The UK start-up scene: A role model for Europe?
Read Video TranscriptThe UK Start Up Scene – A role model for Europe? By LeWeb
BG: Ben Constantini, Conference and Content Manager. Co-Curator, LeWeb.
RW: Robin Wauters, Moderator ans Co Host, Tech@eu
AD : Alex Depledge, CEO and Co founder, Hassle.com
JR: Jan Reichelt, Co Founder & President, Mendeley
EB: Eileen Burbidge , Partner, Passion Capital
TW: Teddi Wardi, Senior Associate, Dawn Capital
BG: The next session is about the UK. Obviously when we talk about the European community we talk about the UK and the aim of the next session is to make sure that you see why the UK should be a role model for European start ups. We have great panellists so please welcome on stage our moderator and my co host for today Robin Wauters from Tech@eu. Please welcome on stage.
RW: So the next panel is about the UK. So obviously we have someone who was born and raised in Finland. We have someone who was born and raised in Germany. We have someone who was born and raised in the US and I am from Belgium. The only actual British National...well, actually, born and raised in the UK is Alex. So I am going to ask each and every one of you to quickly introduce yourselves and your companies so very briefly say who you are and what you do.
AD: Do you want me to start?
RW: Yes.
AD: Hi, I'm Alex Depledge. I am the CEO and Co founder of Hassle.com. Hassle.com is the largest European marketplace for independent domestic cleaners...very sexy! What that basically means that within about 60 seconds you can pop your postcode in to our website and be matched with your perfect cleaner.
RW: Thank you.
JR: My name is Jan and I was born and raised in Germany. I am Co Founder of Mendeley which is one of the largest research collaboration platforms. We have customers such as Stanford, MIT and Harvard who use our platform to support their researchers when they want to work together and we set up Mendeley not in Germany but we moved the whole thing to London in 2008 and that is the background for Mendeley.
RW: And you were acquired by Elsephere. Be proud of your...
JR: I'm proud that we were required by Elsephere 1 year ago.
RW: There we go. Eileen, sorry to interrupt you.
EB: I am also proud of Jan and his Co Founders because my name is Eileen Burbidge and I am one of the Partners at Passion Capital which is a London based early stage venture funds and Mendeley was one of our portfolio companies. I am American born but actually now have dual nationality and have British citizenship too.
RW: Congrats.
TW: Hi, my name is Teddi Wardi. I am originally from Finland and the start up there in Nordic for a long time and recently joined Dawn Capital in London which 02:30 stage fund focusing especially on financial technology and 02:35 service and series A and series B focus.
RW: Hold the mic a little closer to your mouth next time.
TW: Will do.
RW: So the UK was ranked as the most entrepreneurial country in Europe, number 4 in the world which says a lot about the UK in the first place but not necessarily about tech but in terms of technology its also one of the main hubs in Europe for sure, maybe even world wide. Traditionally lots of tech multinationals have their offices there, there is a health VC scene, there's the backing industries traditionally there, media advertising has always been centralised there but lots of things going for London specifically. The UK is not just London obviously but you are all in London so we are going to talk mostly about London. So lots of things going for it but I also wanted to talk about some of the problems that London is facing and one of them that I touched on in my post in preparation for this panel is that because its such a healthy eco system and because we are in an upswing the salaries are going up very quickly, the office spaces are almost impossible to find and the rates are going up tremendously fast so I wonder how does that affect you as a start up, specifically for the entrepreneurs?
AD: I think its quite funny you know...I mentioned this on the panel I was on yesterday around just how quickly Europe is growing up. I think if you look back 3 and a bit years ago when we first started there was no Google campus, we hadn't been christened tech city, there was no Facebook, there was no....all of these companies are very new and when we kind of moved in to Shoreditch it was kind of reasonably priced and it only took about a year and half after that when my Co Founder Jules looked at me and she said 'You know what Alex, I am wearing jeans from Marks and Spencer's. We are not cool enough to be here any more and it is also too bloody expensive' and so we actually moved our entire office out of the cool part of London in to the not so cool part of London which is half the price. Unfortunately now even those spaces are becoming few and far between so I don't think its going to be too long until we start seeing people outside of the M25 and a lot of people did say to me 'you are really going to struggling to hire being in Vauxhall' which is a less salubrious part of London should we say and actually I didn't. So I think actually it doesn't really matter where you are based any more geographically which is one good thing to offset the high rents.
