Ecosystem Insights from 2023

Having completed (and thoroughly enjoyed) my first calendar year at CodeBase, I thought it a good opportunity to reflect on some ‘23 learnings and look forward to ‘24.

CodeBase has evolved to be one of Europe's largest ecosystem builders, running a portfolio of programmes including:? Techscaler , LawtechUK , Barclays Eagle Labs Industry Bridge and Mentoring, Edinburgh City Council Green Tech Futures & MedTech Forums, Edinburgh Futures Institute - Playbooks for Building Startups, Opportunity North East Limited EnergyTech Bridge. CodeBase will also soon be re-launching a new CodeClan proposition.

An important role for CodeBase is to be outward looking; to travel, host and connect with startups, founders, investors, mentors, corporates, policymakers and other ecosystem builders (locally and internationally).

This gives us a privileged insight into what's going on across the UK and wider international ecosystems.

Here are some of my personal takeaways from 2023, ranging a variety of topics:

Early Stage Funding remains a challenge in the UK:

• Many early stage UK startups have or are still taking investment from inexperienced investors that are creating barriers to further growth. For example: (a) misplaced board direction caused by a lack of experience in how successful tech startups scale; (b) short termism: Some investors are using tax efficient vehicles looking for low-risk, non-Power Law type returns (eg x1.2 not x200) and to extract value short-term vs being patient supporting in the long term.
• We heard directly from US and global investors in NYC, San Francisco and during an inbound programme to Scotland, that the UK has a great reputation for human capital creation and that valuations are attractive/competitive. But they need more like minded UK based VC counterparts.
• Conclusion: CodeBase is ramping up efforts to create better connectivity to Power Law and experienced investors in the UK and beyond, whilst also making sure founders are ‘funding ready’ and understand as much what not to do, as what they should. There is also a market opportunity for more UK investors that fit this mould be be created.

The US bounced back quickly in ‘23 - big focus shift to AI:

• In San Francisco at SaaStr (September), the seasoned investors believe US tech bottomed out (following the tightening of investment, and rising interest rates), meaning cautious optimism for early stage startups.?
• Lots of money has piled into AI with strong beliefs that a select few of these startups will set the new norms equivalent to the internet in the 90s, along with offering seismic financial returns.
• US VCs are categorising AI startups: (i) Infrastructure (eg data mgmt tools, ML platforms), (ii) Copilot's, (e.g Chat GPT, GitHub copilot) (iii) existing technology/apps/propositions being turbo charged by AI (e.g almost everything).

The UK is figuring out how AI will be implemented:

• In the UK, unsurprisingly, there is also lots of discussions about AI. CodeBase's involvement in LawtechUK has given us a front row seat in the Legal industry but also the jurisdiction, legal and regulatory considerations of applying AI technology in the UK. Including how:
• Generative AI will be an integral part of the future legal system and service industry. It won't be standalone but part of tech layers: ML, Gen AI and other tech solving different problems;
• Despite the new Tech, accountability remains with each service provider for the advice and output;
• There's a trade off between specialist and more general LLMs. Either way, consideration is needed re (i) search prompts becoming public, (ii) data rules & regulations, (iii) audit, (iv) cyber resilience i.e. it's not just plug and play tech as often suggested?;
• We learned that to enable greater confidence in AI, Tech needs to focus on resolving the main flaws: (i) hallucination, (ii) training biases, (iii) guaranteed justified explanations;
• We know large firms are asking for UK Policy makers to remain flexible. Too much rigidity too early will prevent secondary legislation being effective;
• We heard that this generation's graduates are becoming generative AI natives; ‘Chat’ will therefore become the future standard interface for how we work and receive services. The same needs to apply to how startups build.

AI is disrupting everyone's business model:

• We see across a range of industry verticals, UK founders leading SaaS and product startups are concerned (/fearful) that generative AI could now easily solve the problems they've been building towards (often for years). They're now faced with a dilemma of what to do next. Noting the funding landscape challenges and need to rebuild elements of their solutions just to stay relevant.
• Anecdotal feedback suggests that right now UK corporations are more cautious to adopt AI than those in the US.?
• Conclusion: AI is disrupting both the ‘disrupters’ (startups) and the incumbents (corporates). Everyone is still working out how to make this work for them.?
• Opportunity for Ecosystem Builders like CodeBase to deliver new programmatic interventions through this change cycle. Including: (a) Developing the right tech skills (something CodeBase is working on via next phase of CodeClan ), and (b) the creation of alliances that bring startups and corporates together to learn, ‘pathfind’ and co-build (possibly the next generation of CodeBase Industry Bridge).

AI can be a catalyst for Economic Growth:

• Local, regional and national governments (UK, Europe and beyond) are all on the search for growth. University agendas are also aligned to this too. Increasingly tech ecosystems and innovation agendas are being seen as one of the only ways to deliver this.
• Notwithstanding the above challenges, the AI led paradigm shift is a great opportunity for many industries &/or regions to develop a step change towards growth.
• As an example, along with a number of other colleagues, I have a keen interest in MedTech; the combination of market size + societal impact + existing UK capabilities (Uni’s, NHS, industry etc), represent an exciting prospect to use AI led tech to build transformational new businesses. We also believe a specialist investment fund vehicle could help accelerate opportunities such as these and is an opportunity we’ll be progressing in ‘24.

A couple of book recommendations:

I do like reading as a way to learn, and two have stood out this year relevant to some of my thoughts above:

• ‘The Power Law’ (Mallaby). A historical look at the origins and evolution of VC. Just as the industries that VCs invest in evolve and transform, so does VC. Is VC ripe for transformation in 2024?
• The second book is one I first read 11 years ago but not again until this year - ‘Good Strategy, Bad Strategy’ (Rumelt). I've subsequently reflected that I should probably read this most years and is a solid recommendation to anyone in a leadership position. In summary - Cut the fluff; Properly diagnose your situation, identify guiding strategic principles that leverage your strengths and address the diagnosis, define specific actions based on these principles (best to read the book).

Personal Resolutions for ‘24:

An annual summary wouldn't be the same without some personal resolutions for 2024:

• Exercise more (especially outdoors and with friends and family).
• Keep reading, including re-reading the best ones from previous years.
• Be much more ruthless with my work time and scheduling.
• Increase the time invested in strategic travel from c10% to >25% of my time.

I hope it was helpful sharing this - it certainly helped me gather my own thoughts.

I'm genuinely excited for ‘24 and the opportunity to continue helping build better ecosystems with our many partners.

All the best

Jon

PS despite the temptation, ChatGPT was not used to write the above. I probably should/will next time…

Chris Boyland Steven Drost Shona Marsh Martin Boyle Jimmy Vestbirk Beth Fellner Morag Macdonald Stephen Coleman OBE Matt Farrugia Kev Dhaliwal Barry McDonald Graeme Carruth Stephanie M. Shorter, PhD Ross Hamilton Luke Christoforidis Brian Sharkey Ana Gallardo Aleksandra Wawrzyszczuk Karen Towler Foras