The UK’s early-stage growth opportunity: How leading VCs see the future

Read advice from leading VC investors on how founders can achieve growth in the current economic climate.

Sarah Finegan

November 21, 2023
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What is capturing the attention of leading investors across the European tech ecosystem? Against a backdrop of significant economic uncertainties and fundraising challenges, this question is top of mind for founders and investors alike. 

Earlier this month, our UK team tackled this question, partnering with Google to host The UK’s Early-Stage Growth Opportunity. The dynamic and insightful event included 200-plus attendees and speakers who are shaping the future of UK tech. Antler President Ed Knight spoke about the seismic shifts impacting the global economy and the vast opportunities available to entrepreneurs and investors today. Antler partner in the UK Jed Rose discussed the changing demographics of tech founders in the UK and Europe, and the tech ecosystem that is stronger than ever despite the downturn. 

I was excited to host a panel discussion with four leading European VC firms that offered an inside view from early-stage investors who speak with founders daily, see innovation happening first hand, and are key decision-makers about investing in this dynamic and evolving market: Beatrice Aliprandi, Principal at Lakestar; Hanel Baveja, Principal at Creandum; Laura Waldenstrom, Principal at Earlybird; and Rodney Appiah, Partner at Cornerstone

This esteemed panel spoke with me about three big themes: achieving growth in the current economic climate, pursuing growth opportunities over the next 10 years, and overcoming barriers that might stand in the way of founders.

Watch the full event and read some key insights below, or view highlights of the event.

Lakestar has backed some of Europe’s most successful tech companies. What advice have you been giving your portfolio companies during the tech downturn?

Beatrice Aliprandi, Principal at Lakestar, shared the three pieces of advice she has been giving to founders during the downturn, starting with cash conservation: 

“One, conserve cash as much as possible. Lakestar was fortunate enough to not do many of the hype investments, during the hype cycle at peak valuations, so subsequently we were not stuck with portfolio companies with unachievable next rounds. 

For founders, they cannot assume they will fundraise for the next round of investment. Typically founders need to have two years of runway—that’s the ballpark that we are looking for. When making new investments, previously we were seeing guidance to raise x amount for 12 months, now x for 24 - 36 months.

Second, if the portfolio has done cuts, the majority was 10-20% of the workforce. They need to make cuts early and deep. The advice is to not go through multiple rounds of firing, which erodes the culture and impacts productivity. 

And third, renegotiate vendor contracts as much as possible, which goes back to cost cutting. 

However, there are always exceptions to  the rule, and Builder has just raised a Series D (elevating them to unicorn status). So founders should not go off the assumption that they are not able to fundraise.”

Beatrice Aliprandi

What makes you personally excited about the tech scene in Europe?

Hanel Beveja, Principal at Creandum, shared observations about what personally excites her about the UK tech scene compared to her experiences as an investor in the US. 

As an investor previously at Union Square Ventures and Insight Partners, most of my experience has been in the US. I’m often asked about the differences between the two—in some ways the biggest difference is just that the US has a much more mature ecosystem. There is much more growth capital available. Often, companies raise seed or Series A from Creandum, then will look towards the US to raise their growth equity.

At an early stage (pre-seed, seed, and Series A investing), the two regions are very similar—competition is fierce on the founders to build great businesses, also on the investor side.

It’s clear to most people in the room that the biggest difference between Europe and the UK is having these more local ecosystems. A question we often ask ourselves when we look at businesses in Paris or Berlin, is the product and are the founders aiming to build a pan European, global company or is this product local to one country. This dynamic does not exist in the US. It is massive—you can build a business there coast to coast and build very big businesses.

One thing that we get very excited about is that London is a hub for talent. Many of the companies that we invest into, we see that founders are from elsewhere (amazing schools and talent that exist). There is a lot of potential in the UK that gets us excited.”

Hanel Beveja

How has the tech downturn influenced how you evaluate pitches? What are the technologies that are attracting investment?

As an emerging manager in the UK, Rodney Appiah, Partner at Cornerstone, works closely with entrepreneurs at the start of their growth. His focus lies in supporting founders who are developing innovative businesses aimed at addressing historically overlooked challenges. Rodney shed light on how the recent tech downturn has impacted his approach to evaluating pitches and also highlighted the technologies that continue to draw significant investment interest.

“In a downturn, if anything, the opportunity is greater. There is a tendency for top tier or larger VC funds to consolidate, focus on portfolio companies, as opposed to taking on additional risk.

We want to invest in the downturn, we want to invest in the bottom of the vintage, because this is where we think we will make a lot of money—that’s what we really focus on.

One thing we are nervous about is bubbles and potential bubbles that are starting to crop up—there is a lot of noise, and trying to find the signal in the noise. For example, GenAI. We see a lot of founders who are claiming to be an AI-driven business, pretending to be AI as it’s the buzzy word of the day, but in reality they are not—a red flag to me.

