The Impact of Regulation on the European Tech Sector – Report by Allied For Startups

Policy and regulation have a huge impact on the tech sector. A recent report by Allied For Startups takes a deep dive into how current regulatory systems are affecting the landscape for European startups…

We are in a period of unprecedented innovation and development across a wide range of sectors. Many of the new and impending technologies are so novel that it is unclear how existing regulation systems will manage them.

AI, drones and autonomous vehicles are just some examples of technologies giving regulators pause for thought. All three examples raise difficult moral as well as practical questions; and given the rate of innovation, it now seems like too many questions are coming at once.

The role of regulators is to ensure new technologies can be deployed in safe and meaningful ways. But this often slows the speed with which a new technology can come to market.

Regulators have to balance safe deployment with not hindering the release of exciting new tech. A difficult task – and one about which the investors interviewed in the report are concerned.

Who are Allied For Startups?

Allied For Startups is a worldwide network of startup associations and advocacy organizations focused on improving the policy environment for startups. Their report on ‘The Impact of Regulation in the Tech Sector’ provides insight into the views of technology investors (among others) on reactive regulation and policy decisions that impact the development of the sector.
regulation allied for startups

What’s in the Report?

Tech ecosystems take time to develop, but the benefits to the economy are substantial as new companies are spun out of existing ones, and the sector as a whole creates jobs and wealth. Based on 185 interviews, this report flags areas of opportunity and risk for the European tech ecosystem in the coming years.

The report also highlights that tech investors are highly conscious and aware of the regulatory environment and that this can have a huge impact on their decision to invest or not. Furthermore, there are particular concerns among investors that regulation and taxes are designed to target larger companies but can have unintended consequences for startups, and that regulation is often reactive as opposed to strategic.

Allied For Startups conclude their report by stating that a fairer and more stable regulatory environment is needed to ensure the tech sector continues to flourish.

Read the Report here

For more information on Allied for Startups please see here.

Top 5 Startup Podcasts for Entrepreneurs & Angel Investors

The term ‘podcast’ was coined to describe audio content (other than music) that you could download to your iPod – you know, that Apple product long since ingested by the iPhone. But the term lives on and its popularity is on the rise.

According to Edison Research, 64 per cent of Americans are now familiar with the term “podcast” and over 4 in 10 have listened to at least one podcast. 73 million Americans listen to podcasts every week; their average weekly listening time is an astonishing 6 hours 37 minutes.

There is a number of reasons for this including:

  • A shift in audience entertainment expectations towards on-demand content
  • A desire for long-form content where listeners can, by degrees, come to understand fully the topic under discussion
  • A recent UCL study even showed that emotional responses are stronger from auditory content than visual

But the medium itself shouldn’t take all the credit for the popularity of podcasts. Podcast creators have contributed their time, creativity and expertise to produce compelling and informative audio experiences.

Today, the selection of top-quality podcasts is almost limitless. And that is true of any industry from gaming to politics; from children’s books to investigative journalism.

The startup and business space is no different. There is so much choice – it can be a little bewildering. Especially given that you are probably pressed for time and want to start by listening to the best podcast that is most relevant to you!

We love podcasts. We listen to many of them. And we even host our own podcast (see below).

To help you get started on your journey of discovery, we have compiled our list of the Top 5 Startup and Business Podcasts.

1. This Week in Startups

twist podcast

Tech entrepreneur Jason Calacanis interviews successful entrepreneurs to share their experiences and offer advice to people thinking of starting their own businesses.

2. The Pitch

Josh Muccio presents real entrepreneurs pitching in the hope of securing venture funding from investors. Entertaining and informative!

3. Masters of Scale

Linkedin podcast

LinkedIn founder, Reid Hoffman hosts guests with expertise and insights into scaling a startup. The focus is on growth rather than starting out…

4. How I Built This

Guy Raz presents the journies of some of the most famous companies as told by the entrepreneurs who drove them.

5. The Startup Microdose Podcast

The only UK-based podcast to make our list is our own (hosted by yours truly and my colleague, Ed Stephens!).
startup microdose podcast
Recently tracking at the number 1 in the Apple Business podcasts list, the Startup Microdose has exceeded all our expectations in its first year.