JR: So we experienced and one of the problems right now which is the lack of suitable office space in particular for sizes like 50 – 100, 50 – 200 people, we have been looking since ages for a suitable office space and finally we found something but it is still under development. I think it is relatively easy to find space for 20 or 30 people or below that, shared office space, the service offices but then as soon as you grow...and I know of a couple of other companies through my homework, one of your portfolio companies, they have been looking for office space as well so I would agree with that. The other piece, the salaries, is also true although I would say though its still reasonably priced, probably compared to what you see in Silicone Valley although salaries have come up at the same time however I do also think that VC's realise that and so the funding wells are getting bigger as well, seat rounds are getting bigger. So the good thing about London then is this is something that the funders realise and then they provide more capital to actually make it happen. Office space is a little bit different because their developments for big office spaces takes like 2, 3, 4, 5 years, so it's a bigger problem in my view.
RW: You touched on investors so that brings me neatly to my next question ….Eileen, because Passion Capital is mostly focused on seat, we just heard from Jan and I noticed this too that companies are starting to require more capital, not just in London but throughout Europe, there is a lot of competition in early stage capital because there is an abundance of early stage capital I think in Europe, so does it make your job a little harder every year as prices go up?
EB: I don't think it makes our job any harder. I think it's a good thing, a good sign, as I do think about rents going up too. I think all that is a sign of the eco system maturing. I don't think anyone says that Silicone Valley has cheap office rent and the office rent they do have doesn't prohibit Silicone Valley from continuing to thrive as an eco system so similarly if companies are raising more and more money or its becoming more competitive to fund the best companies, I don't see that as a problem or an issue, I think that's a very good thing. Having said that we are in the very very early stages so we haven't actually increased the amount that we invest in the first stages. Our average investment cheque is still less than £200,000 or still less than 250,000 euro. It might not last 2 years any more, it might not last 18 months but we still think that is enough for someone to validate their initial proposition in order for them to go on and raise further financial funding which, as you say, is becoming more plentiful. I wouldn't call it an abundance though. I don't think we're exactly at an abundance.
RW: So Dawn Capital, this is Teddi, actually you were in Finland, you did the start up, you were 07:52 growth partners for a while and you only moved to the UK about 8 months ago, and the reason you are on this panel, because that gives you an excellent outside perspective. You have been there for 8 months now. What are the differences that you have seen in terms of Finland versus the UK?
TW: So, I think looking at the UK, the biggest problem I agree is the cost of living in London and the office space and the extra talent and all this, its hard and that means if you look at the other start up hubs in Europe, Berlin, an extreme example, companies are much more capital efficient in Berlin because you can get more done with less money and if you start looking at funding in UK, your start up runs have to be bigger but you don't necessarily get more done with the same money and that is definitely something as we compare businesses in the UK against other hubs, it's something that we have to be very mindful about.
EB: Can I just add to that, because I think you are going to have a session later about Berlin and the other eco systems as well, just for what it's worth, we did a survey because within Passion we have invested in 40 companies and 32 are UK based but 4 are in Germany and 4 in Sweden so it's not a survey, we just pay attention to what our companies are spending but we actually looked at salaries. We didn't look at rent but we looked at salaries across the three different cities so Stockholm, Berlin and London. The difference was actually only about 15-20%. It's a difference, its material, you can measure it but its not...I think some people get the impression that London is twice as expensive to run a business and it's not.
JR: From a Founder's perspective, I think you take a bigger risk if you move to a place like London compared to when you stay in Berlin or let's say Barcelona with the sea nearby and the quality of life because you may have 1 shot in London whilst you might have 2 or 3 shots in Berlin simply because you can afford to hold out more time if the first thing doesn't work. So I think that makes Berlin or other cities that are less expensive from the cost of living perspective more attractive. I think there is probably a kind of balance between the different cities.
RW: Right. So Alex you mentioned tech city in the beginning and tech city I think as we all know, internationally they have done a really good job of putting a brand on the stuff that goes on in London, but there is also some criticism about mis-placed government, not always very smart about the investments they make, so I wonder if you are inside the system, how do you perceive tech city, the organisation, tech city?
