Following one of the biggest economic upheavals in living memory, London is now resetting itself. But our capital’s startups have taken a bruising in the last few months and their recovery requires urgent action.
The impact has not been uniform, as some investment is still flowing. But investors have been backing portfolio companies, or in some cases later-stage companies that have already proven they have market traction. This trend is evidenced by research Plexal conducted with Beauhurst of nearly 30,000 businesses. We found that only 10 per cent of the £3.5bn invested since lockdown began has gone to those seeking funding for the first time – a 59 per cent drop from the same period last year.
This is partly down to the trust factor. Investors are not used to backing a new company without meeting the leadership team face to face. Remote working is good for many things, but building relationships and establishing trust is not one of them.
At the same time, investors have become even more cautious than before, as now is not the time to take big risks on an unestablished startup.
Startups themselves are also in survival mode. The pandemic was a shock and it has made them pause to work out how their market has fundamentally changed, and what that means for their business model. Many are not pitching for investment, and are simply trying to build enough runway to survive the peak of the crisis, largely by taking advantage of government schemes or continuing to trade.
This status quo is concerning. London is the tech startup capital of Europe, but we can’t afford to be complacent. I hear it first-hand from our members at Plexal: our startups are under pressure and if we don’t act now, we’ll see the impact on job creation and innovation years down the line. For startups operating in sectors like cybersecurity or health, their very existence is needed to secure our economy and critical national infrastructure.
So what is to be done? The government has taken bold action to see startups through the worst, but industry has a role to play too. Startups need contracts, we need to see industry partnering with innovators to run pilots, create proof of concepts and award contracts to small businesses that can solve specific challenges they’re facing.
A perfect example is the government aiming to direct £1 of every £3 it spends to an SME. This creates a golden opportunity for enterprises and SMEs to work with each other to win these consortium-based contracts together.
And in London, the changing map of our capital could make this joined-up approach easier.
As large companies rethink the value of a city office, they are considering what the future of work looks like for them. If they choose to instead join startups in shared workspaces dotted around the city, this could enable a new era of work that’s reflective of the blurring of sectoral boundaries already taking place, and the need for collaboration that our economic recovery story will require.
Andrew Roughan is the Managing Director of Plexal