With guests including the founders of Huel, What3Words, Depop and Sweatcoin, we unpack the stories and secrets of companies right in the moment of their success.

Check it out on iTunes, Spotify or new podcasting platform, Entale.

Let me know your favourite (even if it’s not mine)!

Since we published this post, FeedSpot released their list of the ‘Top 30 Startup Podcasts on the Planet’

We are delighted that four of our list (Startup Microdose, Masters of Scale, TWiST and How I Built This) all made the cut.

Check out the full list here

What the UK Chancellor’s Budget 2018 means for Entrepreneurs and SMEs

At a glance, the Autumn Budget 2018 is a win for entrepreneurs and SME’s. If your personal income is less than £100,000 and you’re a ‘genuine’ entrepreneur, taxation rules and entrepreneurs’ relief remain favourable. The more indirect budget effects could also be highly beneficial.

Established entrepreneur and founder and MD of globally-recognised, Absolute Translations, Sergio Afonso summaries the 2018 Budget’s impact on UK entrepreneurs and SMEs.

1. Entrepreneur Relief Timeline Extended

Phillip Hammond decided to meet halfway regarding the contested £10m entrepreneurs’ relief allowance, choosing to revise rather than abolish. The change is an increased minimum holding period from one year to two prior to selling a business.

This is meant to reward ‘genuine’ entrepreneurs who recognise that establishing a successful business ready to sell takes time.

Those who build and sell a business within 24 months will no longer qualify for the tax allowance.

2. Rates slashed for independent businesses

Businesses of all sizes have generally gained.

High-street based small businesses are the biggest winners. Up to £8000 in tax savings are now available for small businesses who have a rateable value under £51,000 for the next 2 years.

The fight to protect independents from corporations like Amazon from running local enterprise out of business is additionally supported through co-funding to local councils, with Hammond committing of £675m to the transformation of streetscapes, infrastructure and transport access.

3. VAT Raid scrapped & allowances raised

Despite reports of a VAT raid on small business lowering the minimum required turnover amount required to pay VAT from £85,000 to £43,000, no such decision was officially made.

In fact, the chancellor raised the personal tax allowance from £12,500 for basic rate taxpayers and £50,000 for higher rate taxpayers in 2019.

Businesses seeking capital expenditure will also be pleased with the “Annual Investment Allowance” being substantially increased from £200,000 to £1m.

4. Digital Services Tax a win for Start-ups

Tech-based startups are likely to benefit indirectly from the digital services tax that will be placed on “established technology giants”.

Public calls for companies such as Facebook and Google to contribute to local tax and “pay their fair share towards support of public services” has encouraged Hammond to show the way to the international community.

The “UK digital services tax” introduces a 2% tax for tech companies with sales over £500m. This strategically avoids the UK startup and SME market and potentially creates an opportunity for them to gain market share.

Critics hope it has been designed in a way that doesn’t prevent home-grown tech innovation or international business investment in the UK.

5. Brexit’s Impact

budget brexit
The Budget 2018 cannot be evaluated without taking into consideration the broader implications of Brexit.

Hammond’s Budget aims to reduce austerity but, in the event of a no-deal Brexit, he concedes that the economic situation will continue for another 5 years.

This is a potential worry for UK-only entrepreneurs and businesses. Opportunities to take a global view is an option for relevant business owners to avoid the expected financial fallout. Others must hope that the unconfirmed but rumoured spending increase of 1.9% will come into fruition.

You can read more detailed takeaways from the Budget 2018 here

Why Female Founders find it harder to get Investors

The gender pay gap has come under intense scrutiny in recent years. Movements like #MeToo and #TimesUp have brought sexism issues to mainstream attention. This is true across a spectrum of industries. But there is a nuance when it comes to the startup investment space. Female founders are still underfunded compared to their male counterparts.

As an industry, it’s time to close this gap. To do so, will require a concerted effort from all parties – founders, funds, networks and investors – to overcome biases and to support merit wherever it is found.

Elite Business Magazine recently did a feature on this to discuss why female founders find it harder to raise funding than males.

