Pretty hard to live off £1k a month in London. Rent is going to be ~50% of that minimum, then you have council tax + bills. Doesn't leave much at all for transport/food and whatever else might come up.
The "London Living Wage" works out to about £1200 per month, after tax. There are people earning less than this in London.
If the startup doesn't need to be in London they could cut costs significantly by being further out of London in the suburbs, or in a satellite town, and taking the train in when necessary. But this can put off potential employees. Maybe it could work at the beginning.
Of course finding a room like that and getting it over the other dozens of people who want it is not that easy, but that's a system you can hack too.