Abundance of start-up funding in the UK but not necessarily for YOU9 July 2015
Before I ventured out to launch my start-up, every morning when reading about start-ups raising 1, 2 or 10 million pounds, I was positive that there was abundance of liquidity in the market. Further, with equity, bonds, property markets at a high, and with significant tax incentives such as SEIS and EIS, there HAS to be more money chasing start-ups. However, the reality is quite different.
Let me start by saying that I’m lucky enough to have investors supporting us at CityFALCON. Also, this article is based on my limited experience of communication with investors, entrepreneurs and service providers for the last 18 months. Moreover, there are always exceptions :)
Let’s accept it - most investors are risk averse and look for factors that may reduce their risks. This is more so in the UK. Otherwise, why do you think the Government had to come up with so many tax benefits to encourage angel investors to invest in start-ups?!
This article is written for people, who are looking to quit their cushy jobs to venture on their own, to make them aware of harsh realities they may encounter when running a start-up in the UK.
So below is my hypothesis of when you can get early-stage funding relatively easily:
Any person who has already exited a company shouldn’t have any issues raising money for his next start-up. If you are in the US and even if you have “failed” with your start-up, you may still be given preference over a first-time entrepreneur.
Tons of industry experience and contacts
If you have worked for 20 years in an industry and built relationships and industry expertise, raising money may not be that difficult.
Product that has gained early traction or received awards
If you’ve built the next flappy bird that has been downloaded millions of times and even generated tons of cash, you won't have any issues.
Why innovate when you can just copy?! You'd be amazed at how investors are ready to pour tons of money into copycats. This is mainly when the idea is proven, and the market opportunity is large.
A millionaire / billionaire backer
If you caught the eye of a super angel, you have nothing to worry about.
Current Buzz e.g. Blockchain
It's a good time to work on an idea relating to blockchain. It reminds me of those times when any company that had ‘technology’ in their name in 1999 would get funding or when everyone was focused on social media in the late 2000s.
If you don’t fall into any of the categories above, if you are a young entrepreneur with few contacts, or you are moving industries, then raising funds is not going to be easy for you at early stages. I’ve seen several entrepreneurs with good ideas and prototypes, failing to raise funding. Furthermore, even if you get funded, it might not be on your terms, and you might have to dilute your stake significantly. Also, even if you manage to raise seed funding using SEIS, the next question is how will you raise money to scale the business up? (another blog post on this coming soon). Remember, media in the UK focuses on successful raises, and you’re unlikely to hear about the companies that failed to get any funding.
Having said that, the government, investors and several organisations have realised this problem, and I hope that things will improve as the start-up ecosystem in the UK evolves.
Good luck, and I look forward to hearing the views of other stakeholders.