The feature includes an interview with our very own, Olivia Sibony. Olivia recently sold her startup to EatWith before joining our team. In the interview, she describes the difficulties she faced when fundraising including discrimination because she was “…of childbearing age”.

She now runs our impact crowdfunding arm, SeedTribe. Her mission encapsulates two main aims. She wants to help anyone fundraise evaluated purely on merit. And she wants to encourage more people to invest. She is confident that SeedTribe will be a great platform to achieve this. (A fact she discussed in an earlier interview for The Guardian).

You can read the full feature and Olivia’s thoughts on the Elite Business Magazine website.

SeedTribe & Angel Investment Network make waves in the Press

The team at Angel Investment Network and SeedTribe have received a lot of positive press coverage recently including the Financial Times, the Guardian and BBC Radio 4.

It’s always rewarding to get public attention for your hard work. But more importantly, it’s great that our message is reaching a wider audience. Especially those people we can potentially help to find funding or great investment opportunities!

The most recent publications build a nice picture of what we are trying to accomplish over the coming months.

The focus falls, in particular, on our mission to drive positive change in the world. We are trying to increase the accessibility of the early-stage investment space, opening it up to a more diverse spectrum of investors (women and younger investors in particular). And we are helping ‘impact’ entrepreneurs get the right sort of investment for their projects.

Raconteur: Angel Investment Network & SeedTribe advocate a change in attitude towards Plastic Use

oliver jones olivia sibony plastic raconteur press
David Attenborough’s Blue Planet and the more recent BBC film “Drowning in Plastic” have brought the plastic epidemic to a global audience.

Universal horror has propelled action and a number of entrepreneurs have come forward with innovative solutions to the problem. One of these, Ahmed Detta, is currently fundraising for his recycling solution on SeedTribe.

In the midst of this backlash against plastic, we felt it important to make the point that plastic is an awesome resource with so many applications –

the real problem is not plastic, but our attitude towards it.

Raconteur picked up and published our argument – you can read it in full here

Financial Times: Angel Investment Network & SeedTribe support Impact Ventures

This September, the FT produced a special report on the ‘Impact Investing’ movement.

Regarding SeedTribe as one of the companies at the forefront of enabling the growth of this promising space, they included an interview with SeedTribe’s Head of Crowdfunding, Olivia Sibony.

olivia sibony seedtribe financial times press
Liv gives her thoughts on the important role companies like SeedTribe have to play in empowering impact entrepreneurs to enact positive and sustainable change in the world.

Read Liv’s interview in the special report here

The Guardian: Angel Investment Network & SeedTribe support Women Investors

Liv gave another interview with the Guardian, this one focused on the importance of encouraging more women investors and how the rise of the impact space could play a key part in bringing about this change.

olivia sibony seedtribe guardian press
Read ‘The Rise of the Female Investor’ interview here

Angel News: Angel Investment Network & SeedTribe support Millennial Investors

I wrote a comment piece for Angel News which ties in with Liv’s argument for women investors and the impact sector.

My thoughts centred on how younger generations of investors are motivated by conscience as well as the desire for wealth generation. I argue that companies like SeedTribe should do everything we can to harness this for the good of impact projects and the future of the planet.

Check out my two cents here

(Or if you don’t want to register on Angel News, I posted the article in a previous blog post.)

The Value of Press Coverage

This press coverage is all very flattering. But what has been most encouraging is its reception throughout the entrepreneurial and investment communities. Inbound LinkedIn requests are resulting in a number of exciting partnerships as people buy into what we are trying to do.

If you’re interested in this space as a potential partner, entrepreneur or investor, please do get in touch:

liv@seedtribe.com or oliver@angelinvestmentnetwork.co.uk

British Business Investments launches new £100m programme to support regional angel investment

This time last year I wrote a piece called 7 Positives for the UK Startup Scene from the Autumn Budget. One of those positives was the promise of support for regional investment programmes. The British Business Bank would establish ‘new investment programmes to support business angel groups outside of London’.

