Jonathan Gan Whichit

8 things an Israeli startup must know about the UK market

“This list is a macro-level review of the important aspects that will provide Israeli entrepreneurs and startups with insight before attempting to join the UK market,” explains Whichit CEO Jonathan Gan

I've been in the United Kingdom for eight years now, working in the local business ecosystem. After hundreds of conferences, thousands of exchanges, customers, suppliers, investors, collaborations, and acceleration programs, numerous wins in national and international competitions, several investment rounds, and one technology startup - I summarized eight crucial points an Israeli startup should know about the British market in this article. Here's one for every year. Each of the topics could be its own post, but this list is a macro-level review of the important aspects that will provide Israeli entrepreneurs and startups with insight before attempting to join the UK market.

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Jonathan Gan Whichit
Jonathan Gan Whichit
Jonathan Gan Whichit
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Blue Ocean
In general, I'd describe the UK market as a blue ocean. It is one of the world's most powerful nations and the birthplace of the Industrial Revolution. However, in the field of technology innovation and entrepreneurship, the market is very much open to new ideas and startups. The local market is full of talent which is driving the new technological projects and rates of technology developments. The startup industry is still growing rather than being established and saturated like the Israeli entrepreneurial sector and even that of New York or Silicon Valley.
The Holy Triangle
The confluence of cash, firms, and consumers is what I call the "Holy Triangle." And the United Kingdom has all three:
  • Capital: London is one of the world's most important financial centers. Because of its topographic-time position, it is at the heart of the financial world, ideally located between Europe, the West, and the East. Aside from institutional financial markets, the United Kingdom is endowed with old and new money searching for other investment options for real estate and the stock market. Angels, Family Offices, syndicates, and hedge fund investments all reflect this.
  • Companies: Due to the strategic location and economy, many international corporations have their headquarters or an office in the United Kingdom. Examples include commerce, aviation, tourism, transportation, FMCG, and other verticals including technology, retail, marketing, and advertising firms. This presents a major market potential for all B2B startups.
  • Customers: With a population of 67 million people, 9.5 million of whom live in the London metropolitan area, England ranks tenth in the world in terms of GDP, with $2.79 trillion. This presents a major market potential for all B2C startups.
The Kingdom of Startups
Not surprisingly London (together with New York) ranks second in the world after Silicon Valley as a startup ecosystem, while Tel Aviv took seventh place. Every year, over 700,000 new companies are established in England, with approximately 20,000 of them being technology enterprises. With over 270 acceleration programs and incubators nationwide (70 in London), over 1,300 active venture capital funds, an estimated 1,000 family offices, over 15,000 Angel investors, and over 1,300 flexible workspace firms, all geographically dispersed over an area of about 319sq km in central London alone. With sophisticated and convenient public transportation, the capital is a hotbed of innovation. London now boasts more than 220,000 startups and 71 unicorns (out of a total of 116 in the whole UK). Fintech, HealthTech, Cyber, e-Commerce, Retail, and AgriTech are the most significant tech verticals in the UK. For Israeli entrepreneurs who come here, it is a great location to launch a startup and profit from local market development before expanding into other international markets.
The British culture
There are many things that may be stated about British culture, just as there are about any other culture around the globe. Here are three key elements to consider when it comes to British entrepreneurial culture:
  • Risk-averse: The average British investor dislikes taking risks, which is a conundrum considering the entrepreneurial daily pattern has a 97% failure rate. That makes sense when you consider that the majority of the money is "old money" from the real estate industry, where the risk is substantially lower. As a result, a startup that does not offer "certainty of success," "track record," or trustworthiness will likely not be of interest to the average local investor.
  • Avoiding confrontation: In British culture, disagreement is avoided at all costs, and you will unlikely hear the word "no". As a result, when it comes to investors being very polite in person and seeming to show some interest, pursuing them could often lead to nothing. It is important to understand that this politeness is a way of the local culture rather than a decisive desire to pursue any further.
