As 2017 comes to an end, Tom Wilson, investment partner at Seedcamp, shares his take on the strengths and weaknesses of the UK tech sector.
2017 has been a positive year for early-stage tech startups and the growth of the European ecosystem as a whole. We’ve seen significant developments and success in territories such as Romania where UiPath (full disclosure also a Seedcamp investment) closed the largest ever Series A ($30M) led by Accel. In France, the launch of the impressive Station F in Paris is a huge boost to the tech scene and in the UK the government moved to increase the number of exceptional talent visas and promise additional investment to emerging sectors such as artificial intelligence.
At Seedcamp, we remain very bullish on the prospects for the region and for the potential to create not just $bn but $10bn and $100bn companies. While the outlook is positive, there are certain challenges that come up time and time again and can inhibit breakout growth. The end of any year is as good a time as any to reflect, highlight some of the main challenges early-stage companies continue to face and identify some ways to overcome or even embrace them.
I review hundreds of pre-Seed and Seed stage companies a year, tackling everything from pet insurance to enterprise level artificial intelligence. While the problems they’re out to solve may differ, they all come up against two main barriers: access to talent and access to capital.
Key tech talent
Talent is the lifeblood of any fast growing startup. Hiring is a constant challenge for founders and something we see startups spend a lot of time focused on.
Whether it’s the first hires outside of the founding team or adding to a scaling sales team, the ability to bring onboard the best people is often a determining factor in the success or failure of any early-stage startup.
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In a competitive market for talent where startups have to compete with the large tech players for the best candidates, the ability to offer a compelling offer is of critical importance.
Equity (often in the form of share options) is one significant tool at the disposal of startups that when used well can be really effective – our friends at Index Ventures recently released this great tool for calculating employee equity.
Whilst it may be very difficult for startups to compete with large companies on salaries, options provide a potential key factor in how startups can differentiate an offer and hire the best. An additional way that early-stage tech startups can embrace the hiring challenge is by creating a culture where people want to work and take great pride.
Many factors can contribute to the culture of a company (i.e. hierarchy, communication, office space, social, community etc.) and it’s hard to point to one factor over another, however the fact that early-stage startups can start from a blank piece of paper when defining their culture can allow them to create an environment where their talent really shines.
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Going for the money
How can early-stage tech startups run an efficient fundraising process?
Firstly, it’s helpful to think of fundraising in the context of milestones. This could be a product (i.e. a new feature, launching on an additional platform etc.), hiring (i.e. bringing on board a key new team member) or business (i.e. hitting a specific metric or revenue figure etc.) milestone that a startup is working towards.
Mapping out what is achievable with the current amount of capital at the startups disposal is key. Once such key milestones are known they can be used as a framework to inform a discussion with a potential investor.
Even when speaking to an investor further in advance of a potential round, the ability to frame a discussion provides context to a startups progress, where the business is heading and its trajectory.
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It’s often said investors like to invest in “lines not dots” and providing evidence of hitting milestones is a great way of increasing the chances of raising. However, in an increasingly competitive early stage financing market, hitting milestones and executing on a plan may not be enough in itself, another area that we see the best founders excel at is in creating a compelling narrative.
This is the element of a founders fundraising presentation that ties the pitch together and (hopefully) creates the excitement for the vision and inspiring investors to want to invest.
The best founders communicate this narrative and vision incredibly effectively and it can often be this that is the difference between securing a very strong funding round or not.
As we move from 2017 into 2018 it’s a perfect time to make predictions around areas to watch for in the new year.
I think 2018 is going to be the year of automation. More tech startups will increasingly focus on areas that can be automated, particularly those that are low level reputable yet frustrating processes.
I can see this impacting a wide range of sectors from professional services (accounting, legal, consulting, financial services etc.), future of mobility (self driving cars) through to healthcare, amongst others.
Overall, whatever the trends that emerge, I remain absolutely positive on the opportunity for early-stage tech in Europe and excited for what 2018 will bring.
Perhaps it’s the year the first “deca-corn” is born in Europe or maybe it’s the year an existing company scales to such heights – either way, bring it on!