likely to survive. Eventually the experts predict our “proximity economy” will bounce back. If it is does the recovery in my opinion will be lead by startups with innovative value propositions that in turn give rise to new business models that can initially prosper in these hard recessionary times. We need startups that figure out how we recover from this. At the end of this article I will list some of the programmes we at Capital Enterprise have and will launch and deliver this Autumn to help startups get through these difficult times. But for now literally and metaphorically “Winter is coming”.
The COVID pandemic, the measures needed to control infection rates and the negative economic impact especially on big cities like London will have knock on effect for all businesses in all sectors. But it is fair to say that UK’s tech startups are, in relation to others, better placed to prosper in these uncertain and difficult times. My own take is that tech startups are facing specific challenges which will require both forbearance and imagination for them to overcome. Startups, with the willing support of Capital Enterprise, will need to figure out how to overcome:
The Challenge of Ideation – Whilst many startups origin stories claim to have a “Eureka” moment the truth is that most good startup ideas arrive through the classic process of discovering a problem in need of a solution ( often by accident) and then exploring the possible solutions ( often with friends and colleagues) that the founders can potentially develop to solve the identified problem. This is usually a group exercise. To avoid confirmation bias founders are then advised “literally get out of the building into the real world, in front of real people” to test if the problem is real and to find out if the solution they are postulating might work, has a good chance of being used/ bought by those they have talk to with this problem etc etc . All of this is to take place prior to the founders committing to subsequently build and then test their MVP. How can this process be adequately attempted if you are in lock-down, if you are following social distancing rules, if you can only “zoom call” with people you already know to explore and test your ideas? Because of the COVID restrictions, Startups founders are in danger living in an even bigger echo chamber than is usually the case and it is therefore likely both the quality and quantity of early stage startups that are “world changing, scalable and investable” we will see emerging in the next 6 months will not be great. Unless startups can figure it out.
End of Serendipity (for now?)- We do a lot in the tech eco-system to try to curate/ force serendipity moments so founders can meet potential co-founders, startups bump into potential customers, talent to observe first hand potential startup employers, investors to casually meet potential portfolio companies and then to gossip with fellow investors on who is hot, who is up and coming and who is not. We do this through our tech startup meet-ups and conferences, our incubator and our accelerators. By encouraging startups to cluster close to each other in shared co-working spaces and in tight geographic districts we create the opportunity for many serendipitous moments that enable the rapid sharing of information and know-how to occur in an unplanned way and by doing so enable both strong and weak links of trust to be established and for an ecosystem to emerge and function. Once established it attracts the curious from around the world to come to the locale where this all startup action happens, and on the basis that you often don’t know what you want until you see it/ experience it, these encounters with the startup eco-system lures in first time users/ customers of innovation and first time participants in the creation and building of innovation and the next generation of first time entrepreneurs. Before COVID and the social distancing measures, this was the London Tech startup Ecosystem. This is not how the London Tech Startup Ecosystem is working now. Yes some of this network activity can operate online via Twitter, Slack and through countless Zoom calls. But now it is an “insider game” best played by the eco-systems insiders who already have the contacts, already have a band of “connectors” and “endorsers” willing to support them and most importantly have a pre-acquired reputation and or deserved track record to demand attention, to get potential customers/ partners/ investors to respond to an email, to take the call. The “insiders” who can navigate this COVID world means that most believe that either opportunities for serendipity are overrated ( we are doing nicely without them thank you ver much) or once we have a vaccine and we can return to “normal” the London Eco-System will spring back to life from its forced hibernation and they will become possible again. I am not so sure this will happen. For me it will take time, even if it does eventually happen, for the volume and buzz of meet-ups, conferences, incubators, co-working spaces, accelerators and the good will and open innovation culture these eco-system players foster to return to London. If they are lost, then I for one will miss it. I believe the diminishing of London as Europe’s prime startup ecosystem, will be felt by all. Even those entrepreneurs from outside London who begrudge the necessity of trudging into London once a month so they can sit down more than one customer, more than one investor, in a day, will miss it. And by no longer walking around or frequenting the coffee shops and bars of Kings Cross, Old Street, Shoreditch, these entrepreneurs and those like them we will lose the opportunity of having a chance meeting, a quick chat with someone who could change their lives. In the mist of this pandemics startups are either going to have to live without serendipity or find a way to use exiting technology to achieve the same effect – (regarding the latter I would welcome any suggestions and examples).
