Despite Brexit, the London start-up scene is rocketing and taking the biggest share of Europe’s venture capital. In the middle of this is Max Kelly, who emphasises teams, not individual founders.
“Suspend your disbelief because the likelihood is that you are going to fail. Eight out of 10 start-ups fail.” This is probably what Techstars London managing director Max Kelly tells every start-up that crosses his path.
We meet in the vaults beneath Dogpatch Labs in Dublin and emerge from the serene, subterranean silence to a maelstrom of young office workers at the Chq building, horsing into whatever they could grab for lunch. As we survey the crowds, I remark that the place was silent as a grave just after the financial crash of 2008. Things have changed for the better, we agree. We take one look at the throngs and decide to grab a sandwich and return to the underground.
‘It’s all about people and we think co-founders are more important than individual founders. They are exceptional. And that’s the thing we really care about’
– MAX KELLY
The head of Techstars London believes that honesty is the best policy, and has developed something of a modus operandi for figuring out which start-ups will go the distance. With machine-gun-like precision, he incants: “Team-team-team-market-traction-idea.”
The founding team is possibly the core reason why only 10 out of hundreds of start-ups each year make the cut for the London chapter of Techstars. And it’s likely the reason why two Irish start-ups – SwiftComply and Aid:Tech – impressed him hugely.
The global Techstars start-up family
Techstars is a global start-up accelerator that was founded in Boulder, Colorado in 2006 by David Cohen, Brad Feld, David Brown and Jared Polis. It holds 13-week programmes for start-ups in cities like Boulder, Boston, New York, Seattle, Tel Aviv, Austin, Chicago, London, Cape Town and Berlin, to name a few.
Hundreds of companies have passed through its programme and collectively, they have raised over $8.3bn in funding. Mentors include Foursquare’s Dennis Crowley, Tumblr’s David Karp, HubSpot co-founder Dharmesh Shah and Union Square’s Fred Wilson.
The Techstars Connection programme in New York is headed by Irishman Eamonn Carey.
Kelly isn’t your typical start-up entrepreneur, but he has steered some interesting start-ups on behalf of celebrated businessmen such as Richard Branson.
He spent 12 years at Virgin where he was responsible for strategy, starting up new divisions like big data consultancy Virgin Insight. He also launched the mobile operator Virgin Mobile USA, which grew to revenues of $1bn within 18 months, as well as Virgin Mobile Canada. Both businesses exited for $500m for Branson.
The Oxford University graduate also started Last Second Tickets, which he sold in 2014.
Kelly believes there is no perfect time for anyone to embark on the entrepreneurship path, adding that it takes a certain amount of bravery and character.
“If eight out of 10 companies fail, then the odds are already against you. Of those who do get seed funding, only about a quarter or a third will ever get to Series A. If you do get venture capital funding, it is likely to take seven years to get an exit, on average.
“It’s a real long-term commitment that actually lasts longer than most marriages these days.
“To do what you believe in takes incredible courage.”
While Kelly delivers the devastating truth about start-up life, he does so cheerfully, because he believes in his heart that in the spirit of innovation of our times, none of this effort will go to waste.
“You have amazing people doing amazing things and while start-ups are generally good for job creation, the thing that I am most passionate about is the amount of innovation they create.”
He points out that what is singular about the status quo is that the barriers to starting companies are so low, especially in the UK, with its competitive tax incentives for start-ups. This is helped by the cloud, enabling people to start a business on a shoestring budget.
“Almost all of them will fail, but the handful that will win will have done and created something that is new and innovative that, in time, will be better for all of us.
“And it doesn’t stop there, because it will inspire a whole lot more people to start creating companies. This virtual circle of improvement is continuing and it is really interesting.”
Kelly got involved in Techstars in 2013 when London became its sixth location. Techstars runs general and focused accelerator programmes in partnership with brands like Microsoft, GE, SAP, PwC, Target and Nike. It recently started an internet of things accelerator in New York in partnership with Bosch, GE, PwC, SAP and Verizon, and it has also been running a fintech-focused accelerator in London with Barclays.
“It is great for the start-ups, it is great for the corporate, and it takes everyone forward,” he said.
Techstars is now up to 25 programmes, with 250 companies going through each year.
The pluck of the Irish
“I have to admit I am surprised by the sheer level of participation by Irish companies,” Kelly says, explaining why he is in Dublin meeting various founders and investors.
“We’ve had quite a few Irish companies coming through and in the most recent cohort, two out of 10 were Irish. The founders of each company are all stars. SwiftComply is automating compliance for smart cities and it has such an amazing team. Aid:Tech are bringing transparency to global aid programmes using blockchain technology, and their first two clients are the UN and Red Cross.”
I ask him are there any specific traits among Irish start-ups that make them stand out.
“There definitely seems to be something in the character of individuals. They are quite driven and [have] the Irish charm, the chat – and they can sell.
“The biggest challenge they – like all start-ups – face is revenue, but they are very pragmatic. Ireland’s 12.5pc corporate tax rate has brought in a lot of companies that have fuelled the digital skills and selling capabilities of people who decide to start up. So when I visit cities like Dublin, the raw material of talent is there to build some exciting, professional start-up teams.”
Another factor is Dublin and Cork’s proximity to London. “London is getting about one-third of all investment in Europe and Ireland’s proximity means investors there are comfortable about investing across the Irish Sea.
“A good funding ecosystem is key, and proximity to London is in Irish start-ups’ favour. Also, Enterprise Ireland has done a great job in supporting a vibrant set of quite sophisticated companies, as opposed to other start-up ecosystems around Europe.”
London survived the Blitz, it will survive Brexit too
Kelly accepts that while London wanted to stay in the EU, economically, it is vastly different to the rest of the UK. While it boasts the most frenetic and well-funded start-up ecosystem in Europe, he says it is hard not to be concerned about the future.
“Globally, the first three-quarters of 2015 (in terms of funding) were so exuberant. Then there was a cold snap in Q4 and it has continued through 2016. The amount of deals and dollars has declined, despite the size of funds increasing.
“Silicon Valley Bank has pointed out that there is a wall of money out there that needs to be deployed. But the problem is [that] investors have become tentative.
“People want to put their money to work but they are nervous, and that’s because of Brexit and Trump and the market cycles.
“The reality is that 3-4pc of exits will be IPOs, the vast majority will be trade sales and that will always be the case.”
If anything, Kelly feels that what investors crave is stability.
For those thinking of starting up, he recommends that you never stop trying, despite the odds.
“In terms of infrastructure, you just need to plug in AWS and then use various API-based tools like Stripe or Slack. The costs of the past aren’t there anymore and the barriers are low.
“Innovation won’t stop. It is only accelerating and that’s because people have the passion.”
That said, Kelly has no patience for start-up tourists. “There is a scene around it … the asymmetric hair, the beards, short trousers, a pair of braces. None of that is real and you don’t need many people to create fantastic companies.
“This cycle of innovation will continue to spin and that in itself becomes inspirational for others.”
I ask him, on behalf of potential start-ups thinking of joining Techstars, how do they approach it?
“Like I said, we say ‘team-team-team-market-traction-idea’. It’s all about people and we think co-founders are more important than individual founders. They are exceptional. And that’s the thing we really care about.”