Guest Blog: VenturePath give their perspective on the challenges and solutions for Scale-Up Investment
Ian Merricks, Founder and Proposition Lead at VenturePath shares his view on driving Scale-Up investment in the UK.
At the simplest level, investment-backed scaleup entrepreneurs are tasked with resourcing and building a sizeable tech business through to a meaningful exit. One of the biggest challenges is the leadership getting stuck in managing day-to-day difficulties, with a goal of some incremental growth. This approach will at best deliver incremental gains.
Why does this happen? Perhaps it's cultural; UK entrepreneurs not dreaming as big as some of our international competitors. Maybe it’s the UK funding landscape, which drip feeds funding and often has “missing rungs” on the funding ladder.
How should we address this? Firstly, perhaps UK tech founders need to be bolder. Building a game changing business cannot be achieved whilst firefighting small problems, with constant concerns about cashflow and limited ability to resource ambitious growth goals. Global market opportunities for a single business to seize are rare, and often the ‘land-grab’ is a shorter window of opportunity then is perceived.
Our best businesses having identified their niche for success, need to hire the A-players (from an international talent pool), optimise product to maximise client value, drive the Go To Market strategy including potentially international earlier, and access all the support available to do this…whilst reducing risk over successive rounds and milestones.
Bolder Goals
Bold ambition plus the funding to realise the [international] vision are vital to scale tech businesses.
Consider this founders: You determine the cap to your scale. Yes, market size, pricing, production or sales capacity play a part, but you, as the driving force of your business opportunity, determine what “good enough / big enough” looks like. Think about that for a moment. Usually, founders know what success would look like. However, they often allow themselves longer to achieve that goal than their competitors will permit. Adding urgency helps maximise the opportunity. Frequently our potential scaleups are undercapitalised to accelerate their journey though. These caps on their growth potential must be re-thought and worked around.
Multi-stage backing, greater connectivity
For scaling businesses, funding is a continuum, not a moment in time. Yes, it’s fantastic if a business can grow organically and achieve scale through re-investing profit. But again, ask yourself, is the market willing to wait for organic evolution? Are your competitors? A business that is beginning to scale, absolutely needs to resource itself properly to scale faster. Which means it is almost constantly nurturing relationships with next-round funders. This can be a distracting and disruptive process, and further drawn-out if founders aren’t familiar with the funding escalator, and wide range of varying funding options. Most notably, founders far too often have a plan for this round, but not always a considered thought process around the broader investment strategy. What is the size of the prize we are aiming for? What will it take to resource this opportunity over the next 3, 4, 5+ years? How can we prepare ourselves properly for success? Lack of preparedness in this area leads to at best a premature business sale, an outcome all too often seen from the UK.
Venture landscape
However this requirement for joined up investment support is something that the UK VC sector is not completely delivering yet. This challenge has driven the growth of non-equity finance (revenue based finance, convertible and venture debt), and these should be understood, to determine where they sit instead of / alongside equity.
We are also seeing promising tech businesses leave the UK for additional support and bolder investors available in other countries. Frustratingly this is particularly apparent in capital intensive sectors such as deep tech and cyber – sectors which are global and game changing in their outlook. Unless urgent changes in attitude from founders to be bolder and ask for more, and in the investors collaborating to build bigger multi-stage funding rounds we run this risk of the UK continuing to produce only handfuls of truly scalable global tech businesses.
More than Money
In addition to a bold business vision, a multi-stage investment strategy and the funding to resource the scaleup journey, successful UK tech scaleups have uniformly cited accessing support beyond funding as drivers of their success. These include utilising the distributed support available from government and the private sector, accessing leadership learning, calling on networks of expertise, shortening the journey by studying first-hand accounts of others on / immediately post their scaling journey. All of this exists in the UK, although making this easier to navigate would help more companies access this support beyond capital sooner. Its timely as a new Government takes the reigns, there is an opportunity to address some of the structural challenges slowing the capacity of UK tech scaleups.
Great work is being done by techUK on Scale-Up Policy, and they have recently launched their Scale-Up Council to lead steer their policy thinking going forward. VenturePath’s own UK ScaleUp Investment Mission calls for decisive action. Collectively we want to address these scaleup challenges and ensure the solutions are readily available.
If the Challenges discussed here resonate, and you’d like to learn more, come to “ScaleUp Investment – Challenges and Solutions” in person at TechUK on Wed 26th June 9-11am. Sign up via the link here.
Authors
Ian Merricks
Ian Merricks is an exited digital media entrepreneur. He has participated in the investment of £175m into UK tech companies, and has advised on 80+ Series A-B investment deals, raising over £650m of growth capital for UK tech companies.