Top of the Sales Funnel Challenge – Even before COVID we were becoming a society where the most value is placed on gaining a potential customers attention and even more their trust. How to first reach and then acquire the attention and preferably a follow on commitment to trial your tech product is even harder in a locked down world. I expect like many, I am throughout lockdown being bombarded by unsolicited emails, Linkedin requests, DM’s on Twitter and even Whatsapp messages from increasingly desperate startups all seeking some form of response to their “amazing opportunity”. If your sales and distribution is not primarily internet based such as enterprise software platforms or your product has a hardware component such as IOT then COVID restrictions make it almost impossible to visit a new client to demo the product or install it and configure it on-site for a trial. The top of the funnel for these startups is all glued up. Love to hear from enterprise focused startups who have figured out this challenge. Surely Enterprise focused startups will not have to wait until the spring of 2021 to be able to do site visits?
Retreat of investors and customers to relative safety. At present both enterprise customers and investors in startups are looking to back proven technologies and proven startups. You can hardly blame them but spare a thought for the 2020 vintage of startups who are trying to convince an enterprise customer to be the first user/ customer of their new technology or trying to convince an angel (one of the few that has not run to the hills with their money) to invest in their pre-revenue venture. It is tough. And tougher for those founders who do not come from money, have neither sufficient savings, or family and friends with money to give then, so they have the time and resources to build and test their the MVP’s and achieve the market traction now so much more demanded by the few pre-seed investors that remain active in the UK. I am more than proud of the small role I played in initiating and supporting the campaign that eventually led to the Future Fund. It has been a great success in its intention to extend the runway of startups who had previously secured a seed or series A round. But now we need to relook at what can be done to incentivise angels and VC’s to invest in tech startups led by first time founders who have yet to achieve ( or come close too) product-market fit. We also need enterprise clients, who often boast about their openness to innovation, to unfreeze their budgets and welcome new innovative products/ services from new suppliers. I hope as we approach the end of the UK tax year, assigned budgets for innovation investment (secured in most cases prior to COVID) will be released by enterprise clients and that angel investors will use the availability of the generous UK tax break to start investing in greater numbers than now in the UK’s new generation of tech entrepreneurs.
Bifurcation – I recently spoke to a senior UK government official who told me that the government is planning for COVID, the associated restrictions and the economic impact to be a “blip” ( admittedly a bigger than originally forecast blip). By making this assumption, officials can plot out the “Known Knowns” and the “Known Unknowns” for the forecast rebounding economy returning to a pre-COVID world. The alternative view is that COVID is producing once in a lifetime paradigm shift. For this senior government official contemplating the alternative to a “return to normal” is not worth the effort for he told me it just generates a lot of “unknown unknowns” that are almost impossible to model or worse often produce terrifying scenarios. One I tried to discuss with him is whether if “Working From Home” becomes the default norm for millions of office workers, will this produce a collapse in London’s commercial property rental incomes, massive falls in commercial property values, and as sure as night follows day, a financial crisis for our over-leveraged banks and asset managers. I informed the government official that I was recently told by one of the largest co-working/ service office providers in London that less than 50% of their tenants are renewing their leases and that all these leases are up for renewal within the next 12-18 months. I was told by the government official this scenario is not one they are planning for. I think this view of assuming a “return to normal” in 2021 is held by most startups, advisors and investors I talk to. I recently found myself telling a deep tech bio- security startup not to position themselves as primarily a solution for proximity businesses struggling to trade and conform to the COVID social distancing rules because in 6 -12 month’s time the availability of a vaccine and better therapeutics may mean the problem will go away. We will return to our previous wilful ignorance of infection risk and leave the problem to the medics to solve. But am I wrong? And am I also wrong to assume a return to normal, a bounce back. When the pandemic becomes endemic, will the habits of businesses and individuals learned and ingrained by this pandemic stick? Will the recession and the unemployment and debt overhang that it produces be longer, deeper and more long term impactful than a “blip”? It often said that governments and corporates plan whilst startups act. But do startups (especially those of 2020 vintage) react to the signals they are receiving today or do they develop for where they believe the world will be in 12 month’s time. Everything is looking very binary. What to do ? I suppose that is for startups to figure out and for advisors and investors to support.
