New survey reveals the key investment needs of the UK’s early-stage startups

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Today startup founders in the UK have a lot of funding options available to them. But what are the key factors they consider when assessing what, or who, the best options are?

UK Innovation Hub is a new startup programme (which is focussed on investing in early-stage tech startups) from Innogy, the Germany-based energy company.

Following the Tech Nation 2017 report, UK Innovation Hub, decided they wanted to find out what startups priorities are, rather than determine what they should be and teamed up with Tech City UK, Seedcamp and 500 startups, to find out what startups really want from investors. The survey has revealed the investment needs of the UK’s early-stage startups and that the most important factor for companies considering raising external investment was personal chemistry and trust with the investor.

The UK Innovation Hub, a new startup programme from Innogy Together with Tech City UK, the government-backed initiative to support the growth of the country’s digital startups, and community partners Seedcamp and 500 Startups, both early-stage investors, the survey highlights what UK startups really want, creating it’s own Hierarchy of Needs. Key findings included:

Fulfilment:
Access to a wide network of investors is the most important higher level need – three-fifths say this is key. Reflecting the importance of the personal relationship, over three-fifths would also value an investor who provides informal guidance and coaching.

Psychological:
Personal chemistry emerges as perhaps the critical factor – there is near consensus from founders that the ideal investor will be someone they like and trust, and who is in tune with their product and vision.

Basic:
The priority hygiene factors relate to the ease of on-boarding and reassurance that the investor has a strong track record. A low maintenance relationship is also important for over two-fifths of founders.

Thomas Birr, SVP, Innovation & Business Transformation at Innogy, commented: “With a huge array of different startup programmes and investment options available, we wanted to get to the heart of what really matters to Founders when considering funding. With the majority looking to Angels and VC’s for funding, and just over two-fifths looking to accelerator programmes, finding someone they liked or trusted with an understanding of their product and vision, was incredibly important. Access to further funding and a great track record were also key considerations, while the add ons many programmes provide – such as free office space and pitch training – were a low priority.”

Birr continued, “At the Innovation Hub we’re eager to challenge convention and develop dynamic partnerships that advance the ambition of our founders. This research has provided us with a guide to ensure we can work with our future investments in the best way possible – as determined by them.”

Other findings include:

Future Investment Channels
The majority of aspiring founders would turn to angel investors (66 per cent) or VC’s (54 per cent).
Only 4 per cent would consider a P2P loan and 14 per cent would consider a bank loan.
43 per cent would turn to a strategic investor and 39 per cent would consider an accelerator programme.

Where Will The Money Go
Customer acquisition (27 per cent) and product development (26 per cent) were the two key stand out uses of investment, followed by talent (19 per cent).

Talent Pinchpoints
Programming skills are in demand. Front end and back end developers are the most challenging hires for new businesses (47 per cent).
This was followed by other product related roles, UI/UX designer (29 per cent), mobile applications developer (24 per cent) and product (24 per cent).

Investment Information Sources
63 per cent use word of mouth to find out about investors
A majority rely on Angel List (57 per cent) TechCrunch (51 per cent) and Crunchbase (50 per cent) Irishtechnews.ie was not mentioned, however I am sure we will creep up on future lists, as not only do we focus on Irish tech news, but also the UK, Europe and beyond. 😉

Topics of Interest
Two topics hold particular appeal for founders – learning more about other startups in their space (68 per cent) and information on new funds (65 per cent).
Advice from investors is also of interest to a majority of founders (57 per cent).
Legal information was the topic of the least interest (20 per cent).

The survey of 164 startup companies across the UK took place from January until March 2017. Of the respondents, three-quarters have global ambitions, while 44 per cent believe they have the potential to become a billion dollar company.

While the startups were bullish about their growth ambitions, over two-thirds were pre-revenue in the last financial year. 36 per cent have already raised funding, with a majority funded by family and friends or a pre-seed programme. Only 9 per cent of funded businesses had received a Series A equivalent investment.

