Early startups: the journalists’ view
This is the latest piece from our Forward Partners Monthly newsletter -- subscribe here to get a headliner article, the latest news from our portfolio and what events we'll be attending each month.
We took some time with five individuals from the UK media scene to compare and contrast their perspectives and advice regarding today’s early startups.
Oliver Smith, Alt Fi, Forbes, CityAM
Martin Bryant, Big Revolution, The Next Web
IS IT GETTING EASIER OR HARDER?
Steve O’Hear (SO): I don’t know if the tech makes it easier because in some ways the bar has been raised. So if we take the over-references of machine learning and AI, any serious tech company needs to have it in there for an “unfair advantage”
So it’s easier to start a company but I’m not sure it’s any easier to execute.
Martin Bryant (MB): It’s easier than ever to start, but to get it where you really need to go to grow is perhaps harder than ever — because there are so many startups.
Maybe the infrastructure around growth for companies isn’t as solid as it could be in this country. Partly due to the fact that there aren’t as many big exits as you see elsewhere, so there’s not quite as much of a culture of ‘giving back.’
Shona Ghosh (SG): Because of platforms like AWS it’s easy to build and scale really fast. It’s now really easy to create e.g. a retailer on the internet because the base tech is there -- but nobody would consider that “tech-focused” unless you build some kind of proprietary engine.
I guess what now counts as tech is going to be genuinely innovative stuff around hardware, chip-making, AI. But having said that, you have things like Deliveroo who are counted as tech when they are at best 50% a tech company. Likewise Monzo -- when arguably really they are a bank.
THE MOST CHALLENGING AREAS
Amy Lewin (AL): Hiring is always hard. Restructuring teams when you move from e.g. 20 people to 50, to 100, you have to rethink everything. It’s hard at every stage, and I’m not necessarily sure founders who have built a company before finding it much easier.
You can have the best business strategy, product plans, investors — but if something happens to your Head of Product, like a mental health issue, they have to leave and it becomes your number one priority.
(SO): I think it’s pretty standard stuff — you’ve got to get everyone on board, what the brief is, what the mission is, what problem you are trying to solve. But you have to delegate.
I’ve seen this in all sorts of teams where the CEO tries to micromanage or is indecisive so they flip flop. Creative people need their confidence looked after, they need to be inspired and they need to be given autonomy to get in that zone to do their best work.
The only difference with a tech startup is, if you’re trying to do something new (and better), that’s what makes it more of a startup in a classic sense. So you’re disrupting an existing market, or (worst of all), you are trying to create an entirely new category.
(AL): Company culture is such a buzzword, but it’s a hard thing to drill into what it really means. To find the truth, don’t just speak to the founders. Speak to the people who work there, and if they are passionate they will tell you about the offsites or little perks that make a difference to them.
Oliver Smith (OS): When we went to Monzo’s first office launch, everyone who worked there was incredibly passionate. They were disciples of the brand already. There was a guy working on their financial database, who was so passionate about what they were doing. And that was impressive. There aren’t that many companies where they are so passionate about what they are building.
TIPS AND ADVICE
(Editor’s note: After a couple of years at TechCrunch, Steve O’Hear left to run his own startup, eventually returning to journalism in 2012. We kick off this section with a run of his experience from that time.)
(SO): A big part of being a CEO is communication, in the broadest sense. Being able to distil ideas, technical ideas so anyone can understand them. And the thing people generally misunderstand about communications is you aren’t always talking to an external audience.
So it’s not all about the press, public and customer. You have to communicate lots of stuff internally and to other stakeholders — investors, the board, partners or vendors.
I don’t think you can do it without having a certain amount of emotional intelligence. You have to understand people and like people to get them to talk and open up. I’ve had to develop quite interesting kinds of relationships and situations, and I think as a CEO when things aren’t going well, you’re navigating a lot of scenarios and ambiguities.
