Silicon Valley Comes to the UK: The difference between British and American entrepreneurs
15 min read
24 November 2014
The SVC2UK campaign is designed to unite innovative British and European entrepreneurs and startups, supported with mentors from American technology titans who will help them navigate the choppy waters of scale-up. We've spoken to SVC2UK mentor Michael Shepherd, managing director of GrowthPoint Technology Partners to discover what he considers an innovative concept and what startups can do to encourage investment.
On Friday, the London Stock Exchange played host to SVC2UK’s CEO Summit, the scheme’s flagship event that brings chief executives together to help them better understand how they can knock down scaling barriers.
Sherry Coutu is the founder of SVC2UK, and as she puts it: “There has never been a better time to support the scale-up of UK companies. SVC2UK provides a unique blend of mentoring, inspiration and high-quality networking to help CEOs scale up fast. We are excited about the impact this summit will have on the companies involved and on the UK economy as a whole.”
In particular, SVC2UK is keen to help the outstanding European businesses with potential to reach £100m revenue within the next five years, and has invited 60 companies including UK-founded Blippar, Bossa Studios, Real Eyes, Somo and SwiftKey to join The Scale Up Club.
What that means is the heads of the companies will receive mentoring sessions, networking, workshops and so forth across the next year – all of which started at the Summit.
Real Business attended the event and discussed innovation, what the UK is doing well but also how it can improve and learn from the US with Michael Shepherd, managing director of GrowthPoint Technology Partners, a business and financial advisory firm working with tech entrepreneurs and investors.
How did you become a part of the Silicon Valley initiative?
I’ve known Sherry for 28 years and I’ve watched her grow as she’s done her various startups – I’ve done five startups as well – and we share a mutual passion for helping other people to create innovative businesses. Once you’ve done well a few times you feel the urge to give back and help others. It’s really nice to help out the UK, spread the word, and share some learnings you’ve had over the years – it’s very positive.
What does your role involve?
A lot of companies here are doing things differently to the US. Things are being done in a way that might work better or their business model is interesting or they are thinking about the market differently.
Often I can work with those companies, whether that’s to invest or help them find US partners. A lot of people want to go to the US and want to know how they can get there, how they should behave, who they should know and what they can do to make it work. There’s a lot of potential in the UK that is maybe unrealised or perhaps needs to get access to a bigger market, and an easy market relative to a lot of others is the US; one currency; once language; one infrastructure.
What we can offer to the folks here who desperately want to come over is guidance that will save them time to help their business grow a bit more. Sometimes we see things we haven’t heard of or seen before, so that’s interesting.
How have the objectives changed since the programme launched?
In the past two years, Sherry has focused us to motivate not just people starting companies, but also economic growth and employment. Economic growth is driven by innovation and that’s what this is about. Entrepreneurship is typically about innovation. If you look at really good economists, they connected innovation to GDP growth.
But employment growth is a whole other thing – one of the large things we’ve done over the past couple of years is scale-up, getting from 50 to 100 people to thousands of people or getting to $100m and getting beyond that to a $1bn valuation or revenue. The really strong theme here is the leadership issues faced, what the operational issues are, international issues face as you scale up a business.
How would you define innovation?
Innovation is really about improving the efficiency of things – it’s about more goodies, like pleasure, speed, capability, things you couldn’t do before but can do now. It’s about driving change to the way things get done and the benefits involved.
All of the different types of innovation will impact the entire GDP equation, it will affect the way consumers behave when they spend money and buy things. People in industry have to invest to make the infrastructure to make that happen.
For example, a mobile app that will find and pay for parking space; people will need to put the meters in, add sensors around the parking spot, and then get data in the cloud and the phone will have to have an app to complete all of that. That’s different, that’s innovative, that will reduce traffic. The benefit is that it will save time, you’ll find a parking space faster, people that own the site will have it filled more often and make more money and you’ll get to your appointment on time or early.
That’s an example of innovation where you cut the cost, improve the experience and did it through technology and tools. That’s what I think innovation is, it’s a driver of economic growth and a way to make lives better.
What can companies do to prevent friction when seeking initial investment for those projects?
A lot of it is around articulation, it’s about articulating that innovative idea very concisely and simply. What is it? what’s the idea?