Gerard Grech, CEO of Tech City UK, commented: “ As the UK’s digital startups have continued to develop over the past decade, we’ve seen a huge support network of investors develop alongside them. From crowdfunding to accelerators, and angels to large VC’s, there is a huge array of options out there for Founders to consider. Our Future Fifty, Upscale and Northern Star programmes are filled with role models for these early-stage Founders to look to. It’s no surprise that this survey has highlighted the global ambitions of our next generation of companies, who have developed in the shadow of some of the UK’s leading unicorns. It’s reassuring to see that with so many options before them, they consider personal relationships, trust and previous success to be key when considering an investor.”

Tech City UK’s Tech Nation 2017 survey found that just over half (51 per cent) of business founders or CEOs cited lack of supply of skilled workers as a challenge, whilst just over two-fifths (42 per cent) mentioned access to finance. In this survey, however, access to capital emerges as the number one growth challenge for entrepreneurs and aspiring entrepreneurs.

Nine in ten say this is a challenge, some way ahead of marketing, sales and access to talent. With the majority of survey participants being early stage businesses where they perform all the important tasks with the help of a small team, cash flow and sales are pivotal, while the challenges of growing a larger team are some way off.

Carlos Eduardo Espinal, Partner at Seedcamp, commented: “At Seedcamp, we’ve been supporting European entrepreneurial talent for the past ten years through our community of support, global network of reach and efficient access to capital. We know how critical it is to build a strong and functional relationship between investor and founder at the earliest stage and are proud to have supported over 250 companies who’ve gone on to raise significant follow-on funding and scale valuable, global businesses.”

“When looking for investment, it’s critical to identify your point of need (in excess of capital) and ensure the investor or fund you’re approaching is the right fit; they understand your stage of development, invest at the right stage for you and have a proven background to support you. We are incredibly proud to have built strong relationships with the founders we’ve backed over the past ten years and in a time of crisis or when looking for advice or counsel, our founders know they can talk openly with us. It’s certainly not a case of investor injects capital and then the relationship ends. It’s critical that both founder and investor feel they have a fair deal that will allow them to work together for a long time after the investment is complete.”

Matt Lerner, Venture Partner at 500 Startups, added: “These founders are dead-on. Taking money from a VC is like a ten-year marriage. It really has to come down to trust and chemistry. That’s why it’s great to reference check your VCs before you take their money. My old roommate used to say ‘I only trust God and my Mom. And with my Mom, I cut the cards.’”

Just over half of survey participants (54 per cent) were based in London, while 12 per cent were located elsewhere in Southern England and 20 per cent were from the Midlands or Northern England. Men outnumber women by almost four to one in our sample, which is broadly representative of the profile of tech founders in the UK. Over half (52 per cent) are under 36 years old.

UK Innovation Hub is welcoming applications for startups on an ongoing basis. Already running in Berlin, Tel Aviv and Silicon Valley, the UK Innovation Hub will be investing in developing partnerships across three key stages of growth, pre-Seed, Seed and series A. The team, backed by Innogy, will invest into these core areas;

Machine Economy – Internet of Things, Artificial Intelligence or Blockchain-based decentralised business models for a machine powered real people serving economy

Mobility; Manufacturing; Energy; Finance
Smart & Connected – Areas of innovation that can change the way we live

Safety & Security; Connected Business; Independent Living; Contextual Learning & Behaviour
Urban Solutions – Creating solutions that improve the quality of life and work in European megacities

Citizen Services; Urban Mobility; Urban Energy Systems

Disruptive Digital – Identifying and fostering new digital business models with the potential to revolutionise the traditional energy world
Energy Generation; Trading; Grid; Retail

Big Data – Maximise the benefits of big data to fuel innovation for customers and Innogy
Asset Operations; Consumer Lifestyle; Game Changing Technologies; Privacy & Trust

Thomas Birr, SVP, Innovation & Business Transformation at Innogy, said: “We’re excited to open in the UK and to work alongside brilliant startups developing products and services that could make a huge impact. We believe there is a great opportunity to support more startups across the country and work with them closely to support them as they scale to find product market fit and accelerate their customer acquisition.”

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