Your country needs you: more British angel investors urgently required

May 27, 2011

Rich guy in his castle hoarding all his money!

I’ve been working on raising a seed round for my startup, Teamly, and it’s become really clear to me from my experiences and from speaking  to other entrepreneurs that the UK really lacks a culture of seed investing and this is starving potentially great companies from creating jobs and wealth. There’s no shortage of schemes to encourage and accelerate entrepreneurship, but what’s being done to get more people to get involved in angel investing here?

There’s dozens of campaigns, competitions, online resources and organisations all geared towards encouraging and supporting entrepreneurship. A handful of the more notable ones: StartupBritain, BusinessZoneBusiness Link / Business Gateway, Global Entrepreneurship Week, If We Can You Can, Entrepreneurs Forum, Smarta, Prince’s Trust / PSYBTSmallBusiness.co.uk, The National Enterprise AcademyStartups.co.uk, Shell Livewire, Entrepreneurs Business Academy, School for Startups and [LondonEntrepreneurial Exchange

But what exists to encourage angel investing? Should we be encouraging people to set up businesses when there is a lack of capital to help nurture and develop these new businesses?

Perhaps you’re an individual of high net worth and you’ve heard about the excellent Enterprise Investment Scheme (EIS) tax breaks, if you went on to the HMRC website you wouldn’t exactly feel inspired. Even if you manage to find the official British Business Angels Association you will find just a one page introduction to angel investing. Come on guys, you can do better!

I have an example of the type of person we should be encouraging to angel invest: he is the founder of a very successful online retailer who recently exited for multi-millions to a publicly listed company. After 15 years of hard work this entrepreneur has bought a million pound house in the countryside and is sitting on the rest of his money while he relaxes. This is someone who has valuable domain expertise, and could really play a part in funding and advising the next generation but has opted out from that. This wouldn’t happen in silicon valley, where money is far more likely to be recycled, and a new generation of entrepreneurs and businesses are created with help from the advice and money of those who have gone before. I know there are countless other examples of successful entrepreneurs that somehow get into angel investing. It’s definitely a virtuous circle, if you received angel funding you’re more likely to subsequently become an angel.

It’s not just that we need more capital in the system to seed companies, but we need better quality angels as well. One unintended consequence of the EIS scheme is that it perhaps encourages those who aren’t really cut out to be an angel to look at it as an alternative to a deposit account. Dragons’ Den is perhaps a double-edged sword, while it definitely raises the profile of angel investing and entrepreneurship I cringe at the thought of the imitators across the country trying to be all hard nosed and dragon-like. (I met one such individual… shudder… not a fun meeting).

The existing angels we do have are also spoiled for choice because they are getting the opportunity to invest for equity on deals which ought to be funded by bank debt. This is down to our non-functioning banks who won’t lend even to established businesses with proven track-records. If you are an angel, with limited resources (money) and limited capacity (time) for doing deals, which would you rather go for? The seed stage startup doing something new and innovative which could be huge, but so far hasn’t delivered any revenue, or the long established company in a traditional sector you understand which just needs some additional capital to generate more revenue and profits?

What about VCs, are they seed funding startups? According to BVCA figures quoted in Management Today, funding for startups declined from £125m in 2009 to just £46m in 2010. This is another area where our friends in silicon valley do much better as there are far more VCs doing seed deals, and some that specialise in only these type of deals. The underinvestment in seed stages though makes it less likely the VCs will find those juicy later stage deals, because less companies will get to that stage without an influx of early capital. Without an infusion of capital early on many great companies are dying before they’ve even had a chance.

What needs to happen:

1. We need to raise the profile of angel investing and share best practice.

2. We need to encourage more “smart” angel investors to enter the system.

3. We need to encourage newer investors and other sources of “dumb” money to invest alongside “smart” money so that the money goes further and can help more startups. 

4. We need to ensure the banks lend to the businesses that are bankable so that angel’s risk capital can be freed up for the deals it ought to be funding.

5. We need to encourage more VCs like Passion Capital to be set up and invest at earlier stages.

But who can make any of this happen? Fortunately this Government is listening and responding to matters involving the economy and job creation. Last night at an event organised by SkillsMatters I put some of these suggestions to Eric van der Kleij, the head of Number Ten’s new Tech City Investment Organisation and I was delighted with his positive response: He genuinely loved the idea to encourage more angel investing and said it’s going to the “top of the list”, and seemingly reading my mind said “there must be a TV show in this!”

Do you have an idea for how we can encourage this new wave of seed investing in promising UK startups?

Please contribute in the comments!

Here’s 3 ideas of mine to get the ball rolling:

1. Reach out to high net-worth individuals you know and ask them to consider angel investing.

2. Encourage smart, experienced angels to register on AngelList.

3. Start an angel syndicate (Eric called out for someone to create the Tech City Angels – great idea!).


Seed accelerators: a launch pad for start-up success

March 18, 2010

Here are my notes from the ‘Seed Combinators': Startup Incubators 2.0 panel at SXSWi. The panelists were Paul Graham, Naval Ravikant, Marc Nathan, David Cohen and Joshua Baer.

Definition: Accelerator programmes seek to nurture a seed of an idea and act as a launchpad for a start-up in its earliest stages.

What do they typically consist of?

  • a small amount of money
  • advice from real experts
  • help pitching at a demo day for further funding
  • access to an amazing network of advisors, angels, and VCs

Perhaps the most famous of all is Y Combinator, founded by Paul Graham and they have helped over 100 start-ups. Their method insists that you move to the bay area for the duration of their 3 month program, a very worthwhile commitment as you will end up building fantastic relationships with the other 19 startups going through the same experience.

How do you choose which one to apply to?

Either pick the one geographically closest to you or pick the one best if you can.

“It’s like picking a surgeon, you want the best you can get,” Paul Graham.

Myths about accelerators:

It’s only for young founders. Not the case. YC’s average age is 27 years old, but they have funded some in their 30s and 40s. (These are less frequent though probably because of the stage of life, family commitments, etc).

It’s all about the idea. Mainly it’s about the character of the founders, the quality of the people, specifically integrity and intelligence. “We pick people we like to be around”, Paul Graham.

In terms of ideas though what are they looking for?

An idea that solves a valuable problem. i.e. something people will pay for.

Stay local or go to the US?

If you are going global, come to the US. Many business ideas are “winner takes all”, and the US has the largest market and Silicon Valley is the best place to take advantage of it. But if your focus is on another region, stay in that area and apply to a local programme.

Don’t give up

Drew Houston was initially rejected first time round, later re-applied and is now going great guns with Dropbox.

Some accelerator programs:

Y Combinator (Silicon Valley)

Capital Factory (Austin)

Techstars (Boston, Boulder & Seattle)

Seedcamp (Europe)

HTC (Houston)

The Founder Institute (San Diego, Denver, Singapore, Paris, LA, SiliconValley, Washington DC, Seattle, New York)

Other reading:

My notes from the panel on getting your company funded is relevant to start-ups at a later stage of development.


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