15 March 2018
Investing in any new-fangled technology can conjure up an image of a roulette table and the croupier calling “place your bets”, before spinning the wheel and releasing the ball that will either land and bring you riches or leave you soul searching for what could have been, if only the stars had been aligned.
Venture capitalists (VCs) are in the game of risk, and losing should be part and parcel of taking a seat at the table. However, placing your bets whether on a single number, a spread of numbers or simply on red, is exactly what is required for ‘UK Plc’ to thrive.
Last week (6 March), Shaun Beaney from the ICAEW’s Corporate Finance Faculty, chaired a roundtable discussion with start-up funds, private investors, venture capitalists, entrepreneurs and technologists. The aim was to discuss deal trends in early-stage immersive technology and determine whether or not this whets the appetite for VCs. (His blog discussing the roundtable can be read here.)
The government certainly recognises the importance of business innovation in sectors such as the creative industries and immersive tech, and has committed a £1 billion four-year investment into research and innovation as part of its Industrial Strategy Challenge Fund.
US vs UK venture capital
The US VC market is more advanced as one would expect, in comparison to the UK, but over the last ten years there has been a marked rise in UK incubators and accelerator programmes. In addition, government funding initiatives such as the Catapult network and increased tax incentives have been introduced to promote capital investment in early-phase 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.
The UK VC market is perhaps 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.
UK VC, like in the US, has to subsume the inherent risk that comes from funding early-stage companies. However, the analogy of a roulette table is perhaps unfair, as success is not based on pure chance, and is not necessarily stacked in the croupier’s favour.
VCs can enhance the odds by being sector-specific with targeted specialisms. They can also bring in seasoned leaders or experienced technical experts and spread the risk through co-investing or managing a portfolio of investments.
Advisory firms must ‘do their bit’
The consensus from the ICAEW roundtable discussion was that more could be done in the UK to encourage seed-stage investment in sectors such as immersive technology, and to boost angel activity. Certainly more directional policies towards funding will help, but can advisory firms also do their bit and better support early-stage companies?
Companies not only need cash and an initial leg-up, but require general business services to enable them to meet regulatory and reporting requirements, even if only a light touch initially. Moreover corporate finance advice helps to attract the right investors, and ensure any commercial agreement is aligned between shareholders.
As a top 15 accounting and business advisory firm with both national and international reach, we are well placed to support early-stage companies. We have both small and large corporate clients, and can flex to meet the needs of early-stage entities in both a commercial and pragmatic way, as well as supporting capital raising and helping companies to find the right investors.
For more information please contact me or your local UHY corporate finance expert.
