Sunday, April 12, 2009

To: Alistair Darling, Lord Drayson - an Open Letter

Dear Lord Drayson,
Put £100,000 into 10,000 startups - not £10m into 100!

There has been a lot of chatter about the Government's apparent initiative to make £1bn available for innovative early-stage companies.
Apparently, Lord Drayson, the Minister of Science and Innovation in the Department for Universities and Skills is driving this.
The BVCA is keen to promote the idea through its influential contacts that this money should be channelled via the large established VC funds.

From where we sit, putting lots more money into the large funds achieves the
exact opposite of what I understand the desired the objectives to be.

What is urgently needed in the UK - in order to promote entrepreneurship and
encourage innovation - is funding at the very earliest stages.

One of the major drivers for Silicon Valley's success has been the readily available, quickly raised seed capital. Its not uncommon, even in today's funding climate to find start-ups funded with $500K in a matter of weeks by angel syndicates led by an agile tech VC.

There is more than enough capital available once companies have proven their
technologies, validated the market need and have real momentum. This capital
is NOT venture, it is development or growth capital.

The so-called funding gap has never been adequately filled and the growth in
size of the leading funds has forced them to move up the food chain and to
back relatively fewer pure start-ups.

We have all been wringing our hands at this gap for many years and in the current environment the gap is noticeably widening.

Seed funds are extremely difficult to make work effectively on the classic
2/20 model since it is important that seed funds invest in a large and diverse portfolio (in order to find the winners) while at the same time need
to provide a lot of hand-holding to these companies (implying a larger organisation - more partners).

The BVCA’s position is interesting in that it looks at the whole issue
from the 'industry's perspective' – you can’t blame them for that – its their job. Its certainly not being looked at from the entrepreneurs perspective!

We at TAG have had terrific support from some of the large tech VCs but their ability to do many seed fundings is very limited. We need healthy and growing seed capital partners to join us in our quest to find and nurture the next world beaters.

One of the most important and effective vehicles for promoting entrepreneurship in the tech arena in recent years has been Seedcamp - the flood of applicants and the rising quality of these applicants attest to the strength of innovation emanating from Europe.

They are deserving of far greater financial backing.

Robin Klein

Partner, The Accelerator Group (TAG)

PS: TAG is an early stage technology investor with 43 investments currently in its portfolio. We invest actively mainly in the UK but also across Europe and in the US.

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  1. Even just £50,000 for 20,000 startups would do wonders for the uk economy, and create a potentially booming tech startup community in London!

    Farhan Rehman

  2. Robin,
    Your comments are timely and accurate. It is unfortunate that the government has never fully understood the nature of innovation companies and their life cycles or capital cycles.

    I became very aware of the issue when I authored the report on the current government's approach to small business support last year and found that we are spending billions effectively for no return.

    What is needed is some creative thinking around the business model that would amplify angel activity in the UK thus making sure that any government capital pullled private capital with it.

    And finally you are also correct that programs like Seedcamp and School for Startups are the breeding ground for the next generation.

    Best Regards
    Doug Richard

  3. I wish politicians would notice this, and act on it. Whether you are on the right or left politically speaking I would hope we all agree that governments should spend the money as wise as possible.

    Best of luck and greetings from Denmark

  4. Dear Alistar

    We have decided to post a copy in the blog of our incubator for start-ups hoping that the Spanish regulators will soon follow ;)