London & the start-up


The pandemic, lockdown and subsequent restrictions have presented an era-defining challenge to the UK’s economy and to businesses of all sizes and all stages of life.

There’s been a major shift in the way London’s businesses operate. In January this year, Bird & Bird, in partnership with Opinium, surveyed 400 senior decision makers in businesses based in London and the South East of England. The survey revealed that three fifths (61%) of London businesses say that they have diversified and adapted their offer as a result of the pandemic, with nine in ten (91%) of these businesses expecting to continue these changes after the pandemic.

Yet important questions pertinent to the post-pandemic recovery remain. What has the crisis meant for high growth companies and start-up businesses – their ecosystems of support and investment backing?

And how is this ecosystem positioned for 2021?
The answer is complex but there is cause for optimism. There is a renewed sense of confidence amongst companies about investment in their own sectors in 2021.


Three quarters (75%) say that despite the crisis, they would still recommend their sector to a venture capital investor in 2021, rising to 82% of those in businesses with a projected revenue of £10 million to £99 million.


Confidence was even higher in the technology and communications sector, where despite the crisis, nine in ten (90%) would still recommend their sector for VC investment.

So where has this optimism come from and will it continue?
We know that before the pandemic, 2019 was a record year for start-up investment underlining the UK and particularly London’s status as a leading global centre for investable business ideas.

In 2019, Tech Nation and Dealroom reported that the UK attracted $13.2bn in investments into start-ups while winning around a third of the rest of Europe’s total tech investment, with $2.8bn coming from Asia, a fivefold increase on 2018.

The same report found that London had the lion’s share of unicorns (companies now worth $1bn) founded since 1990. The capital is home to 46 such firms while Oxford and Cambridge combined boast 11, just behind Berlin’s 12 and on a par with Paris’ 11. Manchester has seen five and Bristol and Edinburgh two unicorns.

This success continued in early 2020, until things came to an abrupt halt in March last year.

Mark Rundall, partner and venture capital specialist at Bird & Bird, says: “The VC industry as a whole has been on a phenomenal growth journey almost since the last recession. 2019 was a record-breaking year featuring mega deals over investments in the hundreds of millions at valuations in the billions of dollars. The beginning of 2020 was the same. When lockdown happened, the funding was switched off almost immediately with some deals deferred or stopped altogether. Yet in hindsight, that period where everything stopped, was a short timeframe.

Rock stars get support

Even at this stage, the UK start-up ecosystem soon began to demonstrate its resilience.

“At this point in the pandemic, the main focus for VCs was on moving money to ensure that the companies with the best prospects, the rock stars in the portfolios, were shored up and adequately financed; that they had whatever runway they needed to see this thing through.”

Mark Rundall, partner at Bird & Bird

There was then a move amongst companies to favour debt funding over equity, partly fuelled by concerns over supressed valuations.

The debt component took over. It was not that funding stopped, but it shifted. Once companies got over the immediate need to survive, they began to understand there was a way through this. For almost every company, apart from the ones that would have failed anyway, there was an answer somewhere,” says Rundall.

VC partners played a particularly important role when the pandemic began, says Robert Taylor, a ventures lawyer and legal counsel at Octopus Ventures.

He adds: “A member of the Octopus investment team usually sits on the board of an investee company.

The first priority was to reassess the budgets for this financial year. They worked with the companies to revise budgets, see where cost savings could be made, consider what new run rates were going to be, and establish where emergency funding was needed.

3 in 5

London businesses say that they have diversified and adapted their offer as a result of the pandemic

The survey revealed that three fifths (61%) of London businesses say that they have diversified and adapted their offer as a result of the pandemic, with nine in ten (91%) of these businesses expecting to continue these changes after the pandemic.

Reforecasting to zero

With some travel companies for example, there was a real risk that revenues would reduce to zero, possibly for a prolonged period of time. Many of these companies were supported by their existing VC investors, Taylor says, with many using convertible debt given the pricing challenges of equity funding, at a time when there was significant uncertainty regarding fair valuations.