AD: It's funny because Eileen and I did a panel on this about a year ago and we clashed then! Let's see if we clash now. I think that tech city is a very good PR label and I think that's kind of where you need to draw the line otherwise you can get sucked down the wrong path and there is lots of noise and lots of hype and actually what this is about is just building a business. That is what we are all there to do. So I think London has done a very good job in building up that eco system at the early stages. I think one of the things that London need to start thinking about, or the UK needs to start thinking about now and if I was in Berlin or in Stockholm or any of the other eco systems, what I would be thinking about is great, we have built the seed level start up arena and that is going really well and there is more and more money going into that and more and more people being attracted to it but how do we now build the next generation or the next stage? 11:16 calls this the scale up stage there is a report recently published on scaling up and I was reading through it after the event going 'oh yeah that's us, and that's us and yep we are struggling there as well' and I think that's the next challenge in Europe we face which is great, we know how to start businesses and get them to product market fit and get them to series A but now how do we scale those businesses up to being C level rounds and actually start computing back to the economy, attracting and retaining that talent, developing it and them being able to fund it. So I think it's interesting. If London is in the lead, if I was sitting in any of those other eco systems, I would be thinking about that now before it hits whereas in London that has already hit and we are already struggling with it as tech city if you like.
RW: Eileen, let's see if you clash.
EB: No, you are going to have to remind me what we clashed about. I whole heartedly agree. I think tech city as an amplifier as to what was already happening in London has been fantastic from a PR media point of view and actually then helps the companies and the founders attract investment partnership and recruit talent by the way, so you can hire people from the Banks because maybe now they have heard about what is happening and it validates it as a industry. So I think it's all fantastic.
RW: Do you think other eco systems can learn from it? Can it serve as a blue print for other cities?
EB: I think so. I think they certainly should do and I think the other thing where we clashed, I'm not sure where we clashed, you will have to remind me but in addition to drawing attention to it I think what the government also did very well was listen to what Companies or Founders said that they wanted out of it, not necessarily that they could action 100% of those things but they did introduce tax relief for business angel investments, they did talk about increasing the hurdle, for example from entrepreneurs tax relief. They did a lot actually to listen to the community. They introduced new visas and so I do think absolutely that other Governments should look at and learn and try to practice the same lessons.
TW: If I look at Finland and Sweden for example I think the tech city initiative in the UK compares what it does because in Nordic their initiative is kind of like tax breaks and that kind of stuff and tech city is steering the culture as well as having the dialogue between the start ups, the corporates and the Government, it's quite exceptional. Things happen much faster. In Nordic, the same things are put in place but they take years and years because there is no communication, how to prioritise and how to kind of approach them and then it usually means that at first they are like not very helpful and they reiterate very slowly. So I think tech city is quite exceptional when I look at that, especially in a Nordic frame.
RW: Whenever a start up matures to a point where London now is without question, there is always that...what I perceive as downsides to it is lots of entrepreneurs, lots of investors that shouldn't be investing or not, smart money as they say, lots of events and meet ups that don't really add value, lots of noise, so I am guessing that's a problem, do you see that as a downside or just part of the game if you are a mature 14:16?
EB: Again, I think it's part of the maturation of the eco system so you don't have a shortage of any of those things in Silicone Valley either and I think it's kind of like X Factor, not to make it too tripe but you need to have 1000's of people to apply to be on X Factor for you to get your final whatever it is, 15 people that are going to be going through the programme, otherwise you are not going to find those 15. So from an Investor point of view, even though the noise increases as the volume increases, for us that's better because then the pool of qualified or potentially qualified companies, founders and entrepreneurs is going to be stronger as well. You need a rising tide to get the successes.
RW: I want to get an answer from the other entrepreneurs as well. Do you see a lot of noise in the tech system and how does it affect you?
