Despite the government’s attempts to boost investment in young UK technology firms, securing late-stage funding for start-ups is getting more and more difficult, according to Huddle’s CEO Alastair Mitchell.
Speaking to CBR, Mitchell said while early-stage investment in UK tech start-ups is still healthy, we are unlikely to produce another company of Autonomy’s standing unless later-stage venture capital (VC) money available on similar levels to those seen in the US.
"The biggest failure of this market is the size of it and there’s no money for start-ups," he told CBR, adding that for late-stage investment the money on offer is "getting worse."
"It’s getting better at the early stage," Mitchell continued. "There have been some great exists from UK companies over the last few years and they are putting money back in. They are putting it in to the area they are most passionate about, which is the early-stage. That’s great and there is more money sloshing around to get the start-ups going."
However it is once a start-up gets more established that the money begins to dry up, which is in stark contrast to similar companies in the US. Mitchell, co-founder of cloud-based SharePoint alternative Huddle, said the money on offer there is "staggering."
"There is still a huge gap at B, C, D stage funding. In the Valley you may raise a couple of million dollars to get going and by the time you get to the C stage you are raising $50m, $100m. In the UK you might raise a couple of hundred thousand at the start and a couple of million during the later rounds," he said.
"There is no one operating at the late end of the market," he continued. "That’s why a lot get bought at that stage and why we don’t build big, world class business. If you’re going to build like Autonomy you will need to take on a lot of cash at later stages."
This lack of VC money in the UK means that US companies are beginning to turn their attention to this market, which is a positive. Start-ups generally do not care where their investments come from, Mitchell said.
The big issue lies with the amount of money available. Mitchell points out that a big investment fund in the UK could total a couple of hundred million pounds. The average pot in the US is closer to a billion dollars. It is difficult for UK companies to compete with similar US companies when the investment money on offer is much greater in the Valley.
"Exits like Autonomy will be few and far between until this gap gets closed," Mitchell added. "If we do it it’s because we’ve gone to the US. Guess where our C round was raised? Guess where 50% of our new business enquiries each month come from?"
"It’s great to be coming out of the UK. We’re co-headquartered [in London and San Francisco] but were born here, we’re a British company. Had we’d been founded in the Valley would we have grown faster with more money? Yes. We would have raised more money, more quickly," he said.
Despite this issue, Mitchell said he sees similarities in the Shoreditch area of London, where Huddle is based, with Silicon Valley. Although it is not on the same level in terms of scale, there is a similar atmosphere among the people and businesses based there.
"In the Valley all the coffee shops are filled the tech people," he said. "Now here people tweet to me saying they are having a coffee in the shop across the road and can see me at my desk. There is a real scene here and people are talking about it."
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