Why this awful year is good for early-stage startups

Hello there,

PreSeed Now is taking a partial summer hibernation for the second half of August for the simple reason that startups all tell me that they’ll be ready to talk in September because, as received wisdom has it, all VCs are on a beach until then.

That’s not strictly true, but I get why startups would prefer to talk at a time when more investors have PreSeed Now open in their email app. This break has allowed me to line up a bunch of great startups though, and I can’t wait to bring them to you, twice a week from 6 September onwards.

In the meantime, I had a really interesting phone call with Entrepreneur First’s Matt Clifford a few days ago, spurred by the new book he’s co-authored. It’s called ‘How to Be a Founder’. But rather than just discuss the book, we dug into whether or not now of all times is a good time to take the leap and make a bold, entrepreneurial bet on the future.

Scroll down to read it all…

– Martin

🔭 Looking for talent

One of the first startups we covered at PreSeed Now was computer vision company Machine Eye. Founder Brendan Digney dropped me a line the other day to share that the company is currently on the hunt for a senior software and embedded systems engineer.

You can read more about the role on the startup’s website and find out more about the startup in our recent profile piece.

Why become a founder… in 2022, of all years?

London-based Entrepreneur First has become a prolific force in helping talented people around the world create high-impact startups. It’s had a hand in the creation of more than 500 companies, which are worth more than $10 billion collectively. So when its co-founders, Alice Bentinck and Matt Clifford, write a book called ‘How to Be a Founder’, it makes sense to pay attention.

And I really like the book. It’s packed with easy-to-consume, practical, frank advice about everything from the founder mindset, the founding process, and choosing a co-founder, to growth, scaling, and investment. As its name implies, it reads almost like a manual, while giving the reader plenty of room to go their own way, armed with its foundational knowledge.

But in deeply uncertain times (particularly in the UK, where sky-high inflation and a recession loom close, on top of the international trend of investors being more wary), is it a good time to make a leap and become a founder?

I got Clifford on the phone to find out whether the timing is right for this book, and whether startups could help build a better world for us all.

Martin: Right now, it's harder to raise money. Even early stage rounds are taking longer to close. So is the timing right for a book about founding a startup?

Matt: We're pretty lucky to sit where we sit and see everything we see in the market. It is a pretty tough time to be a series B or C stage founder, particularly if you raised money last year at a punchy valuation. But actually, it's not a bad time to be a pre-seed or seed stage founder. 

What we're observing is that valuations might be down a bit, but pre-seed and seed deals are still getting done. And in fact, it’s probably the part of the market where there's most excitement from VCs, who are pretty much saying that companies born today are going to mature into a macro environment that is hopefully very different from the one we face today.

So we're seeing a shifting in the landscape in terms of VCs’ time and attention, towards the early stage. And so I think the reality is that when you think of all the reasons that startups can fail early on–let's say in the first year–most of them are not very much to do with the macro environment.

Most of them are: do you actually have a customer that wants what you're selling? Do you have the right team? Have you fully tested and validated your idea? And so my broad advice to founders is don't worry too much about the macro. 

In the long run, the macro matters a lot, but if you're ambitious and you're planning to be around for a long time, then actually now might be the very best time to start a company.

Martin: From the climate, to energy prices, and worries about the stability of democracies around the world, we can feel the world as we know it gradually tearing at the seams. The world needs new ideas more than ever, I think.

Matt: Yeah, totally. I mean, I would never be one of the one of those people that claims that everything has a technology solution and everything can be a startup.

But equally, when I look at climate, it's very clear to me that as much as politics will be important, technology is going to be absolutely key and I think it's a great time in terms of where is the capital and funding. it's a great time to have an idea for ‘how do we decarbonise’ or ‘how do we accelerate their carbon carbon removal or storage’, for example. 

With the big challenges we see, I do think there are areas where entrepreneurs can make a difference. They can't make all the difference, but they're absolutely areas where I'd like to see entrepreneurs play. 

One of the other really exciting things that makes me feel optimistic about how now is the time to start businesses is that I think it's not just about founders. It's also about who can you hire and how can you bring together a really world-class team.

