When starting FreeUP, I knew that I would make some incorrect assumptions. To accommodate for this, the plan was multileveled so that it could be adjusted for unknown unknows, which to a large extent, has worked well. That said, if I had known aspects ahead of time, or had certain questions highlighted to me, it would have definitely helped and expedited our progress.
In this post, I’m aiming to highlight one of these assumptions so that if you are starting ‘fresh’ in the world of startups you know to ask the question, as knowing to ask is often half the battle.
Are the startup funds you are looking at startup or early scale up?
I haven’t done a statistically valid analysis of the UK funds, nor have I started multiple companies, but I have been surprised at the number of startup funds that, after investigation, better fitted a scale-up description.
My understanding was that startup funds were intended to get a proven concept to the stage of getting customer traction, to then enable the generation of sales, which in turn made scaleup funding accessible. In reality, many startup funds wanted to see sales and customer traction before we would be eligible for the funds.
This obviously reduces the funder’s risk and allows them to better identify where they can add more than just funds. It increases the odds of a positive outcome for the company and so the investment fund. It makes sense. The effect it has, however, is greatly reducing the breadth of startup funds that can actually help get you to that initial customer traction.
For technologies, the gap between what has been shown to be possible and what is commercially available, i.e. what works in a lab and what is, for example, part of your phone, is known as the valley of death.
This is because funding is available to determine if things are possible, usually in the form of research grants for universities and institutions. Funding is also available for commercially available technologies, such as new batteries for phones, etc. The problem arises when something has been shown to be possible, but the costs required to make it commercially viable are too large for the private sector. The technology ends up stuck on the proven but not yet commercial side of the valley, unable to find funding to cross to the commercial side.
Entire funds are dedicated to reducing this bottleneck, by creating funding bridges. If your technology has been developed by a university or a reputable research institution, then these types of funds are usually well funded and risk-tolerant, essentially large and forgiving startup funds.
For technologies that aren’t born out of universities, these bridges aren’t available. My assumption was that startup funds were the private sector equivalent, to help reduce the width of a startup’s personal valley of death and to enable new technologies to start making traction. If the plan was logically sound and viable, these funds would help.
Unfortunately, it now seems to me that this isn’t the case.
The UK private sector seems to be better geared to proving a concept at a low cost and then providing funds to scale that working model.
Unless you have a proven track record, customer traction, or the backing of a larger company, the number of funds able to start you up, are far more limited than you may think from an initial search.
If you can gear your startup towards this model, from the funds that I’ve encountered, you will be a better match and better positioned to use them.
With FreeUP, we found a route through the problem, but my assumption that startup funds would be the main tool, has turned out to be wrong. I’m sure that others have had different paths, but for those yet to make the journey, I wanted to highlight the possible mismatch between UK startup funds/mechanisms and how much help they can be when you are truly in the startup stage.