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Securing The Future For UK Startups: Could Virgin's Approach Hold A Key?

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Virgin.com

Over the last decade Britain has transformed itself from relative enterprise backwater to global leader in business creation, with new business registrations climbing steadily pace, most notably in the tech sector, where numbers rose by almost 60% last year, according to research.

Their future looked promising. Last year saw more VC investment in British tech startups -a record £3 billion - anywhere else in Europe, . It is also the unicorn capital of Europe, home to more than a third of the continent’s billion dollar companies.

Now Brexit is casting a shadow over the future of this startup economy. The EU’s commitment of £3.6 billion to supporting UK small business ends in 2020, creating a funding gap that will put the brakes on business growth. So needs to be done to ensure viable startups can thrive and scale?

I had an opportunity to put this question to two business leaders who’ve played a key role in championing entrepreneurship and supporting startups, Virgin Group founder Richard Branson and CEO Josh Bayliss. Both share the same concerns over Brexit and future startup funding gaps and the same passion for seeing clever solutions to problems become brilliant businesses.

I caught up with them at VOOM 2018, Virgin Media’s annual pitching competition for startups and scale ups, where they had been captivated by some outstanding contenders. These ranged from Gobbler Boats, which can recover and recycle oil from ocean spillages, to The Milky Tee Company, stylish T-shirts with hidden side zips for easy and discreet breastfeeding.

As a grandfather of four Branson had been particularly taken by Turtle Pack, a swimming aid in the shape of strap-on shell with three layers that can be removed gradually until the child is swimming on their own.

“I loved that idea,” he says. “These entrepreneurs are so clever and so passionate about what they are doing; I imagine the Virgins of the future will be emerge from some of them.”

Central to the brand’s support for entrepreneurship is not-for-profit Virgin StartUp (VSU), a delivery partner for the UK government’s flagship Start Up Loan scheme, which provides access to funding, business support and mentoring, and since launching in 2012 has issued over 50,000 loans.

Since its own launch nearly five years ago VSU has funded 2,573 entrepreneurs and distributed £33.1 million in startup loans. With the future for new businesses suddenly looking uncertain, it has also asked the crucial question; what happens next for these startups.

Bayliss says: “You see guys with a great idea, initially self funding, using their own money or loans from their family, getting their business to a certain point but then finding they can’t take that next step. It’s not that they aren’t financeable, they just don’t know how to go about it.”

VSU’s response has been to roll out several initiatives that address these challenges, including CrowdBoost, an accelerator programme for entrepreneurs looking to raise funds through an equity crowdfunding campaign.

“Through this programme they learn how to get their business fit and ready to raise money from investors through an equity platform, so far, with a 100% success rate,” says Bayliss.

Launched last year, its seven alumni have now successfully raised a combined £3.3 million. One of them was Capsicana, a Latin American food brand founded in 2009 by Ben Jackson in his home kitchen and now listed in a number of major UK retailers.

After completing the programme, Capsicana’s Crowdcube campaign went live in November 2017 and raised £229,000.

As Jackson explains, securing the funding was crucial. “We needed it to advance our product development programme, marketing and developing our sales pipeline,” he says.

Then there are sector specific accelerators, including Platform X for growth stage businesses whose products and ideas could improve the rail travel experience, and ConstrucTech, a construction industry accelerator developed in partnership with building contractor Colemore Tang. The first 16 shortlisted entrepreneurs have already pitched their ideas, many based around disruptive technologies such as AI and robotic solutions.

And while technology features prominently in many new business concepts, the inclusion of a social element in the business model is another notable trend. “We consistently see businesses with great ideas that have giving back at the core of their model,” says Bayliss. When TOMS shoes started doing it 12 years ago it was unheard of. Now almost every pitch we see embodies an element of social enterprise.”

VSU’s innovative approach to supporting new businesses and growth stage companies will continue to evolve, but could it be extended to the many thousands of entrepreneurs for who Brexit presents an increasingly uncertain future?

Branson would like to see more organisations getting involved - some of the UK’s largest companies have already launched their own corporate accelerator programme – but insists that it is the government that really needs to step up to secure the future of UK entrepreneurship.

“Beyond 2020 we haven’t seen any plans for continued EU investment into small business,” he says. “The UK government will need to make up this shortfall to keep Britain’s entrepreneurs on track and to stop productivity and growth drying up.”

Bayliss suggests that the Start Up Loan scheme itself could be scaled up to find ways of delivering next tier funding so that growth stage businesses don’t have to rely on crowd sourced equity funding. He says: “Broadening the purpose of institutions like the British Business Bank and the Business Growth Fund (BFG) to encapsulate this would create opportunities for the government to bring about that support.”

In spite of the challenges that lie ahead, both men remain optimistic about the future.

“When I came to the UK from New Zealand 20 years ago, entrepreneurialism wasn’t really a ‘thing’,” says Bayliss. “Today it seems there are no problems that can’t be solved; removing oil from the oceans, for example. People can turn their minds to any challenge and find a solution, enabled to a large extent by technology, but also by a huge entrepreneurial shift in mindset.”

In Branson’s view, start up loans and VSU are only just getting into their stride. He says: “We are seeing more and more of these second tier people getting their next stage funding and I really believe that we can help more of them succeed and go on to become multi million pound companies.”

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