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Harper James Solicitors, a leading law firm that supports startups, has published a special report into startup investment activity during lockdown. The report, shared exclusively with us today (11 August), details how startups can be secure as we emerge from these unprecedented times, with advice from a range of investors and entrepreneurs. Nick Owens, the firm's PR Manager, takes us through some of the highlights.

Many SMEs would be forgiven for spending the last three months focusing on survival. Yet as lockdown restrictions lift, an alternative story is beginning to emerge.

A story of cash-flow and investment - which has continued to pour into the startup sector.

In fact, one recent survey showed that while the country shut down, more than 65% of angels continued to open their cheque books. And the amount they were handing over was, in many cases, up 18%.

Harper James Solicitors has been at the heart of this activity. Since March, the firm has helped companies secure millions of pounds - which will provide a solid base for some of the UK’s most exciting startup firms.

“Britain’s startup scene is still very much alive,” said Toby Harper, the firm’s CEO. “It has been inspiring to see how many have pivoted to find success in such a tough environment.”

The report highlights three key issues about the new world startups trying to secure investment in the current climate must be mindful of.

Investors are still very much on the hunt for “unicorns”. Those deals are taking place and how they are completed is very different. Face-to-face meetings, usually a staple part of any deal, have been replaced by video calls. This shift has presented both challenges and opportunities alike for startup firms and investors.

Those receiving funds are now more likely than ever to rely on the mentoring of investors to help them navigate current economic challenges.

Rob Kniaz, the founding Partner of Hoxton Ventures, recently announced a new £70m fund which will back fledgeling companies across Europe. He believes Britain is still home to “fantastic founders” and that a huge chunk of this investment will remain in the UK.

Rob, a venture capitalist who has invested in Deliveroo, DarkTrace, Babylon Health, TourRadar and Behavox, said: “What I have learned from the pandemic is that there are still fantastic founders. I was a bit fearful that idea flow would slow but I think like in other crises, it causes people to reconsider their existing default path and revisit other paths they can take."

According to experts, the challenges many startup firms face over the next 12 months will be unprecedented. The Government’s package of rescue measures has underlined the role they see startups playing in the economic recovery.

In April, it launched its Future Fund scheme to provide loans to companies that may not be able to access other support schemes because they are yet to turn a profit.

To date, more than 320 companies have benefited from £320m of support from the fund.

Under the scheme, early-stage, high-growth businesses from a diverse range of sectors can apply for a convertible loan of between £125,000 and £5m to help them through the coronavirus crisis.

But there’s still £120m left for startups to apply for. Those who stand out and provide a robust business plan are the most likely to succeed.

Among the entrepreneurs Harper James has supported is Mikhil Raja, CEO of Sonic Jobs. 

He has recently secured pre-series A financing from UFI Ventures, Velocity Capital, the Future Fund and existing angels. This is part of £2.5m in funding which the London-based recruitment app - which specialises in finding jobs for candidates in the hospitality sector - has secured since launching three years ago.

Mikhil said: “The pandemic has thrown up new challenges for startups wanting to secure investment. Investors want to know how resilient you are as founders and as a business. The world has changed. As startup founders, we need to be quicker to adapt than the incumbents and we need to demonstrate how we are going to succeed in the new world.”

Biotech firm Microfluid X secured £1.4m in seed funding weeks after the UK went into lockdown. The startup which develops tech for cell-therapy now plans to rapidly accelerate its research work.  

CEO, Antoine Espinet, said: “Digital meetings have made it easier for startups to get a meeting with potential investors, and particularly for international investors, since the travel barrier doesn’t exist anymore. Therefore, my advice to startups is to reach out to investors locally and abroad, at least initially, to establish contact and gauge initial interest.”

Tech firm ANB Sensors secured a major new chunk of investment in June to help expand its work in PH development. Kay McGuinness, one of the firm’s founders, says the key to their recent success has been remaining flexible.

“Finding ways to build a good relationship with the investors is key,” she said.

“Flexibility in the valuation and a comprehensive financial model to reassure the investors and show you are astute to understanding the climate and how it is changing.”

Jon Arcos, founder of Axis Spine, secured £830,000 in funding in April from Mercia Asset Management and two other investors.

The healthcare firm - which develops spinal implant technology - now plans to expand its work by moving into the American market.

“My advice to startups looking to secure investment in the current climate is it is time to go back to basics. Focus on the genuine value proposition of your product or service and ensure you convey what it is and why it’s special. Good businesses will always get funding.

"Maybe an alternate version of the plan needs to be developed alongside plan A which delivers a lower-spend model to prove the concept in a smaller way ahead of a bigger raise once conditions improve. If that plan requires less funding that’s less dilution during the high-risk raise and once things settle you can go and raise more with more data and a higher valuation.”

In mid-June tech startup Luffy AI was awarded more than £200,000 in funding to support its “transformational” research work. In a major boost, the Oxford-based firm received a grant from the UK Innovation and Seed Fund and now plans to use it to develop their product.

Its co-founder, Alex Meakins, said: “Cash flow is perhaps more important than normal. You should really think about if COVID will slow down your customer pipeline and therefore you will need extra cash reserves. Getting to market may cost more than it did pre-COVID. But otherwise, all the fundamentals are still the same.”

The full report is available online now.

Contributed by Nick Owens
Neina Sheldon
Article by Neina Sheldon
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