Yet since this emergency phase, the start-up market has stabilised. As Rundall observes, since September, eight and nine-digit deals have been back on the table
At the same time, at the other end of the market, angel investors who typically invest through EIS and SEIS, have not held back and crowdfunding platforms have been more popular than ever.

He points to a successful crowdfunding round for THIS™ – a firm offering meat alternatives – which still raised over one million pounds on the Seedrs platform in record time.

The return of investment confidence

There is an underlying confidence in the start-up ecosystem in the UK as a whole, but particularly in London. There was a lot more negative press than perhaps was justified,” says Rundall.

The fact that new start-ups have succeeded in attracting funding confirms this analysis.

Felicia Hjertman is the founder and CEO of Tillit, a retail investment platform due to launch this year.

She says: “When the crisis hit in March, fundraising pretty much dried up overnight and I was advised to push my raise out as far as I could. We started in June, first speaking to my own network, then to other angel investors and early-stage VCs.”

There were fewer investors writing cheques, there was less money on the table and the process took longer. For some investors, the due diligence process doubled from three months to six months.

However, she met with success.

“We aimed to raise 12-month runway, as a minimum. But fortunately, we ended up raising double our target.

Start-ups and investors had to get used to doing things virtually, and I think investors have now gotten much more used to writing cheques, without the need to meet founders in person.”

Felicia Hjertman, founder and CEO of Tillit

The shape of funding has also remained much the same.

Taylor says: “We invest in early-stage companies, with our investment criteria and investment terms fundamentally unchanged from pre-crisis criteria. We still seek pioneers and target companies with potential for at least 10x growth.

However, it’s clear that there is a lot more discrimination by sector. Travel, tourism and hospitality may require successful vaccination programmes before funding becomes available.

Yet Taylor points to subscription services, healthcare and firms driving automation as sectors which are faring well with few funding challenges.

Indeed, Octopus Ventures’ focus on deep tech which covers AI, machine learning and quantum technologies, the future of money, the future of health and the consumer has stood it in good stead.

We are feeling fairly bullish and are starting to see some companies outperforming their recast budgets, while others have outperformed their original budget as they have managed to adapt better than their competitors and have turned the situation into a positive,” he says.

The investment pipeline is looking busy. We are much more optimistic than pessimistic.

The success of another start-up effectively formed in COVID-19 conditions also gives cause for optimism.

Uncapped was founded in late 2019 and launched publicly in January 2020 to offer fast, flexible and affordable revenue-based financing loans to online businesses which, traditionally, have had to rely on dilutive equity capital as their main source of funding.

Uncapped raised an additional $26m in 2020 in the middle of COVID-19, in a funding round led by Mouro Capital (the rebranded ‘Santander InnoVentures’) with participation from other leading European venture capital funds Seedcamp, Whitestar Capital and Global Founders Capital.

Uncapped’s head of strategic partnerships and general counsel, Jamie Whitcroft says: “January and February were our first two months of trading and were very positive, and then COVID-19 hit. We decided to pause lending for a couple of weeks in early March to assess how big the impact would be on our target customer segment. However, after tentatively resuming lending in mid-March, we actually saw increased demand, particularly in sectors which received a boost from the shift to online spending, such as e-commerce. We then raised the additional investment to double down on growth.

Successful sectors

We primarily fund technology and e-commerce companies and have been fortunate with the shift to online. Having launched in 2020, we’ve only really operated within the ‘COVID-19 environment’. It’s definitely made us a stronger and more resilient business” says Whitcroft.

Uncapped focused on what it identified as successful sectors likely to grow during the pandemic such as health & wellness, FMCG, gaming, SaaS, EdTech and retail staples. “Until late last summer, we tended to limit investments within categories we thought might be negatively impacted by the pandemic, such as luxury goods.

