Recently, I had the chance to catch with an old friend, Troy Norcross and chat about startups, Brexit and fundraising.
How will Brexit impact the European Startup Scene (since London is such a big startup community)?
Brexit was a pretty big shock to the London startup scene. The initial feeling was that it would impact access to both talent and funding. As we are just now beginning the negotiations, there has not been a noticeable effect.So long as London is a financial center and a center for media, FinTech and AdTech startups will remain because of the access to customers. In my view, the big opportunity is for EU cities like Berlin to capitalize on the shift. Overall, I believe the European Startup Scene will benefit because there will be more capital and resources available to promising EU startups once the UK leaves the EU.
What’s the biggest challenge that European Startup Founders face?
A systemic aversion to risk. Investors don’t like risk. Customers don’t like risk. Potential employees don’t like risk. In order to succeed, startup founders must find the right way to either de-risk their business or to demonstrate their ability to mitigate risk. Investors want to see revenue and traction and a working business model. Customers want to see proven platforms and solutions that others have already proven that they work. Teams want to have confidence that the company won’t just go broke and lay everyone off tomorrow. As a founder, your biggest challenge is the fact that everyone is afraid of risk – and by default – startups are risky.
What’s the role of accelerators and incubators today and going forward?
There are over 300 accelerator and incubator programs in London. And they are dying. There are so many programs that it becomes harder and harder to fill a cohort with quality startups. My feeling is that we will see the accelerator and incubator programs of today fade away. There is another related trend that hints towards the future: Large corporates are shutting down their innovation programs. After 3 years of heavy investment in innovation teams and programs and agencies with little or no returns, big companies are shutting these programs down. The new-new thing is in-house incubators. More and more large corporates are engaging with startups in their sector looking for companies who will ultimately disrupt them. If a large corporate can spot an opportunity early enough they can either buy the startup or they can change their organization to survive the disruption. Also, by putting individual team members of corporates alongside startups there exists an opportunity for cultural change on the company side and invaluable mentoring on the side of the startup. The future of incubators and accelerators is that they become programs within large corporates – and free standing accelerators go away.
What is the best team composition for a startup?
The minimum team for a startup is two co-founders: One commercial and one product/service. In the very early days, it is best to outsource as much of the development and design as you can (beyond what the 2 person team can do themselves). If you hire developers, designers and more too early there will come a time when they have nothing to do. The dev team stops while the marketing team engages and then the marketing team stops while the dev team catches up. It’s only when the product market fit has been validated and the cycle of build-test-learn becomes continuous that you should hire full-time extended teams. One other specific role that should be on your team is a “sector specialist”. If your main USP is the use of big data or AI/ML or genetic manipulation – then you really need to have a dedicated individual on the team to back up your ability to deliver.
What’s the number one problem startups have with their pitch decks?
There are so many problems that I see with pitch decks. The number one problem is that the startup doesn’t use a “Language of value” – Too often they talk about features and user experiences and they fail to successfully communicate the value their business brings to the market and how they extract value from users and customers. BTW – the 2nd biggest problem is that startups try to use the same pitch when speaking to customers and when speaking to investors.
What’s the most exciting startup that you’ve seen recently – and why?
Great question. Sceenic (http://sceenic.co/) is the most exciting startup that I’ve seen lately. The thing that makes me excited is that they are solving a real problem for broadcast television – they are capitalizing on social – they are engaging using video – and they are partnering in a way that gives them access to a large audience. Did I mention they have bootstrapped themselves to get to this point and have a pilot with a major UK broadcaster? The founder is a seasoned startup guy (with one startup under his belt) and knows how to make the company work. He has all the makings for a really good growing business and future exit.
Which market sectors are over-represented by startups?
In the UK it’s all about AdTech and FinTech – But I wouldn’t say that they are over-represented. The sectors that are over-represented are FoodDeliveryTech, EdTech and HR Tech. We just don’t need another food delivery platform. And EdTech and HRTech are interesting markets with real problems – and little or no budget. They are unlikely to be able to build US$100M businesses.
How is fundraising in EU different from raising funds in the US?
There are a couple of key ways: 1) The US investment community is all centrally located. This results in a lot of startups congregating where the money is. And the money then competes for the startups. It’s a vicious cycle that drives up valuations and interest. 2) US Companies are happier to invest in companies who can build an audience and focus on monetization later. EU investors want to see cash flow positive in 18 months and break-even in 36 months. This means that you have to focus on revenue from day 1. 3) In the EU a failed startup in your past is a kiss-of-death. In the US it (can be) a badge of honor. It’s all about a cultural difference between EU and US. The US rewards the one who tries – even if they fail. The EU rewards the few who succeed in spite of everything.
How can corporates best support the European Startup Ecosystem?
Corporates can support the ecosystem through their own accelerator programs (as mentioned above) but they can also do a lot to support European Startups by providing open access to the company and to the teams within the company. Corporates who have quarterly events where any startup can come along and pitch to the various departments and get access to decision makers not to sell – but to get real feedback from decision makers – is hugely valuable. The corporate benefits in that they get a far better understanding of what’s going on in the market at the startup level. And startups get first-hand feedback in a non-selling environment. It’s a few hours every quarter and a small lobby full of 10-20 startups. Huge value.
What is a Startup Business Review?
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