UK startups are falling into the funding gap

London has a strong, vibrant technology start-up scene that is growing exponentially and it certainly seems that more and more start-ups are securing funding at seed and early-stage (A level) funding. Early stage investment has come on leaps and bounds over the last decade. The millions of pounds that the government has been injecting into the tech sector are starting to filter through the ecosystem and initiatives such as the Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS) and Patent Box are helping many early-stage organisations overcome some of the challenges traditionally faced.

Figures released last month revealed the SEIS saw a 73 per cent surge in applications last year over the year before as 2,582 start-ups applied to HM Revenue & Customs for SEIS status in 2013-14. July this year also saw the government award the 20,000thStart Up Loan, taking the total amount offered to entrepreneurs to more than £100 million. This took the government to two thirds of the way to its goal of supporting 30,000 new businesses with £151 million by 2015.

As for Series A investment, this year has seen a lot of activity with London start up MOVE Guides raising an $8.2 million Series A round at the beginning of October and Blockchain, a Bitcoin start up, raising $30m – to name just a few.

Now though, the gap has started to widen between initial investment and the later-stage funding that’s needed to transform businesses from good organisations into fantastic global leaders. Companies at this stage are hitting a financial roadblock as there’s still a chasm at B, C and D stage funding and we’re now at a tipping point. If we don’t see a shift in this mid-market, companies that started well will struggle to find follow-on investment and will either die on the vine or venture to the US to secure the funding they need as investors over there tend to be more willing to give maturing companies the funds they need to continue their initial growth. As I’ve said before, there’s one building on Sand Hill Road in Menlo Park, California, where there are four VCs that control more money in their funds than all of the VCs in London and this has a huge impact on B, C and D rounds.

To transform good medium-sized businesses into outstanding billion-pound leaders in their markets, the government and investors now need to provide more large scale funding to help organisations make this leap. The government now needs to step in and place the same focus and incentives it placed so successfully at the low end onto the mid-market, but we also need investors to be less risk averse and employ more capital in the UK. It’s something that everyone has to work on together.

I’m also a firm believer that one of the best ways for government to stimulate growth and drive big home-grown business success stories is to buy British. Total government procurement, including the wider public sector, was approximately £200 billion in 2011-12 and ICT spend alone is at around £7 billion. If more services were procured from British-born organisations, it would not only help drive the economy but also reinvigorate certain industries and provide later-stage start-ups with game-changing government contracts.

This story, "UK startups are falling into the funding gap" was originally published by


Copyright © 2014 IDG Communications, Inc.

Shop Tech Products at Amazon