As an emerging manager, we tend to shy away from those opportunities and focus on what is going to move the needle in a material way.

Focussing on founders that are mission aligned and have an innate passion for what they’re building. So whether there are fluctuations, ups and downs, macro environment changes, you are all committed, you have no other option—it’s 100% or nothing. We love finding those founders because regardless of the environment they’re operating in, they will find a way to win.”

—Rodney Appiah

What are the sectors you see as high potential and poised for growth that will define the next decade?

Laura Waldenstrom, Principal at Earlybird, offered insights into specific areas of interest for both herself and the firm. She started with AI, but emphasised that they view AI not as a distinct sector, but rather as a fundamental platform shift. According to her, every company, sooner or later, will need to incorporate some level of AI into their products. 

“We don't necessarily see AI as a sector per se, rather a platform shift that will affect all sectors. There is the notion that in all previous platform shifts (mobile, cloud, internet), sooner or later every company needs to have some level of AI embedded in their product - “less of a ticket to win, more a ticket to play.

Having said that, there will be some companies that are AI native, that wouldn’t have been able to exist without a new level of GenAI—Similar to Uber, in the mobile shift, there will be companies in the AI field that are AI native.

We are still very excited about AI. In particular, the infrastructure layer, we have made some investments in the foundational model layer as well, but note, a space few VCs are making bets into.

Aside from AI, in other spaces, we see big technological shifts in the energy sector. As a fund, we are looking at opportunities across the whole energy value chain—hardware and software, including production, storage, consumption, distribution. 

The fund has a broad mandate, we look across enterprise software, fintech, deeptech. Within each of the subset, there are pockets of opportunities that we are excited about.”

Laura Waldenstrom

Beatrice Aliprandi of Lakestar added:

“Connecting with what Laura said — in the next 10 years we're going to  see very exciting things. That's also as a result of incumbents not hiring people, also those who have been laid off by tech companies. There will be a new wave of founders that will have new ideas and I also probably agree with Laura about AI, it is a bit of a craze, but realistically everything will likely incorporate some level of AI.

I think the UK is already a very mature ecosystem. There's been multiple cycles of unicorns and then people that have spun out of those unicorns. We see it with Revolut, for example, and there's probably two businesses that we actually backed out of Revolut. Spotify as well, same thing.

I also see a lot of maturity. I also personally cover Southern Europe. Spain has seen tremendous growth over the past two years, we've already seen founders graduating from Spanish unicorns going back and raising seed funding. It's amazing to see Italy is maybe a little bit less evolved in that sense, but also Eastern Europe. Also the Nordics, but I think Germany, France, UK, Nordics are maybe a little bit more mature, but you'll see a lot coming out of southern Eastern Europe now.

The best example is one company that we backed, it's a gaming studio Riot (they worked on Fortnite, League of Legends, etc). But they're remote founders, one is in Sweden, one in Italy, they hire developers in Puglia that actually has a very high quality of developers at a fraction of the cost of LA. Also as a result of the pandemic, there's, there's more movement on also the remote working and startups really emerging from anywhere and we love seeing that. 

I also want to maybe specify one other thing. I love investing in first time founders. And it's not necessarily true that VCs are only looking for serial founders.  Just because that was the rule and the framework of thinking for the last 10 years, it's not necessarily the framework that is going to be applied over the next 10 years.” 

Beatrice Aliprandi

What are the signs investors look for when they think about backing founders that will define the next decade?

As an emerging manager focussed on investing in diverse founders, Rodney Appiah explained the key things he looks for in his investment decisions, emphasising the importance of diversity.

“We have a diversified investment thesis, which essentially means that we focus on the team rather than on the product or on the market. When we think about the team, we think about it in the context of two lenses, which is what we refer to as inherent diversity. So, diversity you're born with (your ethnicity, ethnic background, your age or your biological gender). 

The second lens is what we referred to as your acquired diversity, so diversity that you accumulate in your life experiences (the types of universities you went to, your social capital that are shaped by your socioeconomic background, whether it's languages that you speak, your cultural sensitivities because of where you've traveled, where you've spent your time).

When we look at both of those lenses, then we can form a picture of the team in its complete sense in terms of diversity in a much broader sense. This isn't about backing a team because you've got a black person on the board. It's not about being tokenistic. 

Our view is that the next decade is going to be much more focused on the team and what the inherent skill set advantages and perspectives of the team have collectively to solve new problems that are affecting the world on a global scale. So that's how we think about opportunities. 

Thematically, we invest across three kinds of key areas, sustainability, automation, and networks. Sustainability because we've got to address the net zero challenge. Net zero is not just simply about climate change, it's much more about how we become much more efficient about the resources that we're using across the planet. Automation because although we've got an explosion in technology, rates of productivity globally are at record lows. We as humans are either becoming lazier or we just don't know how to use technology particularly well. So what's going on? The final theme is around networks. We're increasingly living in a polarised globalised society, where we go to extremes on the left and extremes on the right, how do we bring people back together and focus on more network driven businesses. 

