Roger Carson, co-founder of Encompass Corporation, shares his advice on how technology startups based outside of London can get access to venture capital funding.
London is not only the tech capital of Europe, but when it comes to FinTech some argue it’s fast emerging as the FinTech capital of the world, but sometimes that shadows the huge success of tech, and FinTech, outside of the nation’s capital.
Infact, in 2016, more was invested in tech in the UK outside of London than invested in any other European Country. Last year, a staggering £4.4bn was invested, either through equity or venture capital, outside of London.
The wealth of talent in many of the UK’s leading university towns and cities, generous incentives and tax breaks by the UK government, plus an array of generous funding schemes offered by many of the UK’s cities and regions have all contributed to tech hubs growing up in Cambridge, Oxford, Birmingham, Leeds, Glasgow, Cardiff and elsewhere.
This has all contributed to making the UK an attractive proposition for tech startups and investors alike. The British may not have generated tech giants such as Google, Amazon or Apple, but they are still leaders of innovation evidenced by the huge growth of M&A activity in the UK’s tech sector over the past few years.
If you have a good idea and the means to launch effectively, major investment from global big hitters can follow. Not only that, but the UK can prove the ideal launch pad for breaking into the North American market, the holy grail for any tech entrepreneur.
It all sounds rather rosy, but the issue is getting your startup off the ground in the first place. So, as someone who’s secured significant funding in Scotland, what advice would I give to tech startups looking to secure crucial investment outside of the M25? And what are the benefits of being located outside of London?
Location, location, location
With the costs of setting up in London now prohibitive for many young companies, other cities are not only considerably less expensive, but offer attractive financial incentives as well.
In addition, the UK’s large number of university towns and cities enables startups to benefit from a well-educated workforce.
For us, Glasgow was ideal both for the programmes offered by Scottish Enterprise and the Scottish Investment Bank and the local talent. Plus, Scotland is a market in itself.
What are investors looking for?
Investors look to startups that are in ‘hot’ areas – such as cybersecurity or financial crime. They want something on trend, exciting and innovative and they want to see that you’re building a business can execute on a plan to achieve rapid growth and ultimately returns.
When applying for incentives or funding, don’t just focus on what a city or location can do for you, it’s imperative to look at what you can give back to the city: government backed investor schemes especially will look more favourably on applications for funding that are about creating high value jobs – jobs that contribute to the local area.
Scottish Enterprise, for example, is a pathway for graduates – a way of keeping top talent in the area and so startups that can create knowledge jobs aligned to future focused industries will always have an advantage.
I would not advise anyone to take on debt, simply because as soon as you start to borrow money you find yourself under pressure to service a debt or pay a loan. We now employ 60 people and have never had one penny of debt, and I would advocate other startups to do the same.
Taking on debt is a double-edged sword; on one hand you don’t have to bring more shareholders in, but on the other you only have to have a couple of problems and the debt could kill your fledgling business.
When considering potential investors, look at the track record of who they have invested in and if they have had successful exits: this ensures they are usually like minded. Also, find out if they have had success in similar business areas in the past.
A few tips
Factor in the time-frame, as securing investment can be a time consuming process. If you are a fast growing technology company, be prepared that others don’t necessarily work at the same pace you do and can’t take commercial decisions as quickly as you can.
Finally, if you think you have a really good idea, but can’t get people to invest, then it’s probably time to refine the idea – even the most successful businesses have to refine their business models. Most importantly, don’t give up as once you get your initial idea right, the opportunities are endless.