Silicon island could bridge UK-US cash divide
My Business FD and UBS invited eight of the most dynamic young technology companies to join them at UBS’s London offices to debate the crucial issue of securing growth finance for the technology sector.
George Whitehead of Octopus Investments and Anna Andersen of Lloyds TSB shared their knowledge and insights into debt and equity funding.
Entrepreneurs are clear that there is an attitudinal divide between the US and in Europe. Gabriel Ortiz, CEO of ClickSlide said: “When I raised money I found it very difficult to get across the innovative side of the technology I’m developing. As soon as you go to an investor and start talking about how you are looking to solve software fragmentation they look at you as if you have got two heads.”
He also made the point that there seemed to be a difference in attitudes to risk between the US and Europe with European financiers wanting to see products and services address current markets and US financiers more likely to take a punt on an unproven service or product.
George Whitehead felt that venture capital in Europe was “beginning to deliver significant returns and this in turn has raised the profile of the UK and in particular the London entrepreneurial scene.”
He observed that “the maturing and growing sophistication of the Venture Capital and angel investing community, combined with the incredible tax breaks and incentives for entrepreneurship and investment will mean that successes that we have seen in companies in our own portfolio (such as Zoopla, Touchtype, Calastone and Graze) are very likely to be repeated.”
There was a feeling in the meeting that the more cautious attitude of European venture capitalists was not necessarily a bad thing. Gabriel said: “It was good for us as it helps us focus and define our goals so we are glad we started the business here as it gave us a really strong foundation to build on.”
He believes, though, that there is a real problem with money being more likely to come from San Francisco or Silicon Valley for start ups as investors in those locations tend to say yes we will invest in your business but you must come to the States. A number of people around the table cited examples of UK companies being funded by US investors and becoming US based companies.
Gabriel said: “Europe has to start being as pro-active as the US. We are starting a concept called Silicon Island right next to Manhattan were we are building a nexus for European and American start ups. New York is so close to London that it could be a neat little concept and we’re pretty excited about it.”
George felt it was important to note that the majority of successful investors recognize that good investment is all about backing the right team. Many early stage companies would be best placed working on attracting A-grade people to join their team either in an advisory or non-executive capacity in order to build up their credibility and really work on their business model, before dedicating all their resources on fund raising.”
Michael Doyle, who is responsible for business development and incubation services at Everlution Software said: “Obviously financing is about risk and reward but the decision has to be about more than just the numbers. In the technology sector when you go to a financier in Europe they will be thinking about business risk - how much revenue - what sort of returns but it is more esoteric than that.
“In California you can find a venture capitalist who is a computer scientist who will totally get your proposition. It’s a big problem if you are raising growth finance for pure technology in London where the venture capitalists have no technology background so can’t take a holistic enough view of the business to really understand what sort of risk they are taking by investing.”
George pointed out that Octopus Investments was unique in the market because of their Venture Partner Group – a group of around 100 outstanding entrepreneurs and business people who co invest with individual companies in their portfolio and become actively involved with the businesses they back. This entrepreneur-led approach is the key to successful Venture Capital investing which is primarily about being a genuine partner with the entrepreneurs we back, helping build and support teams and together developing workable business models and World class businesses.
As managing director of My Business FD I agree. It’s got to be entrepreneur led and in the technology sector there is a real question as to whether the venture capitalists should take on technologists as advisers on deals. We see our clients hitting barriers when they go to a non tech savvy financier and start talking about an esoteric technology idea that has the potential to really disrupt the market.
That’s why we make sure we work with a pool of investors, like Octopus, who are looking for exactly that sort of opportunity and have someone who gets the technology as part of the team.
The other key is if there are barriers you need to say it differently. It’s about communication. We find our part time finance directors are often acting as translators between the entrepreneur and the financier as how you present yourself in this market makes a massive difference.
Chairing the meeting Trevor Overall, joint MD concluded: “While some emerging venture capitalists are starting to perform very well in the technology space there is still room for improvement.
“There needs to be more collaboration between investors and entrepreneurs and once investors en masse start putting technology experts into their teams as a matter of course we will start to see the technology sector in Europe achieving its predicted double digit growth.”