The UK startup fundraising system: Part 1 of a 4-part article series on inefficiencies in the UK fundraising system and how they might be resolved
It’s time to get it off my chest. I spent 20 years building efficient processes and bad process drives me insane.
The UK startup funding system is full of good intentions, but has some major failings that mean startup companies aren’t growing as quickly as they could be. The combined effect of devoting months of time to each fundraise and the length of time it can take to get capital through the door can really slow the pace of growth. The knock-on effects of that are slower economic growth in the UK and lower employment opportunities.
“The knock-on effects are slower economic growth in the UK and lower employment opportunities.”
In addition, where investors have put their money into funds for investment by experts, if that money isn’t deployed efficiently, but is left sitting in bank accounts for too long, then investors aren’t getting as strong a benefit as they might from active capital.
From our experiences at Spark!, we think there are four areas where better process is long overdue:
- Availability of investment thesis data
- Lack of feedback
- Slow ‘No’s’
- The amount of time it takes to fundraise
In this article, I’ll be tackling the first issue, ‘Availability of investment thesis data’. Each of the remaining topics will be published in articles shared over the coming three weeks.
Availability of investment thesis data
Startups face a real challenge when it comes to understanding who to pitch to. Some VCs don’t publish their investment criteria at all, while others publish some very high-level criteria, but then have an extra layer of in-house criteria which aren’t shared externally, which weeds out up to 90% of applications. Angels don’t really have anywhere to publish their investment criteria, unless they choose to set up their own portfolio website, or add further detail to their Crunchbase profile, but that isn’t consistently done.
“Startups face a real challenge when it comes to understanding who to pitch to.”
The effect of this lack of information is two-fold:
- Startups waste their time trying to find out whether an investor is suitable for them to approach, and/or waste their time sending decks to people who will never invest in them.
- Investors receive a glut of decks from startups seeking funding, the vast majority of which they will immediately reject, wasting their time on ruling out companies which could have been excluded by publishing clear investment criteria
Being honest, this isn’t solely caused by lack of information from investors. Some startup founders take a machine gun approach to fundraising, hoping a wide enough spray of bullets will somehow net them an investor and are indiscriminate in who they contact.
Now imagine this world instead:
Investors of all types are required to share their investment criteria to a detailed level in a single place. Startups review this information and carefully target only those investors where they meet the investors’ criteria and the investor meets theirs. Investors receive less decks, and the ones they do receive are relevant, which means the startups have a better chance at standing out instead of being buried in the rush.
Founders have more time to focus on building their business, and know they’re investing their time wisely in a targeted fundraising strategy with interested investors.
By saving investors’ time wading through irrelevant pitches, it offers the opportunity for them to spend more time in conversations with those companies which are suitable, either for immediate investment or who they want to build relationships with ahead of a raise that they’re able to invest in.
Maybe this seems like a Utopian fantasy, but the potential benefits of this approach are huge. It would likely take governmental intervention to achieve this, as the startup ecosystem on its’ own has not yet managed to improve the situation.
What would you change about the UK startup fundraising system?
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