JR: I think that from a financial perspective you always need to get your thing done, that's for sure. I think in the beginning if I remember, back in 2008/2009 I attended quite a few of these different types of events...drink tanks, meet ups and so on and at some point you just learn that there is limited value to attending another of these events so its an experience for yourself. You still make the experience of meeting other people, sharing your ideas, maybe hiring your first one or two people so it can be beneficial up to a point and then as a Founder you always draw the conclusion for yourself. On the other hand if I look at for example Germany, we didn't have that start up culture maybe even 5 years ago and what happened then, all of you probably know about rocket internet and all these if you like entrepreneurs who rocket internet hired coming from consulting companies right so people who then said 'I don't want to continue my job in a Consulting Company' and a bank guy want to actually start something and join a start up. You might see this from 2000. You might say these are not real entrepreneurs, on the other hand it's quite cool because now in Germany 5 years later you have this big culture of all these people joining start ups, whether it's successful or not is the second question but at least it raises awareness and maybe you could say they have entrepreneurs because actually they started out being Management Consultants but in the end it adds to the eco system and to your point, it helps to mature. Eventually there will be the 15 companies that succeed but for that to be as a result you need to have a huge amount of people joining and contributing.
RW: And to be fair if you look at Europe, I have always looked at lots of the good start ups that are being built by very good technical talent and I think the business and management skills have always been a little bit so far so it might not be a bad thing to have those people come in to scene as well. Let's talk more about capital because you talk about early stage capitals available. It's not really a problem as such but I think what is a problem is, as you mentioned, series V, series C; it's not just a London problem, it's a European problem. Mostly growth capital comes from 4 or 5 firms in Europe but if you want to raise capital that kind of capital, $20 million, $200 million rounds, you have to look outside Europe, US and Asia increasing as well.
TW: My idea of that, there is a lot of talk about this series A crunch, series B crunch. I think Europe has a series C crunch mainly and there is a good healthy mentoring system for funding companies going through that stage but by the series C stage, there are very few. There is only a handful of firms in Europe who really do that and most people rely on that. They have moved to the US at that point and they can attract the US firms to do that but you know that means there is a missed opportunity of building larger businesses that are only based on European demand, European market so it's being missed at the moment.
RW: So the real question is, is it a problem that should be solved?
TW: I think it's a huge problem and I think it should be solved and hopefully the market will solve it and there is a lot of good stuff happening. Some firms have started doing that but there is much more to be done there then any other stage of funding in my view.
RW: Eileen.
EB: I kind of think like any life cycle you cant statically increase every part of the life cycle or value chain at the same time so as you are pointing out, C capital is more plentiful now and what's going to happen is if you have more successes you will get more of the falls but it wouldn't have made sense from a market dynamic point of view to have lots of money available for B, C and D rounds if you didn't have the C rounds right. It's a trend. Having said that the irony of that is some of the funds that you allured to, they are massive funds, they are managing $1/2 billion under management right now and they are looking for the lower risk growth equity type deals. So the money is available and you have things like BlaBla Car which I know has been really prevalent here at the web. They will get the financing, the question is if you can do it at a greater scale so that it stays within Europe if we think that is something that is important or not.
JR: I feel that the other thing that needs to be reinforced more is the opportunities for investors to achieve and get a return via IPO's. Recently we have seen Rocket and Solander again, two big companies, in the UK it is more mature but I think for big money to be attracted to these markets Governments need to think about how do we make these 'cash out' events or 'floating' events more easily achievable so that the big money can get their returns. The other piece to that, it seems to me as if, I think the regulation in the US in particular is relatively let's say easy in terms of what pension funds can invest in and it seems like in Europe there is more restriction on what these huge providers of capital can do and where they put their money in terms of risk awareness. I am not too sure but these two points seem to also be on the high end, something that Government's should probably think about more.
AD: I was just going to say exactly the same thing as an entrepreneur. We raised $6 million in our series A round in March of this year and I am not looking to raise money right now but....
RW: Yeah right. Everyone says that.
AD: I'm not actually Robin. I am busy doing other things but when you start looking at the market and going 'we'll probably look to raise 15 to 20 next year' like who can do those rounds? Like Robin said, there are two or three people and after that there is no one really in the market so above 50 million you find you are in private equity land, you can kind of get that big big growth round, the US will invest etc but post 10 up to 50 you are really going to struggle and I think part of the reason is, the reason the European's are not on the band wagon is because we can't provide the massive exits. They have no guarantee they are going to get a return on their money so it's kind of a chicken and egg scenario. So I think it's going to take a couple of companies I think to break through and I think Criteo did that for France, it looks like BlaBla cars is on it's way. We've had the just IPPO and the king IPO so it is starting to move. Like I say I really believe that Europe is on crack at the minute, it's maturing that quickly. Don't tweet that sorry.