The next thought is, how are you going to actualise the idea and make it real? If you think you’ve got a great idea, you’ve got to think that a hundred people have probably had the same idea at the same time. But the competitive advantage is the act of doing something about the idea, writing about it, putting your own money and time into it – as well as other people’s – to make the idea a real thing.
That’s the journey, a clear articulation of how you’ll make it happen and getting the resources to do that. If when you start and find you’ve failed, figure out how to improve it and make it better – that’s part of the journey. These are the things to encourage people to invest.
In terms of innovation, what does the UK do better than the US?
The UK tax system is much better than the US tax system. People investing in startups get far superior tax treatment than any US investor will ever get, and as a result there’s a high propensity for individuals to invest. If you believe that individuals invest in smaller things better than governments – obviously governments have to invest in big things like going to the moon, new defence systems or major infrastructure – private individual investment will drive a lot of incremental innovation and definitely some game-changing innovation. So the tax system here is very conducive to sponsoring that.
The education system here is as good as the US. The UK is definitely improving its connection between research and universities and the commercialisation of the innovation coming out of them. I would say the US may still be better in that area, so there’s a difference, but the UK is definitely catching up.
It’s dramatically improving in many ways, there are communities being created like Silicon Roundabout and Tech City. At universities they have entrepreneurial clubs that offer prizes and you have connections between business schools and the departments. For example, Imperial College is becoming more connected to the departments. If a professor or researcher has an idea, someone from the business can help them write a business plan. Then there’s Imperial Innovations, an organisation responsible for finding those ideas and getting them Into growth mode.
It’s definitely improved with support for innovation. There isn’t another Silicon Valley anywhere else in the world, but if you compare Berlin to London or Germany to the UK, the UK is ahead. The French have government-sponsored tech centres like Sophia Antipolis and a ton of innovation comes out of them but there’s not the great entrepreneurial connection being made in France that there is here. So I would say the UK is the leader in Europe with respect to commercialisation of university IP.
On the other side, what can the UK learn from US companies like Facebook and Google?
What Sherry is trying to establish is that the UK has some successes if you look at Cambridge Silicon Radio and Autonomy – although these are sometimes acquired by large American companies. Dyson is a good one where the UK’s had some fantastic success.
The US, however, has an intrinsic advantage because it’s a bigger market, so the US investment system is better equipped to scale something up to these multi-billion dollar organisations like Qualcomm, Intel, eBay, Microsoft and IBM.
Also with these American companies, not only is the investment community like the venture and growth stage capital and public markets better equipped and larger, there’s more of a history of creating these large companies, so that’s almost a really difficult one to catch up with and beat, but it’s starting to happen. It’s a good thing to see some of these large British companies.
If we’re talking Facebook and Google, those got big because they had massive capital behind them just when they needed it and that’s probably the single biggest differentiator.
When you look companies joining The Scale-up Club, what qualities do you look for?
First and foremost, it’s always the people and it doesn’t have to be their experience. Increasingly so in the Valley, younger people are getting backed. Whereas in the past they may have leaned towards backing people with 20 or 30 years of experience – they’re now almost backing people with no experience if the idea is good and they can see that the capability and competence is there.
Secondly, what is the idea and does it address a big market? Depending on your investment appetite, if you have a large fund, you need a multi-billion dollar idea. If you have a smaller fund, you can deal with it being hundreds of millions as an outcome because you’re trying to return money to your investors. In order to do that, you need to own a percentage of a company that will amount to a public exit or acquisition exit for five to ten times what you’ve put in. So you’re looking at the size of the market and team and whether they can get there.
Next is the intellectual property and differentiation – what have they done that’s different? Is their approach dramatically better or is it an incremental improvement or a complete transformation of the way something gets done?
And then, do you love it and do you want to be part of it? Whether that’s writing a cheque, being active on the board, using your personal network to bring resources whether that’s people, customers, relationships, manufacturers, distribution channels.
If I like the people and believe in them, think it’s a great market and an interesting idea, an innovative approach for technology or business that’s going to make a big difference to the world, then that’s really interesting and if I can get a return out of it, if I can make an impact, that works for me.