Since 1st.September this year we have introduced over 150 tech startups to various forms of early stage investor. This has given us a very strong viewpoint on the current startup funding scene. There is a clear need to develop new sources of funding to fill a growing gap between £150K and £1M.
The good news is that the UK Government has stimulated investment at the lower end of the market. A combination of the SEIS tax break, a boom in accelerators and the take-up of crowdfunding has made it easier to find funding below £150K. There is also plenty of choice for high quality startups, looking for over £1M and with plenty of traction. Funding at this level comes from the major tech VCs that are mostly either remaining static or moving up in their funding rounds. This is despite the fact that many suggest that they are investing early-stage. There are exceptions to this but they are few and far between.
These two factors have resulted in a gap between £150K and £1M. The UK Government has recognised the issue by backing the new London Co-Investment Fund which will contribute funds to investments by 6 partner companies. This initiative will not be enough on it’s own, so there is a need to bring new money into the market. Normally a startup seeking investment in the gap range will have no alternative but to syndicate angels. This involves pooling funds from a range of sources;
- Known tech investors – These are the ideal investors for tech startups. However, there simply are not enough to go around. Many already have a large portfolio and have moved into harvesting mode. They are unable to make new investments until some of their existing portfolio provides an exit.
- Traditional investors with little knowledge of tech – These investors may have been attracted by the SEIS/EIS tax breaks but don’t really know where to start with sophisticated (and risky tech investments).
- Overseas investors – These may be impressed by London’s booming tech scene and want a slice of the action. There is a lot of Russian, Chinese and Indian capital available. This could be invested in tech if the eco-system were to be more supportive.
- First time smart investors – Typically entrepreneurs who have made their money in tech are a huge asset to any funding round. They can bring their experience and act as the lead investors that the rest of the syndicate will trust. They can also add value to the startup beyond simply providing money.
We are addressing the funding gap by building the most comprehensive database of all these angel types and linking them to the best startup talent in Europe. As well as strengthening our on-line capability through the Dreamstake platform we are launching an exclusive investment club in January. We will develop these initiatives to provide a structure that will make it easier and less risky for new money to engage in the tech startup scene. We will reinforce this by strengthening our rating algorithm and curating deal-flow.
If you are thinking about investing in early stage tech during 2015 we would like to hear from you. We are also operating a bounty scheme so please introduce your friends.
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. Investors please contact [email protected]