Minding the gap for tech investment

The Mayor of London recently declared his mission to make sure the capital remains “a centre for disruptive technology and innovation” in the face of today’s political and economic uncertainty. This mission was at the very heart of finnCap’s recent Funding Tech Disruptors breakfast event as industry leaders asked, what can be done do to ensure Britain’s ambitious tech entrepreneurs continue to thrive?

“Scale-ups can still often find themselves living in the ‘Land of No’”

The prospects look promising as ever, with investment figures reflecting the country’s reputation as a vibrant destination for digital innovators. In the first six months of 2017, venture capitalist firms invested over £1bn in London's tech sector alone, over £1.3bn in the UK tech sector as a whole. Meanwhile, equity and venture debt funding in the year to date by unlisted UK companies raising between £2m to £25m is around £3bn.

“The value of storytelling proves a vital tool”

The funding gap

However, the narrative is not what it seems. finnCap’s Head of Corporate Finance, Stuart Andrews, presented guests with the stark contrast between the ample funding opportunities available to start-ups and the slowdown in funding by the time they reach the scale-up phase. So what can be done to address the challenge?

“Optimism is the essential ingredient”

Businesses and backers alike stressed two fundamental instruments entrepreneurs should utilise: ‘stories and stamina’. Greg Mesch, CEO of the UK’s largest fibre infrastructure provider, City Fibre, asserted that business leaders “need a vision that transcends what [they’re] doing”. This is what makes the most determined ventures grab and hold the attention of prospective backers.

Navigating the Land of No

If businesses are going to convince employees, funders and, most importantly, themselves of their high potential, they need to have a clear and powerful mission alongside a comprehensive business plan.

But while the value of storytelling proves a vital tool, scale-ups can still often find themselves living in the “Land of No”, according to Greg. This is a place that requires much patience and perseverance above all else.

“Only a small handful out of hundreds of companies succeed in securing VC funding”

Understanding the mandate

Optimism is the essential ingredient cited by guests to endure this challenging climate where only a small handful out of hundreds of companies succeed in securing VC funding each year. Indeed, despite the ever-growing market for fund raising, most companies become frustrated to some extent when it comes to securing capital, facing all manner of challenges, not least that of presenting to investors that do not fit the opportunity.

In Harry Brigg’s experience as founding partner of BGF Ventures and a long-time investor, the typical VC makes on average ten investments a year, having to filter through hundreds of businesses along the way. Every investor now has a particular mandate, as Andrew Yeoman, CEO of insurtech platform providers, Concirrus, highlighted – understanding this mandate is critical to securing funds.

In response to this, many astute entrepreneurs are now taking this initiative to not only ask VCs the right questions, but to become more discerning with whom they approach for funding. This level of discernment ensures that visions are more closely aligned as businesses continue on their growth path.

“Finding ways to sustain their futures will cement Britain’s position on the global stage”

As the VC model continues to evolve in this way, expert policymaker and RocketSpace’s General Manager, Priya Guha, has observed how investors are now also becoming more responsive to the needs of potential ventures. In fact, both panels of founders and funders stressed the importance of investors providing support and advice as well as capital in order to foster more fruitful business-backer relations. 

At finnCap, we have addressed this challenge by developing those deep relationships with the funders that allow us to understand their investment remits, ensuring that every company is best placed when they come to meet with their backer. We come up with the best possible investor list - investors that trust us to present them with deals that are of genuine interest to them personally - we run the process and stay on top of contacting and managing them, finding the most appropriate investor for the opportunity on the table.

Beyond VC

Having raised over £300 million of equity on AIM, Greg also encouraged tech firms to look towards alternative sources of funding beyond venture capital. AIM funding can provide capital as well as preserve executive freedom while private funding may sometimes prove too restrictive for ambitious start-ups.

Yet the shadow of Brexit is casting what finnCap’s Head of Technology Research, Andrew Darley, termed “an unhelpful uncertainty” over the UK economy. Concerns over the future of both private and public funding were unavoidable as guests questioned how the UK’s political turbulence will affect its place as a world-class hub for digital innovators looking to fuel their growth.

“Many astute entrepreneurs are now taking this initiative… to become more discerning with whom they approach for funding”

Despite the uncertainty of Brexit, the panel of backers agreed that we should stay confident that London will retain its status as a world-leading ecosystem that continues to build success stories. And telling those stories to the right investors, who trust us to understand their individual remits, is how we ensure that Britain's innovators get the best possible backing. Finding ways to sustain their futures will cement Britain’s position on the global stage. 

Panellist, Priya, closed the morning by reflecting on the prospect of the UK becoming the world’s next Silicon Valley. She argued that “to compete with the best of the best in Silicon Valley you have to have a very strong proposition”. Britain’s fast-moving market shows no exception to that rule. The country’s talented digital pioneers must stay as bold, buoyant and motivated as ever if we are to remain amongst ‘the best of the best’.