  • Lack of directness: The direct, impatient, and pushy approach of Israeli, "Yalla," "come on," and "T'achles" are not approaches frequently seen in the UK. Take a deep breath and accept that you will spend more time talking about the weather and other minor topics before getting down to business. Creating a relationship far outweighs closing a quick business deal. It is altogether a different business mentality.
The Angel investment scheme
The UK government aggressively supports start-up funding and creativity, with the British Angel Act being one of the most renowned regulations. The full name being Seed / Enterprise Investment Scheme (or S/EIS). According to this law, if the EIS criteria are met by the company, a UK investor can claim a tax credit of 30% (or 50% for SEIS) of the amount that they invest, as long as they have enough tax paid to match this against. If the shares are held for at least three years and sold for a profit, then any gain is free of capital gains tax. If the investment isn’t a success, then a capital loss can be claimed, giving relief at the taxpayers’ top rate of tax. For a taxpayer who pays tax at the additional rate (45%) they would receive tax relief, in total, of 61.5%. There is much fine print to these schemes, but there is no doubt that seed investments in the UK are a dream come true for Israeli entrepreneurs.
Despite my enthusiasm for the idea, I regard this statute as a double-edged sword. On the one hand, this rule stimulates startup investment, which has given entrepreneurs access to a vast network of potential investors, particularly in England, where there are thousands of family offices, investment syndicates, and private investment groups. On the other side, it leads to a market saturation in which startups with questionable investment potential acquire tens of thousands of pounds in funding. As a result, unnecessary noise is generated, and the threshold for future investments is raised.
Innovation grants
The government's innovation grants are one of the most appealing investment channels in the Startup Kingdom. On offer are multi-year plans with adequate administration and supervision, coming from a country that knows how to turn procedures into ideology. Throughout the year, the government organisation in charge of handling the awards, Innovate UK, announces hundreds of grants for the general public on their government website, each with the essence and objective of encouraging a certain sort of technology or technical challenge. The list of grants and payments appears to be a gold mine for the Israeli entrepreneur at first sight, especially when you consider that no part of the company's equity nor profits are taken and reimbursements for the government aren’t demanded (yes, yes, you read correctly). On the other hand, this isn't a simple or straightforward submission procedure; it requires meticulous organisation and execution, as well as verification of the same.
It took me a month of preparation with dozens of documents, including a mind-boggling financial Excel spreadsheet and a business strategy. My company received a £250,000 grant to help develop one of the company's products—a year-and-a-half project with flawless execution. It's worth the effort if you work effectively.
Return on investment in R&D
Investing in R&D is a necessary component of every startup's survival, but what if I tell you that you can get up to 33% of your R&D costs back from the government? The R&D Tax Refund Scheme in the United Kingdom is a great way to save money on research and development. Filling out forms and submitting papers is a very standard task for your local accountant in terms of financial management. This is, nevertheless, an investment channel for the entrepreneur. A sophisticated entrepreneur should maximize these returns by leveraging his current funds and streamlining the startup activities to extend the runway.
The Israeli entrepreneurial ecosystem in the UK
Surprisingly, the Israeli entrepreneurial genome appears to have yet to take off in London. Compared to Manhattan, Silicon Valley, and even Los Angeles, the Israeli entrepreneurial environment in the UK is still minimal. The great majority of Israeli high-tech employees in the UK work for tech giants such as Google, Facebook, and Amazon, or well-established startups, but the number of Israelis in early-stage and even growth startups is still small.
There are various Facebook groups where you can meet professional Israelis in the local scene. Some of these include the Israeli Startups in London and the Israeli Tech Parliament in London. There are also organizations engaging in Israeli-UK relations, such as the UK Israel Tech Hub, the Israel UK Chamber of Commerce, the UK Israel Business, and the Israeli Business Club.

Jonathan Gan is the CEO at Whichit, a provider of a Interactive Commercial Content platform for brands and publishers.