Understanding the tech investor: "Looking at long-term opportunities"
4 min read
16 March 2015
Last year saw London consolidate its position as one of the world’s leading technology hubs. The breakthrough moment was turning potential into significant investment opportunities. Acquisitions and IPOs dominated headlines and sent a clear message to the global investor community: London is producing digital companies that can grow in size and scale and generate revenue in the process.
However, only a tiny percentage of the city’s startups attracted the billions of pounds that came to the sector and funding is still a challenge for many. The challenge I witness with many entrepreneurs is the ability to understand the mindset of the tech investor.
To survive in this sector, entrepreneurs need to understand how to attract the capital they require. Traditionally, London had the best investment analysts for sectors like mining and New York was the home of technology, but this is changing. Leading VC firms in the UK – Octopus, Balderton, Index, Ariadne and Passion Capital to name a few – completely get the unique attributes of tech companies and have fuelled the growth of some of our most exciting home grown success stories. Money is out there – you just need to know how to get it.
For me, the best tech investors are always looking at long-term opportunities. This means they are concerned with the scalability of the digital platform or service. Tech investors focus on potential so entrepreneurs need to pitch their long-term promise. The best models for entrepreneurs to follow revolve around figuring out how to grow and build scale quickly, and, where possible, on a global basis.
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The internet makes businesses inherently more global, so successful companies need to keep up with the scale of the market. User numbers and product quality are more important than profitability in the first several years, but only if the overall growth strategy is ambitious.
Another vital element is talent. Investors need to see that startups have the world-class skills across software development, product management and marketing to grow. And it is not just the firm’s employees that will be scrutinized; the successful tech investor will also be examining the entrepreneurs themselves. From an investor’s point of view, the management team is a decisive factor in whether to invest, alongside the company business model and its plan for raising funds.
However, the most common complaint I hear from the investment community is the quality of pitching styles and methods in the UK. Many of London’s most successful VCs have worked, at some stage in their careers, in Silicon Valley, the home of the global tech ecosystem. And Silicon Valley still sets best practice for pitching technology startups. In the Bay Area, entrepreneurs are drilled, trained and refined to deliver clear, succinct and impactful business pitches. If the business model can’t be explained in three lines, an investor simply won’t be interested.
But the delivery is just as important as the content – remember, investments in early stage businesses are based on personal relationships and the entrepreneur is being judged just as much as the business. US start-ups and scale-ups have learned to do this very effectively and it is a discipline we need to bring to London and the UK’s start-ups and scale-ups.
No other sector is experiencing the same rate of growth as technology and the potential for success and disruption is enormous. Understanding the tech investor and finessing a pitch should no longer be seen as a challenge, but the first opportunity in a race for global success.
Russ Shaw is founder of Tech London Advocates.