One thing that's been tough for a lot of companies over the last two years is when the markets are so overvalued and there’s so much capital around, the advantage of being a big company becomes very great. There are so many people tied up in big late-stage startups or the big public tech companies being offered options packages that are frankly unsustainable.

What we see in this environment is a lot of people suddenly start to say ‘is this real? Is the company actually worth what I thought it was? And if not, maybe I should start my own, or maybe I should jump into solving a problem I actually care about with a startup that's just getting started.’ 

So I think there's a lot of reasons to think that we'll look back on 2022 and say ‘it was a pretty crappy year for the world but it was actually a pretty good time to start a company.’

Martin: At Entrepreneur First, are there particular kinds of companies you want to see more of in the world?

Matt: We've always tried to stick to our knitting, and what I mean by that is, we're first and foremost talent investors. We believe in identifying and enabling exceptional people, and one thing we've learned is that those people are much better at picking ideas than we are. We're not a studio. We're not trying to build out our ideas. 

That said, I think there are some areas where we see talent really starting to aggregate, which suggests to us that these are areas that we're going to be investing a lot more in going forward. 

One that we've already discussed is climate. It definitely feels like across the full spectrum of ways of thinking about climate, there's just never been more energy. I think climate is now either the number one or the number two area our applicants talk about on their application form that they want to work in, alongside web3. 

And we're still very bullish on the intersection of biotech. I know you've covered some of our biotech companies in PreSeed Now. I think we still feel that's like a really huge area where Europe has a massive competitive advantage. And so I think we're going to do more in that space.

Martin: Why does the UK have a competitive advantage in biotech?

Matt: Well, I think one of the challenges with software businesses–and 70 or 80% of what we do is software so I'm certainly not anti-software–is that when you get to a certain scale in a software business, part of the challenge is just ‘where are the people that have run thousand-person engineering teams or thousand-person enterprise sales teams?’ And they're in Silicon Valley.

That doesn't mean that you can't build a great software company from Europe, but it does mean that you probably need to figure out how you deal with that. I think arguably in biotech, a lot of the big wins and a lot of the talent base is in Europe.

Look at pharma and, how much of the world's best life sciences happens in the UK today. And so when biotech companies get to a certain size, I do think there's a lot of opportunity for them to hire world class teams in Europe. I think it's just harder in software.

Martin: And you've got this new role with the government - chair of ARIA. Is there going to be much interface with startups there?

Matt: I hope so. ARIA is all about funding high-risk, high-reward research. So it's not about funding startups per se. That said, we're drawing a lot on the DARPA model in the US, which was at least partly responsible things like the internet, and GPS, and mRNA vaccines.

And I think one of the things that's been very powerful about DARPA’s model is that it's thesis driven. And it's driven by program managers who envision some end state for the technology and then go out to fund the best researchers wherever they are to bring it into reality. 

If you look at the history of DARPA, yes, a lot of that has gone into universities and that's absolutely right. But a lot of is saying ‘is there a startup that's working in this space that if we fund them and nudge them in one direction might produce the right output?’ 

So although as non-exec chair, I won't be making project-level funding decisions, I do hope that what we'll see is lots of startups, becoming involved with some of the projects that the team there does end up putting together.

Martin: What impact do you hope this book will have?

Matt: It would be fantastic, five years from now to have successful founders talking about how this was a book that nudged them towards that. But there’s another piece as well around raising ambition levels.

The weird thing about the UK is we actually have lots of entrepreneurship. We just don’t have a lot of high-growth entrepreneurship... I honestly think that the two reasons for that are as simple as ambition (do people know they're allowed to? Do people know what's possible?) and skill. 

So we'd like to just nudge the founders that start companies towards being more ambitious, taking more big bets. And, hopefully, starting companies with people and ideas that maximise their chances of success.

🚀 Back to normal in September

PreSeed Now returns to regular service from Tuesday 6 September. So look out for great early-stage startups in your inbox twice a week from then. We already have a bunch of fascinating, ambitious, high-potential companies lined up.