Top tips for tomorrow's digital innovators

Ali Ramadan and Barry Jennings
It is important to have a strategy to protect an idea. (Source: Getty)

PwC and TheCityUK recently announced that Britain will add £43bn to its economy before 2025 by focusing on new technology, making way for start-ups to thrive and boosting prospects for innovation.

It's certainly an exciting time for young digital businesses but a host of business challenges threaten many of their success stories, and can stop a promising innovator with the next big idea dead in their tracks.

Here are some top tips that young companies need to act on to take their business to the next level:

Take a risk-aware approach to legal pitfalls

Promising start-ups can fail, or have to significantly re-work their product or service, if they have not properly considered the legal implications of their business. Conversely, start-ups do not have the budgets to pay for significant pieces of regulatory advice and address every legal question from day one. So start-ups need to find a way to strike the right balance between immediately addressing the main legal risks that affect their business and devising forward-looking action and mitigation strategies that set timescales and budgets for necessary legal work.

One key area for any digital start-up will be intellectual property. Is the proposed product subject to any existing patents? Does the proposed brand clash with any registered trade marks? Is the proposed product or service likely to be capable of registered protection (such as patents or design rights) or will the start-up rely on copyright, confidentiality, brand and network effects to protect its core idea from competitors? It is important to think about what information you are going to disclose and to whom. In an early stage business (particularly those that are pre-revenue), the idea is a large part of the business' value so it is important to have a strategy to protect it and stay ahead of your competition.

The nature of regulation applicable to any start-up will vary depending on the sector in which they operate (e.g. financial services, healthcare) and the nature of the product or service (e.g. B2B or B2C, software, hardware or services). Make sure you understand how you are regulated and start by reading the public websites of the relevant regulators, which contain lots of helpful information. Most digital businesses will need to have a clear grasp of how they handle privacy and personal data of their users. Data protection legislation is evolving and becoming increasingly prescriptive, with greater consequences for non-compliance. Addressing this correctly will require a start-up to co-ordinate input from product designers, security experts and lawyers from an early stage – particularly if gathered data is intended to be exploited as an asset of the business.

Consider all funding options

The funding landscape has changed over the last few years so it's crucial to be aware of all the options available to you and choose the one that matches your business needs. Traditional institutional venture capital (VC) funding is no longer the only option as we are starting to see other forms of funding starting to gain traction. Corporate venture capital (CVC), a corporate fund which invests in start-ups to achieve a competitive advantage or financial return, has gained particular traction in certain sectors with investment activity levels increasing.

Start-ups now have access to a number of Accelerators and Incubators, in the UK and Europe, like Level39 which help take carefully selected start-ups to a new level by offering physical office space to grow, expert mentors and plenty of networking events, as well as facilitating access to their corporate partners and investors.

However, in today's funding environment, VC and CVC firms aren't the only options out there for young companies. There are a number of angel investors and micro funds seeking to take advantage of tax benefits like SEIS (Seed Enterprise Investment Scheme) and EIS (Enterprise Investment Scheme) in the UK for example. There are also crowdfunding platforms such as Crowdcube which offer young businesses the opportunity to not only raise funds but also test the concepts of their new idea directly with interested consumers, helping them to develop their products and grow their business simultaneously.

Consider partnering with an established business in your field

Bigger businesses are no stranger to the need to innovate to stay competitive – especially when their industries are being disrupted by young digital businesses (just look at how the High Street banks are responding to the new fintech providers). A partnership – whether formal or informal – can help young businesses gain invaluable exposure and industry contacts while providing a shot in the arm for established businesses that can benefit from a dose of fresh thinking. Start-ups should ensure that they consider the structure of any alliance, and outline from the beginning the terms of any exit agreement to ensure a smooth and fruitful relationship for both sides.

As we've seen from this year's Digital Innovators Power List there are plenty of exciting young digital businesses in London and the surrounding areas shaking up their industries and providing exciting new products.

If you're a start-up looking to be part of Britain's innovation story in the coming years, ensure you've covered off the points outlined above and email us at digital.innovators@twobirds.com to find out how you could be involved in the next Digital Innovators Power List launching in the autumn.

Ali Ramadan is a partner specialising in venture capital at international law firm Bird & Bird.

Barry Jennings is a legal director specialising in Computer and IT law at international law firm Bird & Bird.

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