RW: Even if the IPO market, if companies start listening more in Frankfurt and London you still have the problem that there aren't a lot of European companies that are big enough to make killer requisitions. There are only a select few companies that do that and even they aren't very active compared to multi nationals in the US so that's a problem you know it's not easy to solve because you aren't going to change corporations overnight. You might change the regulations of IPO's that make it more attractive for start ups and that has an immediate affect almost. Corporations MNA's is the real issue.
AD: The irony of the situation as well is if you look at it to get the scale of market that you need for that level of IPO, that level of exit, you actually need more money in Europe to make that happen because you have got to go to 8, 9, 10 countries whereas the US is this huge homogeneous land mass with the same kind of regulation, monetary system and language so in a way...I'm not being the victim here now you understand but it is a bit easier in the US and so again there are some quite unique problems I think challenging European start ups and investors.
RW: When I wrote my post in preparation of this panel I also said that the UK provides an excellent bridge to the US. Is that actually the case and why?
EB: I think so. I don;t know if everyone agrees but I certainly think so as an American who came to the UK. Obviously being English language first countries I think makes a big difference. The time difference between London and New York is only 5 hours, the flight time is only about 5 ½ hours so I think it's 100% a great bridge and when US companies expand and think about going to Europe, they basically think about first opening an office in London. So from my point of view, yes 100%.
RW: Actually I don't know this but does Mendeley have an office in the US?
JR: We did for 2 years up to the point of the acquisition and then …
RW: You closed it?
JR: As we have offices in New York already, there is no point for us to maintain a separate office.
RW: Got it. Was the US important to you in terms of market?
JR: Yeah, I think it was important to be in that market. In retrospect I am not sure if it was the best move for Mendeley overall to necessarily open a local office let's say.
EB: But your top 3 University users were all US.
JR: Yes. Actually the funny thing is...one thing I wanted to say earlier, I think the advantage that we might have in Europe is that we approach start ups usually directly with a global view so we know if we do a start up in Germany it's not big enough. That was in our case in the fact that we moved to London because we knew we needed to be global right from the start and in fact we got feedback from the US that people perceive Mendeley to be a US start up. When they then heard it was founded by 3 Germans based out of London, they were quite surprised by that. It was useful to be in the US and then again I am not sure if a local presence that we had with up to 10/15 people was really necessary. We could have probably run on a smaller cost base.
RW: So what about other places in the UK because as was said at the beginning the UK is not just London. So where do you think Cambridge and Manchester come in? You're from the north of England...
AD: I was going to say...you can't tell I'm really Northern me! It was really important for me to branch out into the north of England and that is why we went to Manchester first and actually they have a really thriving tech scene up there and it's really...but they are like 4 years behind London and this is actually what we disagreed with Eileen...the whole debate we had you know was like 'is it Tech UK or Tech City?' meaning London and I would absolutely love to see it be Tech UK. I would love the see the UK at the forefront of the digital economy and I think the Government is definitely, if I compare it to trying to do business in somewhere like France and I realise I am in France so I am not trying to dis on the French but it's much much harder to work with the Government here and be heard than it is actually in the UK. The UK is incredibly....I have just shot myself in the foot haven't I. Sorry guys. Actually the UK constantly asking 'what can we do better, what can we do more of' and I think that is rippling now throughout the rest of the country.
RW: Someone clapped!
AD: Thank you. Is that someone from the UK Government?! Laughter. Sorry.
RW: So Teddi, that's actually a good question for you because you are a relatively young firm. Do you look outside of London when you look for UK opportunities?
TW: Somewhat but to answer the question I think start up hubs are cities not nations, like if you look at it as how things have happened and the reason there is, there are three factors; there is the identity of start ups. Basically Silicone Valley has shown us that identity is super important and basically you can go to anyone on the street and ask who is a good start up lawyer and you kind of need the identity and the culture and the talent pool and that's why the dynamics of this thing how it works. It forms around cities, it doesn't really form around a country. So that is why for me at least when I look at hubs in Europe, I just look at cities and don't really think about the country as having some kind of characteristics.
RW: I could talk about this for hours but unfortunately we are out of time but I would like to thank all of you for participating. It was really good and I hope you enjoyed it. Thank you.
AD: Thanks Robin.
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