Well, a year on and they’ve come good on this promise. Here’s an extract from their Press Release from earlier today:

British Business Investments, a commercial subsidiary of the British Business Bank, today launches a new £100m Regional Angels Programme designed to help reduce regional imbalances in access to early-stage equity finance for smaller businesses across the UK. Such finance can play an important role in funding businesses with growth ambitions.

You can read the full Press Release here

The programme’s website along with a request for proposals can be found here

Incentivising Millennial Investors is Key for Impact Investment

Impact investing is a hot topic at the moment. And rightly so! We find this so encouraging because it is timely validation for the work we’ve been doing at our impact crowdfunding platform, SeedTribe. But there is more work to do before this industry can deliver the positive outcomes it promises. Part of this work involves incentivising the millennial generation of investors by giving them access to the best impact investments. Last month I wrote a piece on this ‘democratisation’ of impact investments for Angel News.

I wanted to share the message on here too:

Why Millennial Investors are Key for the Impact Space

“If you think you are too small to make a difference, try sleeping with a mosquito.”

This oft-quoted and amusing aphorism attributed to the Dalai Lama captures the spirit of bloody-mindedness (literally) that can drive anyone, irrespective of category, to their desired destination.

But in some industries, one can’t help but feel that size really does matter.

Early-stage investments are top of the list. For a long time, this space was a stomping ground for suits and wallets; a predominantly male sphere where prestige was gained by backing risky and exciting ventures.
investor stereotype millennial
This (slightly) unjustified stereotyping is not to undermine the important role those traditional types of investor have played in driving innovation.

But it’s important that this model evolve to become more inclusive and conscience-driven.

The advent of crowdfunding kicked off this shift: now individuals could invest in projects based on what they could afford and how much they valued the enterprise. Equity crowdfunding then allowed people to get a stake, as if they were a professional investor, in their chosen companies.

This democratisation helped spur an interest in innovation and startups among those previously unable to contribute. Now anyone could make a difference no matter how small.

However, it has become increasingly apparent that the quality of investments available on mainstream crowdfunding is still far below the level of deal flow available to professional investors.

You are never going to find the next AirBnB on a crowdfunding site. The traditional investors still hold a monopoly at the forefront of innovation.

So what? They will keep investing and funding visionary businesses and the merry parade will go on. We all benefit, right?

But the future they are creating is not one they will have to live with, at least not for very long. And that alters the motivation framework for them.

I’m not trying to denounce these investors or ascribe to them intentions which may or may not be there. But the truth is, the motivations for investing in a company inevitably differ between a 25-year old millennial and a 60-year old.

It’s not unreasonable to assume that, in most cases, the 60-year old will be more interested in wealth creation for themselves and their immediate family, while the younger person will have more concern for the future of the world they hope to inhabit for another 60 years or so.

The Rise of Capital with Conscience

The dramatic uplift in public concern over issues surrounding sustainability and the environment supports this. And it is the millennial generation who are driving this. They have come to realise that the effects of inaction will have irreparable consequences for their futures.
millennial impact investors
Sharing articles, protesting and walking to work are some ways individuals are trying to make a difference. We do these things but still feel too small to make a real difference.

Investing in impact businesses is a potential avenue for a new breed of investors to make a quantifiable difference. Impact or ‘profit-with-purpose’ businesses aim to change the world for the better while turning a profit and generating returns for investors. Included in this open attitude to positive change is a willingness to explore more inclusive methods of raising investment.

Young people, who are more environmentally engaged than ever before and willing to invest in ‘good’, neither have the resources nor the network to invest using traditional methods in the companies their conscience demands of them for a better future.

Luke Gavin, a 26-year old Greentech consultant, knows this difficulty: “One of the frustrating things about the low carbon energy sector is its inaccessibility to the average person – so much of the money comes from large institutional investors.”

A report by Barclays also shows the high appetite among younger generations with millennials four times more likely than older generations to put their money in impact funds.

How are we helping millennial investors?

At SeedTribe, we want to encourage this new generation of conscientious investors. We evaluate and vet the most exciting impact investment opportunities using the UN’s Sustainable Development Goals (SDGs) alongside commercial frameworks and allow people to invest online from £100 in exchange for equity.
UN sustainable development goals millennial
Young people want to invest in the most promising impact businesses. It is a concern for the future motivated not simply by financial reward, but more importantly by the hope of a better world for themselves and future generations. We need to do everything we can to support this.

