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‘For EU FinTech startups it would be foolish not to come to London’

London has been a financial center for more than a century,  so it is no surprise that also many financial technology (FinTech) startups and startup accelerators are there as well. But is it really an advantage to move to London? Startupjuncture visited Startupbootcamp Fintech and interview the participants to find out.

Startupbootcamp: challenging assumptions
We visited Startupbootcamp FinTech two weeks ago, in the middle of the program. All the teams had settled down, met the coaches, worked with them on the business model and was preparing for the demo day. The atmosphere at Startupbootcamp was hectic: The startup space, officially called Rainmaking Loft (not really a loft) was filled with al the startup members. In London space is scarce and none of it was wasted. We asked Liquity (trading platform for equity investments), one of the selected startup about their experience: “The most important impact of Startupbootcamp is that you are challenged to validate all of your assumptions. Instead of building first, we are validating first: trying to understand who our first customers will be and what exactly they want.”

Strengths of London
While many cities in Europe have a financial sector, the financial sector in London is simply bigger: All the banks are represented. The fact that London itself is such a large metropole also helps: in and around London alone there are more people living than in the Netherlands. Secondly there is a lot more venture capital that elsewhere: rumor is that London alone has more venture capital available that the rest of Europe combined. FinTech startups often need a larger investment than other startups: they need to build a platform, wait for regulatory approval and decisions by larger partners. From start to profitability is a multi-year journey (more 5-7 years than the typical 2-3 years seen in business plans). Thirdly, in London may people from the financial world are willing to help startups ahead. People understand the concept of paying forward and are willing to give free advice, make connections or help a startup in some other way. Again this is important in the early phases of a company.

What progress to expect
IS_circle_v1One of the startups that came from continental Europe to London is InvoiceSharing: the new electronic invoicing platform. We asked founders Jeroen and Vincent what it was like to be in London for a startup. “Our experience has been great so far. London has such much energy: it feels more crowded and lively. When we go back now to Amsterdam for the weekend it feels nice and quiet compared to the inner city of London”. InvoiceSharing had three goals coming to London:

So far they are doing well on at least two of these goals: “Using the network of the sponsors of Startupbootcamp we were able to talk to many people inside banks, and found out that they have several needs that we can fulfil. We have also met several larger VCs in person and generated interest for our company”. An important lesson for this Dutch startup is that in London you often have to take an indirect approach. It does not pay off to set up direct sales meetings, or immediately ask for investment. Instead it works better to ask people for advice and build a relationship first. People want to get to know you first before they want to buy from you or invest.

Living in London
Compared to Dutch cities, London is expensive: anything you need, from food to hotels to office supplies simply costs more in pounds than you would have to pay in euros anywhere else. According to the startups we talked to this is something you have to and can get used to: the burn rate is higher, but as things are moving much faster the total startup cost is much lower. We were also concerned about the housing situation. Startupbootcamp has a superb location just next to the Tower of London and London bridge. But can startup entrepreneurs actually live in the centre of London? “Our apartment is only 20 minutes away. “ said most of the entrepreneurs. The key to living in London is to be content with a smaller space. If you do this, and it is still affordable to live close to the action. For the startups here, and especially for the short time of the program this is perfectly fine. Only when you want a house with a garden, you need to leave London.

With or without an accelerator?
Both Tab and Invoicesharing came to London as part of the Startupbootcamp accelerator program. This is only one of the several FinTech accelerator programs in London: other accelerators (Microsoft, Barclays, Techstars) have similar programs. With so many programs running, should startups only come to London for a program, or does it make sense to go your own way? This is actually a tough question. In the Netherlands it is perfectly possible to make it on your own as a startup: once you chose a target market, you can identify the important users and partners, approach them directly and build a reputation as an innovative company. For London this is much harder: there are much more startups in the same area and much more important users and partners to reach. The support of an accelerator helps you to become visible, so it makes sense to apply for a startup and hope to be selected. If however your idea is a revolutionary that the accelerators do not see it immediately, it still makes sense to come to London, according to the founders interviewed. You can still benefit from the the many useful meetups, find people that want to join your team as intern, employee or cofounder and build relations with investors. It just means that you have to work harder than in a smaller country, but with a bigger market to win.

When London is not the right place
So is London the best place for any startup, and what are the disadvantages of London? We also asked these questions to the participants. Tab, a startup coming from the United States had a good nuanced answer here: “Any European startup would be foolish not to come to London, since the VCs and the banks are all here. For startups that want to reach an American market the situation is different: There are some differences between the European financial systems and the US financial systems that make some ideas hard to transfer from one market to the other”. An example of a typical European idea is transferwise: the problem of sending money abroad is much more important in Europe than it is for US consumers, so it is no wonder that a European startup is solving it. Tab itself noticed that the current credit card based strategy worked well in the US, but not in many European markets: People in the Netherlands for instance use much more debit transactions than credit card transactions. Finally there is a difference in mindset between European investors and US investors. In the US it is possible to raise money with just a big idea: Investors understand that it takes investment before a good idea becomes a good business. European VCs are too much fact based: they want to see revenue and customers first before they invest. While this may work for some types of startups, for a FinTech startup this is often impossible. So for some of the bigger ideas and ideas that rely on specifics of the US market, London would not be the logical choice.

Next steps
The startups of Startupbootcamp are using their time in the program to validate parts of their business model using Lean startup, and also working with the sponsors on actual use cases. This was most visible sponsor, on the day we visited, is Rabobank: four innovation and business development specialists were present in the accelerator to work with the startups: with each startup they are investigating if it is feasible to run a pilot, for instance with their innovative platform MyOrder. The progress made in the program will help with the next step: Demo Day on November 12. On and after demo day most of the startups hope to raise additional funding for their next steps. Let’s hope they all indeed find access to all the VC capital in London and can conquer the rest of the world from there.

Banner photo: Konstantinos Kazantzoglou @ Flickr

Sieuwert van Otterloo
Sieuwert van Otterloo is IT expert by day and startup enthusiast by night. IT expert via Softwarezaken | innovation expert via Node1 | editor and cofounder of StartupJuncture | member of StartupDelta | startup investor. Reach out to Sieuwert via otterloo @ gmail .com

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