If you take a stroll around Silicon Roundabout in London or the business parks of regional cities, you’d be forgiven for thinking that technology startups are everywhere these days. The UK’s tech sector is believed to be valued at over £180 million, so it’s no surprise that there are so many firms all jostling for business in the marketplace of great futuristic ideas.
But technology startups don’t come out of nowhere, and they’re usually funded by a firm of venture capitalists, which takes a stake in the firm in return for giving out cash. Other tech companies are funded by people known as “angel investors”, who are individuals providing what is often early-stage cash and a close, guiding relationship. In some cases, investment even comes from friends or family. This post will explore what each of these mean – and what it means for those founders, developers and others who are at the cutting-edge of technological innovation every day.
Venture capitalists are responsible for funding a lot of modern Britain’s startups, and given that the sector has plenty of cash in it at the moment, it’s really no surprise. Venture capital (VC) firms tend to see investing as a profit strategy, rather than – as an angel investor might – a pleasure or a sideshow, so it’s competitive to get access to a particular pot of VC. Venture capitalists tend to have strict criteria by which they judge the companies they choose to invest in – and once they’ve made the decision, they’ll be looking for evidence of profitability so that they can earn back their stake.
Angel investors are different to venture capitalists in a number of ways. First off, angel investors tend to be individuals (although not always): they will seek out fledgling firms looking for money, and provide this support in a targeted and individualised way until the firm can move on to the big, scary world of VC. Usually, they’ll take a stake – although for many angel investors, the benefit is derived from imparting wisdom to the newer entrepreneurs. Unlike venture capitalists, angel investors don’t usually take a highly strategic approach, and don’t end up relying on the returns from successful proteges as part of a business model.
It’s possible in some cases to locate an angel investor among people you already know, such as business connections, but many British entrepreneurs use websites such as AngelList to narrow down their search and find people who can provide the help they need. Other sources of angel investors are the business sections of Slideshare and LinkedIn, and they’re two places where Dexter Coleman-Mitchell and other major investors are active, so they’re worth looking at.
Personal investment sources
For the lucky few, however, there’s no need to enter the dragons’ den at all. Those who are relatively new to the sector may struggle to believe it, but it’s definitely worth noting that lots of investment in technology firms actually comes from people’s own personal or family sources of cash. Increasingly, investment in the technology ideas of your children or grandchildren is seen as a way to support them, as it frees them from the burden of working for another employer and allows them to chase their own dreams in a way that may one day bring financial reward.
The upside to this, of course, is that there’s no application process. However, as with many VC and angel investor cases, there are some horror stories. There’s always a risk of families falling out over the direction of a startup, for example, while those who invest in their children’s tech firms without having any tech knowledge may not be best placed to provide the expert advice that many angel investors can give. Despite having to go through a rigorous and demanding process in order to secure the cash, the other main advantage of applying to a VC group or an angel investor is of course that the achievement is yours and yours alone – and it can only be taken away as a result of established business processes rather than family whims.
Getting investment for a tech startup can be a tough job, especially if you don’t have the backing of private sources of income. However, it’s definitely possible to do – especially if you can find an angel investor or VC provider who is willing to take a punt on you and your idea. By working out what sort of investor you need to approach and how you can do it, you’ll be giving yourself the best possible odds of securing that all-important funding.