London. One of the world’s biggest startup hubs. Homeplace for Shazam, TransferWise, Funding Circle, ASOS and many more. London has become the capital for FinTech companies, and not without reason. But it should be more than that, right?
Recently, I met with my friend Jack Thompson, Investor Relations Manager for one of the largest Angel investor networks in Europe, to discuss the current activities and movements in London’s startup scene.
Has anything changed since the beginning of the year? What impact has Brexit had on the startup scene if any? What trends could we expect to see emerging over the next 6-12 months? In this article, we aim to answer all these questions and more, to give you a better understanding of ‘what’s what’ in London Startups today.
Then and now
Since the beginning of 2017, 2 major things have happened:
- Firstly, the demand for FinTech based business has increased. The emergence of Cryptocurrencies and growing number of young people starting their own businesses drive different ideas to great success.
- Secondly, Facebook’s AI announcement caused a surge in demand for AI-related businesses. Artificial Intelligence is certainly here, and it looks like it’s here to stay for the long-term.
Brexit - fake hype or real fear
Obviously, since the whole Brexit thing happened, there were expectations that it would influence the economy and startups in particular. New businesses have to scale their ideas globally, which was a comparably easy task before. Now, because of the Brexit uncertainty, people are not sure of the future. Investors are also amongst those, who are getting worried. According to Jack, the number of investors who are refusing to invest and waiting for the situation to clarify is substantial. Even short-term investments in real estate property have been hit. So yes, Brexit is definitely still in the air and has a major influence on the London’s startup scene.
Government support for startups
The British government certainly knows that supporting startups is a great deal, especially since many of them have noticeable influence over the country’s GDP.
That’s why they created two programs to attract investors and encourage them to invest in local businesses. SEIS and EIS - Seed Enterprise Investment Scheme and Enterprise Investment Scheme accordingly. The main idea of both floats around tax return policies. For investments up to £100k, the government gives you 50% back as a tax break.
A quick example to illustrate: you’re investing £50k into a new startup. You get a tax break equal to 50% of the investment. So theoretically you spend £25k, but you own the original £50k value in stocks. Quite an intriguing proposal, isn’t it?
Where does the investor interest lie?
To answer the question, it’s very important to identify 3 types of investors:
- The first type of investor is looking for quick profits. They will most likely invest in cryptocurrencies or round A investments to spend as little money as possible and then exit after they get their profits.
- The second type is mostly people over 50 with money, who want to get involved in the projects, support and help younger entrepreneurs who have the balls to experiment and do crazy stuff.
- And last but not least, those who are interested in investing only because of the government's tax break scheme. They look for investment funds to chuck in their money there and let professionals handle the investments.
When it comes to industries, as I mentioned earlier, the most trending fields are FinTech, Blockchain and AI. MedTech is not that far behind as well.
Startups answer to Brexit
Since the beginning of the whole Brexit thing, a lot of startups started to wonder what’s gonna happen when their worst fears come to life and scaling their business throughout Europe will be limited. And they, of course, found quite a solution.
For example, let’s take a startup called ALittleBitBrilliant that makes kids travel cots. Their target market- couples with kids. There were around 800k kids born in the UK in 2016. Whole Europe - around 5 million. China - 18 million. Because of the Brexit uncertainty, they decided it doesn’t make sense for them to try and expand to Europe, instead they skipped Europe and went straight to Asia, China in particular. And many other startups will most likely follow their lead in the nearest future.
London startups to keep an eye on
As I talked to Jack, I asked him to name a few startups he thinks either already blown up or have a potential to become one of the most successful London startups in 2017. Here’s his ranking:
- FatLama - an eBay-like platform, where you can borrow items instead of buying them. If you, for example, decided to buy a drone to satisfy your inner kid, but use it only on weekends, since you work Monday to Friday. Why leave it to get dusty in a garage, if you can borrow it to people, who are in need of a drone to film their new video idea? That’s what FatLama is made for.
- Coconut - designed for freelancers, Coconut is a business bank account that helps you to work out your taxes and tracks expenses.
- NightZookeeper - an online platform for kids that helps them to develop their writing, reading, and creative thinking skills. Amongst their supporters, you can find companies like Skype and Ascension Ventures (more than $800 million in capital under management, approximately $88 billion in combined annual operating revenue).
- BorrowMyDoggy - an app designed for pet owners and those who love pets but can’t have them. BorrowMyDoggy lets people who need their dogs to be taken care of find those who are willing to take their pets for a walk, for example.
Networking while working
Doing business very often relies on networking. When you spend most of your time building your startup, you often have to sacrifice going to every conference and meetup you might find in your area. But if you spend so much time in the office, maybe it makes sense to network with people around you? That’s why London has quite a few trendy co-working areas, where people can make their crazy ideas come true while also meeting others with similar attitudes and creative thinking.
If you’re looking for a great place to have your office, you might want to visit Hackney Downs and check what it has to offer. Jack’s company is based in Work.Life co-working space and if you connect the dots, the people who work there have a chance to talk to investors on a daily basis rather than at some event for startups.
Being an Investor Relations Manager, Jack spends a lot of time talking to various investors and when I asked him about his predictions regarding trending industries for the next 6-12 months, Jack said only 3 words: Cyber Security ...(pause)... Sustainability.
Cyber Security because people are getting more and more concerned about how secure they are in the Era of Internet and rising IoT trend. The latest ransomware like WannaCry is adding fuel to the fire. And if we consider the newest report about WPA2 encryption having a serious weakness, the topic is going to become even hotter in the near future.
Sustainability will become even more popular for several reasons. The whole green movement on the one side and a low cost of operation is something many investors are hyped about on the other. If now we see “good for environment” projects pop out here and there, Jack expects the numbers to grow drastically in the future.
And last but not least, when it comes to Jack’s predictions, he said many investors both in the UK and Europe, patiently wait for how the Brexit situation will play out. Based on that, many decisions will be made in the upcoming months.
To sum everything up, London’s startup scene is definitely flourishing and has a lot of potential. Startups operating in FinTech, AI, MedTech and other industries have every chance to revolutionize the world as we know it. If you have any questions regarding today’s trends or predictions for the nearest future - just drop me a line at email@example.com. I’ll be more than happy to help you out.