20 August 2019
US versus UK VCs
The US venture capital market in comparison to the UK is much more advanced. But over the last decade, there has been a marked rise in UK incubators and accelerator programmes. This has been helped by government support from funding initiatives such as the Catapult network, the British Business Bank and the introduction of tax incentives to promote capital investment in early-stage companies.
This has dramatically improved the chances for start-ups to become established and even more so for digital entrepreneurs but there still remains a funding gap. I passionately believe more needs to be done – part of which is a cultural shift more towards ‘riskier’ venture capital.
Why is there a difference?
In my view, the UK venture capital market is more conservative and piecemeal in approach and lends itself to growth capital rather than venture capital. Early-stage investors look for developed products or services, strong management and proven revenue and market need, whereas a US early-stage investor will often invest with perhaps only one or two of the above factors being in place, or yet to be proven.
In addition, US VC professionals accept past failures and false starts as being part and parcel of solid entrepreneurial credentials, with many US VC professionals having been on that start-up road themselves. They therefore have greater insight on what may or may not be the right bet, and can provide superior guidance on the rocky journey ahead. Whereas in the UK, a past failure can be the death knell to obtaining funding and what are potential new and exciting tech companies can be thwarted by a lack of a more entrepreneurial VC ecosystem.
Wandisco’s boss David Richards, interviewed in the Telegraph agrees, stating that the UK is underserviced by people who have experience in founding businesses with only 4% of people in the venture capital industry in the UK having actually started a business. He cites this as one of the reasons why the UK has struggled, in comparison to the US, with 60% of VC professionals having had experience founding start-ups themselves. Although he does believe the UK environment is changing.
Perhaps it is the case that the UK Venture Capital, like in the US, has to subsume the inherent risk that comes from funding early-stage companies. VCs can enhance the odds by being sector-specific with targeted specialisms. They can also bring in founders or experienced technical experts and spread the risk through co-investing or by managing a portfolio of investments.
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What’s your view and experience? Do we need more founders in our VC make-up? And what can be done to improve our VC environment?
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