Bailing out UK Tech startups

Article in the FT today about the UK startup industry asking the government to provide more support to help young companies survive the recession:

Among the suggestions to aid start-ups are: a one-off financial stimulus package; a reduction in red tape; improvements in employment law; easier access to government loans; and the fostering of a more entrepreneurial culture.

Recently NESTA (National Endowment for Science, Technology and the Arts) called for the government to create a £1bn fund for “innovative technology ventures”.

But if I am honest, I think the word "innovative" is key. There has been (in the past anyway) a tendency for UK pork to often go to the well connected rather than the deserving. Any "bailout" money should not - in my view anyway - be used for companies that are doing me-too stuff, or are merely e-retailers, online consumer media plays etc.

What the government can do for all small companies is to reduce the friction in:

- Overall red tape - I still, after 4 years of running a small tech company, cannot believe all the arcane, irrelevant regulatory crap that one has to take on board as a director of a small company.

- Employment law - you could almost believe that UK employment law is designed to halt small companies forming. By the time every Health & Safety, Equal Opportunity, Protection of Workers etc special interest groups has had its say you wind up in a situation where the hassle of employing.
people is extremely high for small companies, and you need to take (expensive) HR people on board early to de-risk

- Getting Angel/Early Stage funding - as NESTA notes, withdrawal of venture capitalists from early-stage invest­ment has put pressure on business angel investors, making it “critical” government funding helps fill the gap. There are already 50:50 loans available, but many UK startups' experience of UK Angels is enough to make them want to get on a plane to San Francisco (and many do out of sheer exasperation)

- Equality of access to large corporate (and government) budgets - we went through a bidding process to supply to a large UK company last year, the time it took was the equivalent to a moderate project - in the £10-20k region - that sort of resource outlay hurts a small company much more than a large on (and yes, we got it thank you )

- More flexibility - last year we were selected as one of the promising startups for the CBA program, but in speaking to investors they hated the fact that we built innovative technology but also funded ourselves via consulting - they only wanted to fund us if we stopped consulting, which we are not prepared to do. In which sort of world is building a sustainable company model seen as a Bad Thing by investors?

- Make the grants system more realistic for Tech startups' needs - for example, there are lots of grants that are there to increase prospects for depressed areas, but the covenants are often too restrictive for Tech companies that need access to skilled people, high levels of connectivity etc etc

- Very simple and cheap ability to make companies pay on time - late (and increasingly non payment) is rife in the UK and still too hard to enforce for a small company

The trick in my view is to differentiate between the requirements of very small companies (less than 5 employees, c 80% of all UK companies), small companies (less than say 20 employees) and larger ones - currently far too much UK company/employment/regulatory policy is drafted with the assumption that all companies are at least medium sized.

I thought these two passages from the article articulated the key issue however, in that both are right:

Reshma Sohoni, chief executive of Seedcamp, an event held in London and across Europe for young tech entrepreneurs, said backers of start-ups that would in recent years have been allowed 18 months to start generating revenues are now being pushed to do so in two or three months.

Saul Klein, a partner at Index Ventures, said recently: “The best place to get money is from customers, that is the bottom line.”

Getting the balance between having a sufficient runway to actually build a business, but ensuring that the companies are actually viable (and what better way than real customers) is key.