Investors and founders often talk about a Series A funding gap. However, in the UK, this has shifted downwards and it is relatively easy to explain why. First of all how do we know what is happening? Dreamstake have 1,000 tech startups on www.dreamstake.net. We put up to 15 per month through our Google Campus Demo Days and are introducing up to 20 per month to angels and investors at every level of funding, from £20K – £5M. We are getting a lot of data from the market.
So what’s happening? There has been a great deal of stimulus below the £150K level. The Government SEIS (Seed Enterprise Investment Scheme) has moved angels to invest earlier and in smaller amounts to diversify risk over a broader portfolio. The legalization of equity based Crowdfunding through platforms such as crowdcube and Seedrs has brought new sources of capital at approximately the same funding level. Finally, the proliferation of accelerators also addresses the need for very early stage capital.
The VCs are always under pressure to invest to move their average ticket size upwards. This is because it is easier to manage a smaller number of portfolio companies than spread the fund over too many. There is a small amount of pressure for some of the larger VCs to look at earlier stage investments. This could be a response to crowdfunding which may cherry-pick some of the VCs deal-flow before they get at it. However, in general, even early stage VCs are only investing above £5ooK, often with a sweet-spot of approximately £1M.
So to the gap! The Government has effectively created a gap between £150K and £500K by encouraging angel investment at an earlier stage. The most promising funding solution for founders who find themselves in the gap territory is syndication. This can be fulfilled by either encouraging multiple angels to invest together or by a combination of micro-VCs and angels working together.
In summary, founders will currently find it difficult to get funding between £150K and £500K without a mechanism for bringing together multiple sources of investment. A platform is the ideal way to facilitate this.
Blog by Paul Dowling – Co-Founder of Dreamstake the world’s first tech startup platform to match founders with the most appropriate investors using a unique startup rating system. This allows entrepreneurs and investors to monitor startup progress and inject capital and support when most needed. Startup founders can create profiles on the platform and get direct introductions to investors. We are constantly looking for great early stage tech startups. Join here Dreamstake.