I recently carried out a poll on LinkedIn asking are UK Venture Capitalists worthy of the title "Venture"?
Having spent twenty years in business working with everything from start-ups to multi-nationals, it struck me that the UK appears to have had fewer "game changing" businesses in the last 30 years than we have historically managed to incubate. Why is this? A lack of finance or a lack of ambition?
Certainly we have had the ideas - Sir Tim Bernards-Lee is the father of the world wide web and whilst, he never wanted to make money from it, it shows that we are not short of the world changing ideas.
We can even create the initial monetisation of other peoples ideas - Friendsreunited.co.uk was one of the first social networking sites to make money.
So, is it that because the new generation of internet/web entrepreneurs on the other side of the Atlantic are more interested in creating a world changing business than making money, recognising that that comes later, whereas we, the previously philanthropic Brits, are all about cashing in the chips? Just look Tweetdeck who sold for £25m. It had the best application for using twitter, and commanded is believed to have controlled the highest areas of monetisation through its userbase - surely that must have been worth more that £25m to a billion dollar twitter?
Anyway, back to were I started...skoosh.com is one of these businesses - a game changer - disruptive to the likes of expedia.com, lastminute.com and booking.com. The technology has all been developed in-house and the business is making money and should be in the Sunday Times Fasttrack 100 next year. Most of its sales are overseas and the model is proven to be incredibly scaleable. So, earlier this year, we (I am the FD) decided to look at the possibility of taking in some VC money to accelerate the business. What became apparent during the beauty parades, was that there are very few venture capital firms in the UK. As one leading (true) venture capitalist put it "everybody from a growth fund, to a VCT, to corporate fund adopts the moniker VC". So it made me start to re-evaluate the moniker "Venture" capitalist and I asked a poll on Linkin whether the VC's were worthy of that title.
Eight out of ten respondents thought not. One person commented: “In my experience as a commercial lawyer most VC funders are aghast at any concept of risk-related lending. They often seek to impose belt and braces conditions which, in short, turn the whole approach to that of a fully secured lender but at rates of return which suggest otherwise.”
Another added: “VC's in the UK are risk adverse, stay away from medium/long-term projects and anything that isn't providing positive cash flow within months is rejected promptly. In addition they are expecting returns greater than 18%.”
A third person commented: “I'm not sure there was ever really that much. Until the early 80s 3i were more or less the only show in town, and for a while in the late 80s there were a few small funds looking at early stage stuff, but they disappeared in the early 90s downturn. Ten years on, a few flung money at dotcoms, but otherwise the real risk capital has always been provided by the 3Fs – family friends and fools!”
In America, the market is booming. Bubble or not, VCs battle with other funds and entrepreneurs to invest large amounts in pre-revenue start-ups, social commerce and technology businesses.
They obviously have the money; it’s is estimated that Sequoia Capital invested $18m in Google and Facebook and returned $6bn, so they can, on their own, write over 1,000 $5m cheques and still be ahead of the game!
In the UK and Europe, VCs appear to be focussed on more established companies where they can financially engineer a return on their investment in the same way that Private Equity houses work. Apart from the ‘big four’ (Seqouia, Balderton, DFJEsprit and Accel), UK firms who prepared to back early stage or potentially explosive growth companies with development capital are difficult to find amongst all those who call themselves venture capitalists - maybe the UK's trade association, the BVCA, should look into who is and who is not a "venture capitalist"?
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