I think when you have ideas for a company, one of the factors you have to be really honest about is: “is it a good idea”, and hopefully the answer is yes. But then you have to really be honest and say “am I the best person to build this product or solve that problem”?
It’s not going to be easy — there will be many many challenges and if you don’t believe the above, when the going gets tough, you may find it hard to power through those moments. Because you know ultimately this things NEEDS to be done, and YOU are the person to do it.
VCs are not demigods. You can say what you want and argue why it’s fair. The mistake they made with me was, despite offering an unfavourable term sheet to kick things off, they said they really enjoy negotiating. So that was like an invitation.
I think that was also partly a test. If you negotiate hard and can justify it with good reasons, they will come out respecting you. And I think they look for that in CEOs because you will negotiate for your business in future rounds, and contracts. It’s a highly valued skill and that’s the first test.
For very very early founders, people talk about MVP — but remember there are lots of ways of testing the product without even building anything. A bit of comms and a signup page and you can already validate a lot of ideas. You can test it really cheaply without building it.
(MB): Early on, when trying to convince people about your business, it’s about having a really clear idea about what you do and being able to describe it. All too often, people either describe it too genercally, or take far too long. If you can put it into a couple of really good sentences that sell what’s different and potent, you’re off to a good start.
Don’t think there’s a formula for success. Sometimes the secret of success is inside you, instead of in a book or magazine or article about how you should get up at 3 am every day, or wear turtleneck sweaters. Trust your instincts.
(AL): The amount of founders, COOs, Head of Marketing who are part of a WhatsApp group or supper club is amazing. So often they are the only person doing what they do at their business, so these informal communities spring up and can be really powerful.
Those quite private spaces, where people can problem solve, are so valuable. A lot of co-working spaces claim they have these special communities, but I don’t think they really do.
(MB): Following the right people on Twitter who discuss this stuff all day is a good start. Using a tool like Nuzzel to collect the links they share makes it easy to browse them too. A diverse range of sources is way more important, not just sticking to the same few books and websites everyone mentions.
(SG): Even if they aren’t going to invest in you, VCs are more willing to meet with new founders even if they don’t invest, because they want to know what’s going on and be aware of talent. So just ask to meet them.
IMPRESSIVE SIGNS IN EARLY FOUNDERS
(MB): There’s a certain spark and pluckiness about a good entrepreneur, that you can sense. If you speak to enough of them, you get a good sense of which are are going to be successful but also which ones are a positive force in the world. That means they are going to build a good business, and you can tell they have the tenacity to deliver it.
(OS): I remember when Monzo first came to us and there was something about it that just felt like it was something. We talked to them a year before launch, for the first interview with Tom B, and you just felt like the idea — you could write it down 100 times and it would still make sense. Those are the best.
They also had single-minded founders. So it’s a mix of that and a very focused idea.
The ones that got covered were the ones smart enough to realise comms was a good idea. I think there were many more with great stuff happening that just didn’t get noticed — because journalists are in a filter bubble that is mostly only reached through PR and Comms.
DIVERSITY + INCLUSION
(AL): It’s bad and it’s bad everywhere but there are so many exciting initiatives at the moment. There’s a newsletter call Femstreet, about female investors and female-backed companies. There’s a network started two years ago called YSYS (Your Startup, Your Story.) It’s now working with Capital Enterprise and going to run an accelerator for under-represented founders.
There’s obviously Backstage Capital launching a London Accelerator for under-represented founders.
There’s a brilliant woman called Abadesi Osunsade, who founded Hustle Crew [now rolled into women in tech network Elpha] — she does these brilliant motivational speeches about hustle. She came out of uni, started working for various companies and realised I’m good at what I do, I’m going to get promoted but ultimately it’s not a meritocracy and you have to forge your own path.
(SG): There has been a lot of soul-searching in the last couple of years but I don’t know how helpful I find it when men who have been in this industry for ten years appear to undergo a revelation and say they will do something about it -- but don’t do a radical move like appoint a senior female. Just appointing someone junior is not very radical.