However, we’re now more bullish as sentiment generally appears more positive with the vaccine being rolled out and the extension of governmental support.” he says.

Rundall also saw a huge interest in anything related to sustainability and impact, ranging from THIS™ with its successful crowdfunding to large scale carbon capture tech firms and clean growth funds.

The lion and the wildebeest

There were some challenges for FinTechs.

Trystan Tether, Bird & Bird partner and member of the firm’s International Finance and Regulation group says FinTechs are often “a lion trying to take down a wildebeest”. They face entrenched, powerful incumbents and require a lot of funding as they acquire customers, scale and, ultimately, achieve profitability.

Tether says that could have caused problems, but that often doesn’t seem to have been the case. Indeed, significant funding has come on stream in the third quarter, if not quite back to normal.

He gives a balanced assessment. “There will be a recessionary overhang. You could say there will be less money and less opportunity to make money – fewer payments for payment firms to process for example. The other way of looking at it, is that people will seek more efficient, competitive solutions. Change and even hardship often produce as many opportunities as challenges. Recession may be a boon to FinTechs.

The Future Fund proves
an important tool

The Government has played a role in helping restore confidence.

In April, amid a raft of emergency funding designed to keep businesses afloat, the Chancellor launched a £500m Future Fund to provide loans to UK tech start-ups. In June it was extended it to non-UK firms with a significant UK presence. Loans of between £125,000 and £5m were offered with a requirement for matched private sector investment.

For the right company and the right amount, the Future Fund has proved an interesting tool. It helped companies realise there were options.” says Rundall.

The pandemic allowed us to help companies understand the differences between various funding options, the internal rounds with existing investors or convertibles with new investors and things like the Future Fund.

Brexit still poses questions

Alongside post pandemic repairs, the thin Brexit deal may provide significant headwind. Firms without a significant presence within the borders of the single market may need a base inside the EU if they wish to operate there. Financial services firms have lost their passport.

There may also be recruitment challenges. Central and eastern Europe has been a valuable source of workers with programming knowhow.

Tether says: “The prospects for the tech hub in London have been affected to a degree by Brexit. It used to be that people would create their operation in London and use the financial services passporting across Europe. But I don’t see people leaving the London market behind. A lot of FinTech businesses have been created in London. People want to live in London and to supervise the rest of their business from there. There is good financing here and a smart venture capital system that is difficult to replicate.”

Intelligent regulation

Although some regulated firms might argue the point, Tether highlights the broadly high quality of regulation in London as an important factor. In general, he says, the FCA is an intelligent regulator while its regulatory sandbox continues to be a success.

This could become more important.

The UK may start to diverge subtly. We might see investors attracted by consistent, clear business-orientated regulation. I don’t mean relaxed or soft regulation but clear regulation where businesses can say: “we know where we stand”.”

Rundall has concerns that a revenue-hungry Chancellor might be tempted to take steps which inadvertently discourage early-stage investments, such as reducing SEIS or EIS relief.

He warns against underestimating the role these grass roots investors play in getting businesses started before they get into a position to pitch to a VC.

They are encouraged by low interest rates and tax breaks on their investment. Restricting that could damage the UK as an exciting start-up centre.

Otherwise, he remains upbeat.

Rundall says: “The UK will continue to be a special place in the global start-up and venture ecosystem. In part, that’s because of the cultural synergies with the US which is where the vast majority of overseas VC investment originates.

England has a well-established, well-respected legal system. It’s not just the legal system itself, but the fact that overseas investors already know what they’re dealing with. In many ways, coming out of the crisis, the UK will still hold a strong position in that respect.

External Contributors:

Felicia Hjertman, Founder & CEO at Tillit

Jamie Whitcroft, Head of Strategic Partnerships & General Counsel at Uncapped

Robert Taylor, Ventures Lawyer at Octopus Ventures

What's next? Follow the series