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Spend to save – why large enterprises have a role in the future of startup innovation

Written by Andrew Roughan on Thursday, 11 February 2021. Posted in Insight, Analysis

Startups have been particularly hard-hit by the pandemic. In fact, our research with Beauhurst found that since lockdown began in March 2020, over 1,700 British tech startups have filed for administration, dissolution or liquidation.

Spend to save – why large enterprises have a role in the future of startup innovation

Startups have been particularly hard-hit by the pandemic. In fact, our research with Beauhurst found that since lockdown began in March 2020, over 1,700 British tech startups have filed for administration, dissolution or liquidation. Venture capital funding for startups has been consistently lower than it was during the same period in 2019 but particularly low for early-stage startups. At our latest count, funding for startups approaching their first funding round was 47% lower between March 2020-January 2021, year on year. 

The struggles faced by startups – and those early-stage firms in particular – has huge implications for the rest of the business landscape, which means the private sector can’t afford to look away. Startups and large organisations have a symbiotic relationship: startups provide innovation and solutions. In return, working with a large organisation gives smaller firms the opportunity to generate crucial revenue and grow. 

These fast-growth businesses also gain experience that will prove useful when selling to other potential customers in future as well as market validation for potential investors. That validation is especially crucial in sectors like cybersecurity or when a startup’s product is underpinned by deep technology that isn’t easily grasped by non-specialist investors. 

Startups are often led by people who see a problem or an opportunity and aren’t capable of sitting on it. In a healthy economy these companies fulfil an important role by pushing the limits of what’s possible, addressing challenges facing business and society and providing competition so our economy is less homogenous. But for startups to survive and have this impact, the private sector must play a role in protecting them. 

We have seen an unprecedented scale of government support via grants and loans in the last 10 months, from the Coronavirus Business Interruption Loan Scheme (CBILS) to the Future Fund. These have been important vehicles of funding for startups and small businesses, but further bailouts alone are an unsustainable way to support the startup ecosystem. Startups in our community – some of whom are fighting for survival – tell me what they really need is contracts, or pilots and proof of concepts that lead to a contract. The government aims to spend 1/3 of its budget with small businesses in recognition of the value they bring and the private sector must adopt this mindset too. 

The danger lies in the fact that the impact of failing to spend to save startups now won’t be immediately apparent. As we continue to weather this crisis, we may be ignorant to the further damage that might have been caused without the necessary investment. 

Large organisations can be forgiven for having spent the last 10 months in survival mode. Many of them have undergone rapid digital transformation and both the way they work and their markets have shifted. As they now begin to emerge from this crisis period, they must turn to the innovation community to help them adapt to the new economy and futureproof themselves against disruptions around the corner that will be caused by transformative technology. The good news is that unlike Covid-19, we have an early warning signal that this is coming. 

A partnership between these worlds if of course harder to master in practice. Industry may have the best of intentions but when it comes to their supplier onboarding processes, appetite to risk at the board level or their ability to take a pilot further, it’s easy for initiatives to run out of steam. And for a startup to simply run out of cash – especially if they’ve not done enough work upfront. But we’ve also seen it work incredibly well. Plexal’s recently facilitated a commercial relationship between a member of our accelerator (a VR startup called VIVIDA) and a major UK bank. We also helped Transport for London source new mobility solutions, test them in real-world settings and enter the contracting phase within 10 weeks. With the right structure and partners this can and does work. 

Saving startups is an acknowledgement of the important symbiotic relationship that exists between them and large entities, in which neither can survive long without the other. If we want to emerge stronger from the Covid-19 economic crisis, industry must acknowledge the importance of these innovators and spend their budgets to save them.

About the Author

Andrew Roughan

Andrew Roughan

Andrew is the managing director of Plexal, the innovation centre and coworking space at the technology campus, Here East, in the Queen Elizabeth Olympic Park. Andrew has spent the predominant part of his career in technology infrastructure sectors driving business transformation for enterprise clients and major cities. He first got involved with Here East in 2011 as a founding team member and successfully acquired a 200-year lease from the London Legacy Development Corporation to transform the former Press and Broadcast Centres in the Queen Elizabeth Olympic Park. His role as COO at Here East made him responsible for creating the ecosystem and community where large and small companies collide, allowing them to benefit from one another’s scale and creativity. Andrew was then appointed to be the managing director of Plexal to lead the innovation centre in convening a community that will solve the challenges that matter most to society.

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