It’s a very tough time to cultivate a new business idea, and with so many leaks to plug, it can be difficult for new business leaders to find the next step in the right direction and to know how and when to cover new ground.
If this is you, you’re certainly in the right place. Matt Bunn, Partner and Co-Founder of Capita Scaling Partner, has provided The Fintech Times with this guest-authored piece, where Matt discusses how emerging businesses can better find their footing, and the things that need to change within the UK tech scene so that promising new start-ups are better accommodated.
Matt has over 10 years’ experience in investment banking and strategic business development across a variety of sectors such as private equity, banking, telecoms and local government. Before founding Capita Scaling Partner, Matt was a Commercial Director in Capita’s strategic deals team.
It is well known that the UK is a hotbed of innovation, with investment in tech startups reportedly reaching a record $18billion in the first half of 2021.
But the reality is that 20 per cent of startups will fail in their first year – and 60 per cent will fail within their first three. One of the biggest reasons cited for this is simply running out of money. But does that mean that more money is the only answer?
Despite the UK dominating the rest of Europe when it comes to securing funding, many are aware the UK hasn’t quite cracked commercialisation – forming the kind of tech giant that dominates in the US, for instance.
This clearly isn’t down to a lack of cash, but a lack of effective growth strategies that take startups to the next level.
So, what measures should be adopted in the UK tech scene to help foster innovation?
The state of the market
Organic growth would, for obvious reasons, be the most desirable path for any new fintech founder. Few willingly hand over equity in the business. But bootstrapping is hard, particularly for first-time entrepreneurs, meaning it may well be the impossible dream.
Most tech startups, including the many amazing fintechs founded each and every year, will very quickly board the funding treadmill. It’s easy to see why when you consider the amount of cash that is available. However, once you’ve started, it’s hard to stop.
Founders too often find themselves sprinting from one funding round to the next, detracting from what they are best at. Namely, building a fantastic tech business that breaks new ground and serves the needs of their customers. There are few first-time founders, for example, who would say that they perfectly spent their first tranche of funding. There are simply too many variables. Do you build out your sales team, or focus on the product? When does marketing come into the equation – and how will it support growth plans? There is a danger of significant wastage.
Alternatively, there are startup accelerators, which are superb for idea sharing and offering a sense of camaraderie but offer little in the way of tangible output. A pitch day seems scant reward for months of hard work.
These are just three of the options available. All have their benefits but come with significant things to consider. So, what needs to change in the UK tech scene?
The corporate conundrum
Alongside these options are corporate venture schemes, which are well-intentioned partnerships between large companies and a portfolio of innovative startups. In theory, this should be a match made in heaven. Large corporates in the UK have the size, scale and reach that a startup could only dream of accessing, but lack the innovation that a new, dynamic firm brings to the table.
The trouble here is one of integration. Large businesses are known to be slow-moving and unwieldy, while many startups have little experience or know-how in the corporate arena. This doesn’t have to be the case.
In the US, tech giants such as Apple, Google and Facebook regularly invest in tech startups, not just providing money, but insight, expertise and entrepreneurial spirit to help them succeed.
Herein lies the key to creating the next tech giant on UK shores. A partnership that bridges the gap between corporates and startups, fostering innovation and providing a platform for growth.
As Costi Karayannis, Managing Director of Education and Learning at Capita puts it: “Successful, long-term corporate relationships rely on a commitment to continuous innovation.”
When corporates and startups converge, it isn’t about cash, but access and bringing innovative solutions to end customers.
Making the partnership work
It is clear then, that we must bridge the gap between corporates and startups if the two are to integrate successfully to the benefit of both. This is hard work. It isn’t easy to blend the agile thinking of a new company with the systems, processes and rigidity of a large firm. This takes dedicated people who can translate between the two, with the nous to spot opportunities and the experience to turn this into practical outcomes. Be under no illusion – the rewards are there when done successfully.
There are many examples of corporates winning significant public and private/contracts by combining their industry know-how with the dynamic solutions offered by a startup. Where this is done correctly, it really is a match made in heaven with benefits on all sides.
When partnering with a corporate, the startup must have a laser focus on business development and achieving sustainable growth. They must also have the resources in place to maximise every opportunity that comes from access to a supply chain of big businesses, with a deep understanding of how large corporates operate.
And they should make sure that the corporate partners have the same building blocks in place on their side.
Get it right and startup founders can release themselves of the burden of chasing continual funding rounds and land major blue-chip contracts. For corporates, retaining, growing and winning business in competitive, fast-moving industries is a massive prize.
For the UK PLC to thrive, startups cannot be siloed, left on their own to chase funding, spend it and go again. The structures are there to create a meaningful tech scene where the largest support the smallest. This isn’t a pipe dream, but a roadmap for success in the UK tech scene.