It’s a fact… not enough businesses are making it in the startup world. There are plenty starting in all sectors with great ideas. There are a shed load of incubators and accelerators, support vehicles and consultants, but still only 33% of startups who get initial seed funding are making it to Series A rounds. It should be much higher – right?
So, what is the problem? Why are UK startups not cutting the mustard? Why are we not creating more Moonshoters? It’s staring us right in face.
It’s called Short-Termism.
Only 1 in 10 startups that obtain seed funding go on to secure later stage investment
Having worked with thousands of startup founders who work hard to secure that golden egg of £150,000 in a first round of funding, I am amazed at the small, in fact tiny proportion, who then go on to raise the next round and grow. I can honestly count on my two hands those who have nailed next stage finance. It gets worse… This is backed up by recent research that shows that 1 in 10 firms that obtain seed funding in the UK go on to receive later stage fourth round investment, compared with nearly a quarter in the USA.
startups were formed at a record pace of 80 an hour last year
Entrepreneurship has become quite trendy. Having co-founded Entrepreneurial Spark in the UK, five years ago [I have now moved on from this], I see there is a huge appetite for people starting businesses. So much so that NatWest has powered Entrepreneurial Spark to 13 hubs in the UK, each of them rammed with hopeful founders. This, like many programmes out there is to be applauded, especially NatWest, who are putting their money where their mouth is. Giving new start founders the opportunity to just crack on is a good thing. Techstars, The Bakery and so many other startup outfits all create a healthy ecosystem. StartUpBritain has completed research that shows startups were formed at a record pace of 80 an hour last year. Wow! So, how is short-termism killing off so many of them?
The startup surge has created a race to the bottom
Imagine if you will, an architect designing a house. She will ensure the foundations are solid and all the load bearing beams are built to cope, while plugging in all the services that the house needs to become a home (eg electricity and sewerage). The structure will be built to a specification that is built to last. It is built not for fun or to be sold, but to last. In short, the architect is building for the long term with all that entails: multiple owners, weathering and wear and tear. Unfortunately, our startup founders in the UK are not thinking like the architect. We have too many building their ventures as quickly as they can – to sell. This is key in determining why so many are failing to make it to round two and three of investment. Along with the surge in startup activity, there has been a race to the bottom in making investment the Holy Grail.
create more business builders than startups
It’s time to re-think and re-imagine how we build new start ventures and founders who can think more long term. It’s time to create more business builders than startups that are not built for short term investment. “Business Building” may sound a bit old hat and not so sexy. But alas, it is what it is and while startup is a genre or movement, Business Building is the new black! It’s time to focus on post investment execution, albeit the pre-investment validation was sound.
Once the funding is in, the real work begins
Execution is where the battle is won or lost. Once the funding is in, the real work begins and you have to make it work. The problem is we are not teaching our startup founders how to run a business, how to execute. A startup is basically a bunch of capabilities and an idea all crashed together like mashed avocado. But founders needs to flip out of fund raising mode and put on their big boy pants and run an operation to a point where it has some operating rhythm. But, we have a generation of founders who cannot get to grips with this, not grasp how significant this is to them living or dying. It’s a failure that can be avoided with some real thought and action.
Investors are also looking for more rounded founders
Short-termism is a mindset that we all need to bring to life for new founders who are in “build my startup to get investment” mode. Investors are also looking for more rounded founders who they believe will make it, at least to the next round. They of all people want to see their investments succeed. So, whether you are starting, have started or are working with a startup, think about the founder and her potential to skill up to run a business and not simply get a badge for bringing in seed investment at the SEIS cap.
It’s time for our startups to grow up.