The last 10 years have been dominated by the lean startup. Often inexperienced and under-qualified founders have been over-funded and hyped by VCs to create startups that claim to change the world but deliver questionable value to society. This second wave of the internet democratized the startup scene and reduced the barriers to entry to enable the rise of the unicorn culture. Unfortunately, we can only deal with so many social apps, two-sided markets and sharing economy propositions and now the pendulum is swinging in the other direction.
The likes of Steve Blank and Eric Reis did an amazing job of making startup building accessible to anyone with enough entrepreneurial flair and drive. Access to internet cloud-based hosting and mobile platforms reduced the cost to play and provided unprecedented access to markets. Venture capital firms saw the potential and jumped on the band-wagon. Without doubt this phase has produced awesome change and many notable successes.
The last couple of years have seen some dampening of the market, especially in Silicon Valley. Although, it looks like a full bubble has been avoided the appetite for new consumer apps is plateauing and VCs are increasingly focused on managing their existing portfolios, particularly at later stage.
This tightening of the market has coincided with a period of significant technological change. In a difficult market there is always a tendency to focus on investing in real IP which has an improved risk profile and VCs are now shifting their interest into these areas. The recent report on The State of European Tech 2016 by Atomico confirms these trends.
The third wave of the internet will harness technologies such as AI, AR/VR, Genome Sampling, Blockchain, Robotics, Autonomous Vehicles, Graphene and other deep technologies to solve some of the big challenges facing society. This will demand a different approach to supporting and building startups. The lean methodology will have to be adapted to support more complex development cycles and teams with a deeper technical focus.
Europe and particularly the UK is in a good position to exploit these changes, with several world class universities and a strong reputation for advanced R&D. The UK Government seems committed to supporting this with increased funding and there is a growing trend of graduates moving directly into building startups following their university studies.
These trends will involve a huge shift in mindset both from existing founders and investors. It is going to become increasingly difficult to take scrappy lean startups to market with a simple combination of capital and hype. Founders will need to manage teams with real technical depth over longer timeframes and this will have implications on the way investment is secured and channeled. Investors will need to get better at spotting teams earlier in the cycle and providing commercial guidance. Partnering will come back to the fore as many of these technologies require a complex web of participants to get to market. Think autonomous vehicles or virtual reality which will often require combining hardware, software and content to deliver the whole experience.
We can be immensely positive about the technological changes we are about to experience. They will bring a healthier and better educated society, wth ever reducing poverty across the globe. However, there will be increased polarisation in western societies between those that can understand and exploit these deeper technologies and those left behind. The startup community needs to be aware of this and show some leadership in spreading the benefits more widely.
Blog by Paul Dowling — Co-Founder of Dreamstake the world’s first tech accelerator platform matching over 16,000 founders with the most appropriate investors using a unique startup rating system. This allows entrepreneurs and investors to monitor startup progress and inject capital and support when most needed. Startup founders create profiles on the platform and get curated introductions to investors. We are constantly looking for great early stage tech startups. Investors please contact [email protected]