You can read the original article on Angel News here

Should you Invest in ICOs?

The cryptocurrency market has caught the attention of many people in recent years – from traders who want to make a quick profit to angel investors concerned about the authenticity and transparency of the system. Within the startup community, ICOs (Initial Coin Offerings) have come into prominence.

So far, ICOs have helped many entrepreneurs raise funding far more rapidly than traditional avenues. Many investors too have reaped the rewards of being able to exchange an asset that would normally only realise its value when and if the business exited via trade sale or IPO.

How does an ICO work?

Before a currency is put on the market, ICOs are made available for sale as tokens, which can be converted into currency or resold as tokens once the company becomes successful. When an ICO is started, the tokens are usually sold at a very low price making it easy for investors to buy lots of them.

Once the ICO hits the exchange platforms, there are very high chances that their value will increase. Investors who bought the tokens can sell them at higher prices if there is demand.

There have been lots of success stories on ICO funding, and people are already anticipating that there will be an increase in the number of ICO fundings within the next five years. We have certainly seen a rise in the number of companies offering ICOs on Angel Investment Network in the last year or so.

Btxchange.io mentions the example of SpectreCoin in their infographic, as one of the most successful ICOs of all time with a whopping 37,175% increase in their crypto coin value.

Are ICOs all good news?

While ICOs can have advantages compared to conventional funding methods, there are some downsides that investors should be aware of.

ICOs are poorly regulated by nature, and there have been incidents of fake fundings like the Benebit case in 2017. The initiators of the coin offering scammed people into investing large sums of money, and then just disappeared with the funds, without a trace.

Also, even if the ICO is legitimate, there is no guarantee that the new coin will gain enough value for you to make a profit. It’s a gamble like any other investment!

The bottom line is that, if you are interested in ICOs, and you don’t mind taking the necessary risks, then there is an excellent opportunity to generate quick returns from startup investments. Initial coin offerings have fast returns which could double or triple your capital in just a few months.

If you are either a complementary investor or an angel investor, it’s a good time to get involved with ICOs.

Btxchange.io have produced a helpful infographic to explain the ICO landscape further:

REVOLUTIONARY WAY TO GET FUNDED: ICO ROUNDUPS

https://btxchange.io/ico-roundups-infographic/

Infographic: How Startup Funding Works

Raising funding for your startup is, in part, a navigation problem. This is especially true when you are doing it for the first time. Entrepreneurs often focus on the problems right in front of them and so lose sight of the bigger picture. It is always helpful to approach immediate problems with knowledge of the lie of the land ahead.

This infographic on how startup funding works is one of my all-time favourites. It neatly and concisely sets out a typical map of what a fundraising journey looks like over the lifetime of a successful company.

startup funding infographic

I hope you find it useful.

Credit to Anna Vital for producing such a great graphic.

Startup Due Diligence for Investors – Best Practices & Checklists

What is Due Diligence?

‘Due diligence’ sounds awfully serious.

When it came into use in the mid-fifteenth century, it simply meant ‘reasonable care’. It became a specialised legal/business term in the 1930s when the US government passed a law to ensure that securities brokers disclosed sufficient information when selling to investors.

It is now used as a general term for the process of verifying information.

The level of due diligence required and the level of due diligence possible varies depending on the information being checked. Naturally, a high-level corporate merger would require extensive due diligence.

When it comes to investor due diligence on early-stage companies and startups, the due diligence need not be overly laborious. It is necessary but should not be daunting, even if it’s your first investment of this kind.

So, for the remainder of the post, I shall refer to it as DD. It’s less daunting that way. (And easier to type!)

Why is due diligence different for early stage companies?

Any sort of institutional or corporate investment requires sophisticated and extensive DD.

Investment institutions tend to invest in companies who are well past the proof-of-concept and early growth stages. As such, they can examine substantive data in their assessment and check its validity. They also need to check it so that they can justify the investment to their own shareholders.

