Duet Partners
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Weekly Briefing Note for Founders

2nd July 2020

This week on the startup to scaleup journey:

  • New business models: A misconception about the pivot
  • Future Fund Update: Extended to UK companies in accelerator programmes outside the UK
  • Innovate UK awards: Sustainable Innovation Fund announced
  • Corporate funding insight: CVC investment terms may look different to those of a VC
  • US early stage funding insights

1. News & Insights

New business models: A misconception about the pivot

With many startups reworking their investment propositions for post-Covid fundraising, we've been facilitating many debates on the topic. In particular, as we help companies navigate the process of reworking their business models we've been talking a lot about 'pivots'. So what is a pivot?

It's clear that many founders heavily equate a pivot with the product. "If I'm not changing the product then I'm not pivoting." But this is a very narrow view.In the words of Steve Blank: "A pivot is not just changing the product. A pivot can change any of nine different things in your business model. A pivot may mean you changed your customer segment, your channel, revenue model/pricing, resources, activities, costs, partners, customer acquisition — lots of other things than just the product."So a more practical definition of a pivot would be: 'A pivot is a substantive change to one or more of the nine business model canvas components.'

Many of you will be very familiar with the business model canvas. Looking at this simple yet powerful one page summary of the business strategy we see how the key elements fit together. This is of great interest to investors when they assess a business. 

Whilst product pivots do happen, startups focused on just product pivots will limit their strategic choices. More on this important topic in our recent blog and also in this latest essay from Steve Blank.

Future Fund Update: Extended to UK companies in accelerator programmes outside the UK

On 30th June, the Chancellor announced that the Future Fund is being expanded to accommodate businesses that contribute significantly to the UK economy, but do not have their parent company based in the UK because they participated in a non-UK based accelerator programme. The rationale being that part of the conditions of joining some accelerator programmes outside of the UK is that businesses are required to create a non-UK incorporated parent company. Full eligibility criteria are on the British Business Bank website here and the announcement at Gov.uk here.

As at 28 June, the Future Fund had approved £320.6m of convertible loans to 322 innovative businesses across the UK. The BBB said: "Initially, £250 million was made available by the government for investment through the scheme, to be matched by private investors, with the Treasury making clear the amount could be increased if needed. Due to the popularity of the Fund, more funding is being made available. The scale of the scheme will be kept under review."

Innovate UK awards: Sustainable Innovation Fund announced

Innovate UK has announced a call for applications to the £200 million package, the Sustainable Innovation Fund. To support applications, Capital Enterprise is hosting a discussion next Thursday with key figures from within Innovate UK on how to apply for this support. If you would like to attend this briefing then please register here.

For all the latest awards from Innovate UK check out the news page of UK Research & Innovation here.


Corporate funding insight: CVC investment terms may look different to those of a VC

Similar to venture capital firms, CVCs tend to invest on an international basis. You might therefore expect there to be significant differences in deal terms depending on the jurisdictions involved; however, that’s often not the case. While it’s certainly true that many investors (and CVCs are no different here) tend to view the world through the lens of their home jurisdiction, it’s rarely the case that this results in a fundamental difference in approach when it comes to deals. It’s more often a case of appreciating the different terminologies used in different jurisdictions, and the legal means by which the same result can be achieved.

The bigger differences between CVC and venture capital firms really come from the different commercial perspectives. Corporate investors typically (though not always) invest for strategic and synergistic – as well as financial – reasons. This often impacts the terms on which they invest. It is therefore important for tech companies to know what to expect when seeking investment from large corporates.

A useful assessment of the common differences we see can be found here. The most onerous relate to competitor restrictions and should be avoided if at all possible. Any form of 'exclusivity ', even if not explicit, will damage future valuation and may put off VC investors altogether. A more comprehensive analysis can be found in our earlier blog.

US early stage funding insights 

Pitchbook reports on 'Pandemic's VC deal toll: Midyear perspective', stating deal flow has fallen sharply with 4,675 funding rounds this year vs. 6,357 in last year's first half. Mega deals (over $100M) have held up strongly, By contrast, as would be expected during these panicky times, investors held onto their seed capital. Deals plunged 45% to 803 vs. 1,447 deals done in the first half of 2019, with invested capital down to $2.2 billion from $3.3 billion. Dealmaking goes on, but it's clearly favoring well-established players.

2. Other pieces that are really worth reading this week: 

Two excellent reports from Startup Genome
1. The 2020 Global Startup Ecosystem Report
The GSER from Startup Genome and Global Entrepreneurship Network is the world’s most comprehensive and widely-read research on startup ecosystems. The GSER now ranks the top 140 startup ecosystems from an assessment of several hundreds.

2. The Impact of COVID-19 on Global Startup Ecosystems
This is the 4th and most recent in a series of in-depth reports by Startup Genome on how COVID-19 has impacted the investment landscape, available here.

The Most Innovative Companies of 2020
Every year since 2005 global management consultancy Boston Consulting Group has compiled a list of the world’s most innovative companies, based on interviews with 2,500 executives. Companies are scored by their financial performance and criteria such as how much they are disrupting their industry and how they are viewed by peers. A sequence of excellent interactive charts is here and the full report can also be downloaded at the bottom that page.

In summary, BCG maintains that consistent innovation is about a system. That means not only saying you want to innovate but putting the funding in place to support it. 45% are committed innovators who both prioritise innovation and allocate a lot of funding to it. Almost 60% of this cohort report generating a rising proportion of sales from products and services launched in the past three years. Further useful analysis has been produced by Sifted here.

Emerging Tech Research: Artificial Intelligence & Machine Learning
The latest report from Pitchbook report includes market maps of VC-backed companies, business model descriptions and an overview of key investors and acquirers within the Artificial Intelligence & Machine Learning (AI & ML) industry. Non-subscribers can download the overview here.

The Digital Services Act is coming and will impact startups
As reported this week, the Digital Services Act is going to be a big deal particularly for startups that host any user-generated content (i.e. social media platforms, online marketplaces, media sharing apps, collaboration platforms, search tools, etc.). The risk is that small companies are going to have to take on so much responsibility for what is put on the platforms that they will no longer be able to operate as intended. Startups can join the discussion now and ways to do this are summarised in an article published in Sifted here.

Finally, for all you female founders out there
Here is some inspiration to see you through the next week. Tracy Young co-founded PlanGrid, a construction productivity SaaS company, in 2011. PlanGrid grew from 5 co-founders to 450 people, and helped build over 1m construction projects around the globe before it was acquired by Autodesk in 2018 for $875m.  This is her story.

Happy reading!

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