Having worked for a number of years in the City, first at Cazenove and then at JPMorgan, Charlie hung up the pin-stripes to start his own venture.
His first start-up, a white-label e-commerce platform was, in his own words “a complete disaster”, but he’s learnt his lesson and is now running HitMeUp, a proximity marketing tool. As a former investment banker, he gives us his take on Tech City.
When we talk about investment in Tech City we’re really talking about investing in internet startups because let’s face it, that’s what everybody’s interested in. Start ups are hot right now. Tech is hot.
Tech startup = billionaire?
I run a tech start up (oh yeah) and it’s amazing how many people assume I’m going to a be a billionaire.
Say “I do websitey stuff’ in the pub and that’s it, you’re buying. I can understand how it might seem like that to an outsider: websites that appear almost over night (and when they do they are everywhere) with valuations higher than FTSE companies, yet they haven’t made a penny. Why didn’t I think of that? It’s so obvious…
It seems so easy, but it’s a funny one, because this does actually happen.
Risk vs Return
Those that do make it do so in such spectacular fashion that everybody is blown away. They are dream businesses for entrepreneurs and investors alike – low overheads, low human resources, lack of physical product, no geographical restrictions, etc etc. It does happen…. and this causes a bit of a problem: everyone is either looking to start or looking to invest in the new Facebook or Instagram – which, unfortunately, is a little unrealistic.
Most early stage investors invest on a hunch: they back the team, or the idea, or maybe think they can help out. They don’t tend to invest in a measured risk vs return, number crunching way that they do in the City. It’s more an art than a science.
Entrepreneurs – the best investors?
Because of this, the best investors in tech start ups (and probably the only ones with any money right now) are the ones who have done it themselves before – entrepreneurs not ‘financiers’.
That’s because they understand technology and market risk, the very specific risks to this sector. In seconds, their knowledge can minimise the biggest risks to an early stage tech investment to sort out what’s likely to work and what’s not. That’s great but hardly surprisingly they tend to invest in pure web businesses. Great if you know how to pick them, but not great if you’re a technology business that doesn’t fit this category.
What if you’re one that actually requires proper R&D, hardware, a team to build a community and a real world product? These entrepreneur investors won’t touch you – 1.) Their edge has gone, and 2.) They don’t need to.
So if you want to start a technology business, that isn’t just a web business and actually requires infrastructure, you have a bit of an issue because the ‘tech’ investors are chasing the ‘next Facebook’ dream and not prepared to risk, relative to other sectors, even small sums of money.
Early stage businesses need more funding to get off the ground
People seem to think that because it’s a tech company it only needs a tiny amount of money to get off the ground. The government offers £6k grants. If you win a place on an accelerator programme you might get £50k. Sure that helps, but for the vast majority of businesses that’s just not going to do much. These businesses need a bit more time and cash to get off the ground.
The boys in the City have understood that for years, it’s about time some of those guys took a look at the opportunities down the road in Tech City.