You don’t see enough technical women coming through. It feels like with more women going into computer science, there should be more founders coming out so I don’t know when we are going to see more of those.
Maybe there are some genuine champions who aren’t making a big deal about it so it doesn’t reach my ears. But in many instances when people say they have appointed X Y Z, they haven't really made any sacrifice -- or have they appointed more than one diverse voice? Because one voice on its own is still very homogenous.
(OS): I was speaking with CrowdCube the other day and their female founders are 60% more likely to get funded, whereas in traditional VC they are much less.
(AL): If you think about how many entrepreneurs are working class, that’s a huge missing piece of the puzzle. How do you get those people access to capital — people who are in whatever way one or two removed steps from someone who could write even a £10,000 cheque?
Take developers — we have a massive talent shortage, everyone needs more engineers and coding is something you don’t need to go to university to do. You need internet access, and if you are determined, anyone from any background can learn.
Once you’ve learned, you can earn really good money from day one. We have created this amazing way to jump forward in society but you look at who the majority of coders are it’s white, middle class men. So there’s this amazing opportunity to better your prospects and yet it’s not being seized by those who could make the most of it.
GENERATIONS OF SUCCESS
(SG): Even with a second generation of operators, there aren’t that many compared to the US. And they are all over the place, whereas in Silicon Valley there’s a cabal of founders who just wander around to chat.
There isn’t that same culture here because e.g. Daniel Ek is in Stockholm, they are all scattered across Europe. There aren’t as many people who have the calibre to be good board members here.
In Europe, when I was first covering tech, I think we were still on a first gen of founders. So there was the ARM mafia, the lastminute guys. They hadn’t necessarily moved onto the next thing. But now you have the Cambridge chip alumni going on to do really interesting things like Graphcore, fiveai.
(AL): Another key thing is having big success stories, as they then create a growing pool of talent who understand what it’s like to be Head of Product at a 100/200/300 person company. That’s obviously a big strength in other regions like Silicon Valley.
VC PRESSURE + INVESTMENT
(AL): I think it would be really good if there were more alternatives to the traditional idea of VC. I think there has been more awareness about “patient capital” for a while, especially in deep tech and science. It might take 20 years to reach success, and that’s OK.
There’s this recognition that the typical 5 year VC cycle is just going to break so many companies that wouldn’t naturally try and grow that fast. If you put these companies on steroids, you will create monsters. And it’s not always necessary.
(SO): In a way it’s nothing new, it has just come back in vogue from these companies raising huge amounts, from SoftBank entering the scene, from “unicorns”. A lot of people have entirely misunderstood what VC is there for where one company may have an exit that returns the whole fund.
There are also companies that didn’t take much VC initially, where it’s only once they have grown quite big that they put their foot on the pedal and accelerated. And that’s interesting because they haven’t given away much equity. In other words: it’s never too late to say yes to VC, it can only be too early.
(MB): I think it’s actually refreshing to see more of a conversation around non-venture backed businesses. What was once derided as a ‘lifestyle business’, if you can make a few million profit a year and keep most of the business to yourself, that’s actually a good thing.
In the North of England, where traditional tech investment has been harder to come by until recently, this is less of a surprise than in some parts of the world where it feels like people have recently had a revelation about it.
(SO): There seems to be more angel and seed money around, and there are second and third generation entrepreneurs investing, including what I’d call super angels. That’s proper experienced entrepreneurs doing investments at the angel stage.
We’re also seeing some scaleups doing secondary funding rounds -- where founders may cash in on some of their shares— and even they are angel investing. The VCs are letting them take some money off the table, and that’s turning some of these people into investors before an exit.
ECOSYSTEM/ACCELERATORS
(OS): There have been some fantastic initiatives out there. But my concern is I see flaws or growing problems with a few.
Entrepreneur First is a great example — loads of great companies came through but they appear to be having problems. I’d be so sad if it didn’t work out, but there seem to be procedural flaws in the system somewhere and it’s not churning out great companies in the same way.