That's how we think about the sort of the trends and the shape of things to come in the next decade.”

—Rodney Appiah

What are the biggest structural challenges that stand in the way of UK and European tech founders today?

Laura Waldenstrom comments on the startup growth and talent gaps in the UK, compared to the US. The UK tech industry lags behind go-to-market talent, but excels in other areas.

"This largely depends on which sector you're operating in and what business model that you have. I would say one thing where the UK is less mature than the US is access to go-to-market talent. 

One area that we see in our more mature portfolio companies is when you're really in the stage of growth and need to replicate your go to market playbook across new product lines and markets. When you need to make those hires into things like the C level, on the commercial side, the CCO, the CRO — it's quite scarce here. London is better than other European hubs, but we’re still a little bit behind. If you flip and then look at tech talent and product talent, that's really flourishing over here.

In general, it's always interesting to make the comparison with the US because they are years ahead of us so you could make the comparison. Okay, where are we? Where are they? What are we missing to kind of get to that level? We have really come a long way in the last 10 years. The tech talent is here. We make great products that are quite often even superior to the American counterparts. I would argue the early stage fund financing space is almost too crowded.

We've seen a couple of these very big tech exits the last couple of years here in Europe that is creating this flywheel effect with new cohorts of graduates of tech companies creating not only founders but people in mid-level management or senior management that are either starting doing angel investments or starting their new companies.” 

Laura Waldenstrom

Early-stage investment has remained resilient but do you think downrounds, layoffs and a drop in later stage funding will make it harder to raise from Series C and beyond? 

Beatrice Aliprandi comments that early-stage investment has remained resilient, but there has been a correction in valuations, emphasising a renewed focus on metrics and track records.

“Yes, definitely. We're still in the market correction. Everything crumbled on the public markets a year and a half ago, and so we're still in that sort of back solving from there like working backwards from the public markets to the early stage. 

I would actually argue that yes, early stage financing has been resilient, but there's still been a correction there as well.

When you get to series A to series D, you're trying to bridge the gap between the early stage where everything is in the future, and you have to have a great idea and you have to prove everything in the future, to the public markets where you're valued essentially on what you've done in the past. And so by Series A–Series B, you're already building a good track record. And you're switching from, growth at all costs with everything just in the future to actually having achieved a lot of things.. It's a very difficult balance to achieve because also you don't want to go too conservative where you conserve cash and you don't take risks because otherwise you're not going to innovate, but a good balance between the two. That's what's needed. 

Growth funds or growth rounds are still happening, but the majority of them are very textbook perfect—LTV, CAC are at 50%, plus growth so there's a lot more attention to the metrics and to the track record. It's difficult, but it's not impossible.”

—Beatrice Aliprandi

Hanel Peveja added:

“There is a big difference now in what you need to raise at Series A. The big difference, at least and on the early stage side, is that two years ago, you raised a Series A six months after raising a seed round with a few proof points. The drop off or the conversion rate is much lower. We're sort of seeing companies closer to two million ARR before they raise a Series A.” 

—Hanel Beveja

How do we achieve progress on diversity in UK tech over the next ten years?

On the topics of making the tech industry more inclusive, Rodney Appiah believes inclusivity in the industry will be driven by profit motive rather than obligation.

“I don't think we're going to make the ecosystem more inclusive because it's the right thing to do, I think we're going to make it more inclusive because it makes money. That's fundamentally what's going to change the dial. It's going to start with the LPs, the LPs are going to buy into the notion that if you back diverse founders, they make more money than if you'd back a non-diverse team. Then that's going to flow into top tier funds, having major wins in terms of exits, looking at where those winds are coming from in terms of the composition of the team, and then hopefully it will then flow into emerging managers like Cornerstone VC that have a diversity focused agenda, but it's not going to be driven by by morality.  It's just not.

We're a capitalist driven society and VCs are at the pinnacle of capitalism, so it's all about making money. I'm not naive to not think that's the case. So that's how we create a more inclusive landscape.”

—Rodney Appiah 

Ready to turn your vision into reality and build a world-changing company? The next Antler residency in the UK kicks off in February 2024 in London. Apply to our UK residency. Or apply to one of Antler’s other 27 locations around the world.

About the author

Sarah Finegan

Sarah is a Senior Director at Antler. Having previously worked with Antler in Berlin, where she was a key part of Antler's operations in DACH and Eastern Europe, Sarah now leads supporting Antler's growing portfolio in the UK. Sarah brings experience from her previous roles in finance, early-stage technology companies, and venture capital, and she is an avid sports fan and world traveller.

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