Thursday 12 May 2016 4:12 am

How new London mayor Sadiq Khan can solve London’s startup funding crisis

I would like to congratulate Sadiq Khan on becoming London’s new mayor and it is encouraging that he claims he will be “the most pro-business mayor London has ever had”.

There is a booming startup scene in the capital which, if supported, will benefit our City for generations to come. But success is by no means guaranteed; part of the problem is the large funding gap between the level of investment needed by London startups and the amount committed from the investment community.

Take fintech where, in spite of the market sizes currently being relatively similar, California-based fintech companies had almost seven times more invested in them than their UK counterparts in 2015, according to EY.

There is not only a shortage of funding but, importantly, a shortage of localised funding. A recent report by Compass.co found that, while London had one of the most impressive startup markets, only 53 per cent of funding rounds had local-only investors. Entrepreneurial talent, with the potential to become truly global players, are struggling to raise money locally and are turning to overseas investors to achieve their ambitions.

Part of the lack of appetite from London-based investors may come from a lack of awareness about alternative investment options and the incentives for UK investors to invest in early-stage UK businesses. A study by the Institute of Directors found that two-thirds of its members were aware of the Enterprise Investment Scheme (EIS) and only 38 per cent of the Seed Enterprise Investment Scheme (SEIS), which both offer tax reliefs to those investing in qualifying early-stage, high-growth businesses. Of those who were aware of the schemes, just 6 per cent heard about them through either a government official or a Local Enterprise Partnership.

So I would encourage Sadiq to focus on ways of promoting the London startup scene and making it easier for investors to access local investment opportunities to improve funding for London-based entrepreneurs. By creating a mayor-endorsed marketplace for investors to review opportunities across all areas of industry in London, Sadiq can showcase local investment opportunities across different channels, asset classes and verticals, giving businesses the chance to reach a new pool of investment.

Creating a way for local firms to receive additional funding from engaged investors via a credible and sustainable model will also drive further innovation through proper financing. It would highlight the amount of talent coming out of the city and position Sadiq as a leader in bringing investment to London.

The platform could also further support Sadiq’s Business Advisory Board (which aims to shape policy towards business) and empower businesses to shape the policies that directly affect them by collecting data on local industry growth, trends and the sentiment of local emerging companies.