Then I look at something like Wayra, and it’s delicate because it’s at the whim of a huge corporate. Corporates have never really known how to deal with the startup community.
(MB): With accelerators, we’re seeing a bit of a lull. There was a time when they were a big thing everywhere, there were loads of corporate accelerators — then the trend died away as they realised you needed to offer more than some office space and a little bit of money to succeed. You actually need to be good at accelerating these companies!
(AL): It’s really hard to assess how good all these resources are — I suspect many aren’t great. But you need to join the right one, at the right time for your business. You need to be clear: what are you getting out of this?
LONDON VS...
(OS): My criticism of London has always been: there’s not much of a central point to come around. TechNation had such potential to be that group we could all rally around, Tech London Advocates does a slightly different job but I don’t think it’s easy to know where to start with the ecosystem.
I think journalists are partly at fault for that. I don’t think we’ve been great at showing who the important players are — I think there are some who get no coverage, and others who get lots.
(AL): Looking at cities as an ecosystem, that does just take time and there are certain elements that have to be in place. That means events and networks, local investors, coworking spaces. The boring stuff about the city and rules on how easy it is to get private offices or Visas.
Lisbon is a really good example where City Hall is like “we are going to make this place attractive” and they have created a great visa policy and coworking spaces to get it going. But even then, it takes a certain number of years to start rolling.
(MB): I think you absolutely don’t need to move to London. In the past couple of years, I’ve spoken to increasing numbers of people in the North who have moved out of London to set something new up instead. The costs are lower, you’ve less competition for talent, and generally the fact everyone is so connected means it doesn’t matter that much where you are.
(AL): I was speaking with an investor in Kiev and by contrast, there’s one startup hub. There are a few meetups. You can get a grip on that and know who you might need to know much more quickly, but the possibilities are more limited.
(OS): London Tech Week is a weakness — if you go to Paris for Vinotech, it’s a tight compact event. Zuckerberg pops in, Macron pops in and it blankets Paris. I’d love to see London Tech Week become more like that.
BEYOND LONDON
(OS): When I started writing in 2012/13, it was all London. Now, I’d say half of them are outside.
(MB): In Manchester, it feels like there are more startups than ever. You’re constantly bumping into new entrepreneurs and people on their second or third venture and it feels very healthy.
There’s more investment around and, importantly, more opportunities for the right kind of investment — less risk averse, slightly more patient capital. Whereas traditionally, in this part of the world, founders were having to rely on investors who wanted more of a quick turnaround sale – who maybe didn’t really understand how to make a tech investment work without killing the business.
In Newcastle, there was evidence the early scene had been stifled by a lack of money available to run accelerators and invest at an early stage, although things seem to be on the up again there now.
(SG): I think Oxford and Cambridge are very good -- particularly because of schemes like the OSI spinout guys. It helps they aren’t very far out of London. The rest of it does depend on VCs who are either London based or spun out across Europe.
(AL): I think there’s a lot more universities could do. It’s not just about having a business school or selling the IP from researchers. Imperial and the RCA’s Dyson School runs a course called Innovation Design Engineering. It brings the artistic design mindset to engineering — and loads of interesting companies come from that.
There’s a lot going on in Bristol — Graphcore is there, the SetSquared network of Bath, Bristol, Exeter, Southampton and Surrey do a lot of innovation, especially around science and engineering. There’s Open Bionics who do a robotic arm.
(OS): Cardiff, Manchester, there are much more companies being founded outside of London — and that’s backed up in the data as well. I think it became more decentralised. Hull is one of the most connected cities in the UK because their infrastructure isn’t part of BT OpenReach — it has its own infrastructure and it’s very good. It’s all super fast fibre.
This is the latest piece from our Forward Partners Monthly newsletter -- subscribe here to get a headliner article, the latest news from our portfolio and what events we'll be attending each month.
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