It’s only when a company has achieved a certain level of tangible traction that you can reasonably run analytics on it in the hope of predicting the eventual outcome and the risks involved. The later stage the company, the more data, the more due diligence, the more predictable the outcome.

Early-stage companies accepting investment from private investors tend to have less tangible evidence available for checking because the company simply hasn’t been operating long enough. This means that the checks an angel investor carries out are mostly formulaic.

Due diligence at the level of early-stage investments is predominantly about checking the claims of the company in their documents.

This does not mean you should carry out minimal DD. Evidence suggests that investors who spend longer on DD get higher returns (UKBAA research has shown that at least 20 hours due diligence has a positive impact on the likelihood of a multiple investment return (Siding with Angels; Robert Wiltbank, Nesta-UKBAA)).

Correlation or causation, it doesn’t really matter. You should carry out thorough due diligence.

But the point is that it is not a complicated process. People making their first skirmishes into angel investments are sometimes put off by the idea of DD. They think that they don’t have sufficient experience to do it properly and as a result, they’ll be throwing away money.

They think like this because they have the expectation that their DD ought to be as rigorous and detailed as that carried out by a private equity firm, for example.

But this is an unfortunate belief. It’s naïve to think that the same level of DD should be carried out – there is not enough information on early-stage companies. Because they are early-stage!

If there was more information to check, then the investment would probably not be open to private investors. Nor would the opportunity for the huge returns possible for early-stage investors be available because the risk quotient would be so much reduced.

It’s important to remember the reasons why we choose to invest in early-stage companies:

  • We want to bring our experience and network to bear so that we have an active role in helping the company grow and succeed.
  • We want to take a calculated risk to help a team of founders we believe in to achieve something cool.
  • And in so doing, we want to make a good return on our investment.

The early stage means that we have the opportunity for all those things but, naturally, the risk is larger. Proper due diligence is your armour against this risk.

due diligence

Is there an optimum way to carry out due diligence?

DD research can be divided into six principal sections as set out in the following section.

But how should you approach them?

It’s simple enough to work systematically through each, but this can be time-consuming and, human as we are, we are all prone to mistakes and oversights.

It can make the process less burdensome and pressured if undertaken with one or more investment partners. You can divide the labour, check each other’s research and discuss to form an opinion.

If you then all decide to invest, it can make the process even more enjoyable and less pressured.

What DD should you carry out on early-stage companies?

Your DD should cover six main areas (I have written a downloadable checklist for each):

1. Team & Management

Early stage investment is often said to be in people rather businesses. This is because it’s the execution that counts…

This checklist will help you form an impression of whether you think the team has what it takes to execute.

Download checklist

2. The Business

Do you believe in the idea?

This checklist will help you work that out.

Download checklist

3. The Market

Market research is the process of finding out information about demand, trends, size and competition in the target market. It’s an important process for gauging sales volume, pricing and ultimately whether there is sufficient opportunity to develop an idea into a lucrative business. Entrepreneurs will present you with certain claims about their market – your DD should aim to verify their claims.

This checklist will help you decide whether the company has identified a viable market opportunity.

Download checklist

4. The Technology/Product (if applicable)

The team is often considered more important than the starting product. But it’s still essential to check the product is a great solution. A great team with a great product ticks a lot of boxes!

This checklist will help you assess the tech.

Download checklist

5. Finance & Tax

When entering into an investment agreement, you need to be aware of any information that may increase or decrease the risks involved. Financial DD ensures that you are aware of all the existing assets and liabilities.

This checklist will help you assess the company’s position.

Download checklist

6. Legal

It’s a good idea to send a legal enquiries check sheet to any company you are interested in. Use this template drawn up by Tony Littner at Harbottle & Lewis LLP, Jon Gill at Eversheds LLP and Sandy Finlayson at MBM Commercial LLP for the UK Business Angels Association. (If you’re looking at a company based outside the UK, it should work for you too.)

Download legal letter checklist template

Summary

These checklists are in no way exhaustive. Your DD questions will vary according to the type of business you are evaluating. But these should serve as a useful starting point. And they should indicate the level of due diligence required for these types of investments.

*Thanks to the UKBAA whose own due diligence checklists were the inspiration for this article.