This Autumn, Capital Enterprise will be attempting to help startups to figure these and other challenges out by launching or relaunching a whole host of new programmes to encourage, inform, enable and support early stage tech startups. They include:
One Tech – Our programme that focuses support on, and opportunities for, Black and under-represented tech startup founders in London, kicked off last month. Along with our amazing partners The Nest, Foundervine, UK Black Tech, Angel School of Investing, 10×10 Fund and Diversity VC we will be working hard to address the barriers that stop the amazing talent in our Black and under-represented communities from succeeding in the UK start tech scene. Great that we are also working with Google for Startups to administer and support the Black Founders Fund that will provide up to $100,000 in non-dilutive cash awards to selected European startups in the Google for Startups network paired with up to $220,000 per startup in Google Ads and Cloud credits. Recent events show that this persistent injustice of Black founders being under-represented in mainstream support programmes an in investors portfolios needs to be addressed now and we hope to be able to announce more direct action to help Black and under-represented founders in the coming months.
CAP -AI – We welcome back our programme to support AI First startups in London. From this month we and our partners at the Digital Catapult, ATI, UCL and Barts Health Trust will be offering opportunities for research collaborations with our top universities, subsidised or free access to technical talent, access to free compute power and opportunities for research fellowships. CAP-AI also part funds our Machine Learning Academy and our P4 Precision Medicine accelerator. Both kick off new programmes early next year. P4 has its demo day at the end of this month. Some fantastic teams will be pitching including Pexxi, Pear Bio, Electron RX , Warner Patch and Mendelian. We hope by then to announce a new partner and a new programme focused on supporting deep tech entrepreneurs who are developing the latest precision medicine technology to detect and diagnose very early stage cancers.
UK Wide Investment Readiness Programme– Through-out this summer we have been running for Barclays Eagle Labs a series of online workshops and 1-2-1 mentor sessions for tech startups from through-out the UK to help them understand and prepare for raising capital through government innovation challenges, through crowdfunding platforms and from business angels and seed stage VC’s. Over 200+ startups are presently engaged in the programme and for a select few this will conclude with a demo day at the end of November. Working with the Barclay’s Eagle Lab teams has been fantastic, the feedback from the startups has been amazing and the startups we have meet inspiring. There is certainly a lot of startup talent in the UK and we need to enable them access the support, expertise, customers and investors that are in London. In a few weeks time Capital Enterprise will be announcing a major new initiative ( our largest programme to date) to accelerate the creation of a dynamic and inclusive tech startup eco-system in the North of England. For Capital Enterprise, 2020 will be the year that we can truly claim to be making a UK wide impact.
COVID Resilience Programmes– Thanks to generous sponsorship from JP Morgan Chase we were able to help over 500 startups to explore ways to help combat the economic impact of COVID through a series of workshops, 1-2-1 mentoring and by staging over 30 podcasts. This programme ends this month, but we hope to announce in the next few days that we will be managing a new public funded programme to enable London based small businesses to receive the professional advice and support they need to pivot their business models so that they survive and maybe even prosper in these very difficult times.
Idea London– We reopened the Shoreditch Startup Innovation space (we manage on behalf of UCL) in August. It is certainly true that Idea London has not been super busy but for some startups that can’t work from home or want at least for a few times a month to meet their colleagues or even customers in person, it has been a lifeline. So we will keep it open for now.
So as you can see we are busy and if you are interested in any of these programmes please email my colleague laurel@capitalenterprise.org
