It has never been easier to be an Entrepreneur in the UK, however, it has also never been harder either.
This was brought home to me recently by a British friend that has been living in the US for 10 years. We were discussing startups and he said to me that from his personal experience post business school, London wasn’t really set up to support Entrepreneurs or startups yet. Being a proud Brit, I initially dismissed this, but having thought harder, despite probably being only second to the US for startups globally, the UK is, in absolute terms, miles behind.
To start with, London is sadly really the only vibrant city for startups in the UK with over 90% of UK capital deployed to London based startups. It is also one of the most expensive cities in the world to live in which makes “taking a risk” actually very hard to do unless you have access to free or heavily discounted accommodation. It’s no surprise that many startup are foundered by white, middle classes males.
Also, British culture actually hates both success and failure. If someone is successful we tend to be dismissive of them and if someone fails we tend to disown them. The US on the other hand celebrates both and rewards them both as well. Given the two typical outcomes of Entrepreneurship are likely failure or unlikely extreme success you can see why the UK presents challenges to would be Entrepreneurs.
For the budding Founder, while it’s becoming more and more popular to want to do your own thing, there is no established history of doing this to act as a frame of reference in the UK. To date, the UK as a nation, has yet to experience the level of Founder Exits seen in the US and probably never will, even if adjusted down for population or GDP. For this reason, the US is more Founder friendly. It is home to successful Founders that are willing to fund the next generation of Entrepreneurs and take a risk. These investors have a real appreciation of what it takes to be successful. Starting a company, finding a product or service customers want and then scaling is very hard and fraught with challenges and difficulties. The odds are really not in favour of the new Founder. On the other hand, the majority of UK funding is controlled by institutional investors that are likely to have spent some time in Tier 1 Investment Banking post Oxford or Cambridge University, and while they can work a spreadsheet at 3am they do not have a first hand appreciation of building a successful company from nothing.
As a further headwind, the high profile recent investments that have not gone as planned (eg wework) means that investors are now looking at opportunities in a more detail, and the growth at all costs model is no longer such an investable strategy. The days of “Blitzscaling” have never really be en trend in the UK and certainly are not now. Investors now want to see more traction, more developed product (crappy MVPs that don’t work won’t get funded anymore) and better unit economics at earlier stages than before. Seed investors are now expecting Series A metrics.
All very depressing!! Well, it isn’t supposed to be. The UK has always punched above its weight in the world and there is no reason why it can’t continue.
It has very favourable tax incentives for individual Angel investors which are unmatched in the world. There are more and more Angels that are willing to take the risk. However, the depth of capital is not there. When it comes to raising bigger tickets there simply isn’t the depth of experience or depth of wallets to do this on a meaningful scale.
Why am I writing this? Well, this is not to show Entrepreneurs that it will be hard as you probably knew that. It is to articulate that the current state of the funding market. You should, therefore, refrain from growing your headcount too fast, too early. Before you scale much above 6 people then make sure you really have a product or service people love and are prepared to pay for. Stay lean and fly under the radar. Never lose focus on your customers and don’t get distracted by the bright lights of awards and conferences that are little more than vanity projects. Just because you can raise a couple of hundred thousand via EIS doesn’t mean you have made it. The thin capital pool in the UK for bigger rounds is real and you need to focus and deliver real value.
It may take you a bit longer than it perhaps did, you can blame wework if you like, and your growth rate may be a bit slower. However, when you get there you know you have a greater chance of sustainable success and you probably own more of your company than you would have.
Good luck!
Sign up to founderspayforward to access and collaborate with other Founders and to get fundraising support
