Alexander Selegenev explains why he hasn’t put his money into London
Alexander Selegenev explains why he hasn’t put his money into LondonSince listing on the London Stock Exchange’s AIM in 2010, the VC that I work for has reviewed over 750 opportunities and made 25 investments, primarily in Silicon Valley.
But we’ve yet to invest in a London tech start up.
There are a few reasons for this but one stands out in my mind.
In the two and a half years that I have been based here I haven’t received a single unsolicited approach for investment from a London startup.
Lack of connections
I believe a major reason for this has been due to underdeveloped information pathways linking investors and start-ups here in the UK.
A dynamic marketplace needs information. In the US, information portals such as TechCrunch fulfil this role. In this respect Tech City News can provide an important service to the whole London startup ecosystem by going some way to filling this information gap.
Another reason why we have not invested in a UK startup is our B2C focus. UK and European institutional capital seems to favour B2B. This inadvertently affects a startups’ perception of where they should focus in terms of customer base.
Relocating to the valley for customers and investment
One potentially interesting local B2C startup, believing it does not have a big enough audience in the UK, was driven to the deeper US market.
It’s worth noting that in 2012, US VC investment totalled $29.7 billion in contrast to $5.7 billion for combined European VC investment activity according to Ernst & Young. I am personally aware of a number of examples, where UK startups almost immediately relocated to San Francisco or at least went there in search of both customers and investment money.
Time for a change of thinking in Tech City
There also needs to be a mind-shift amongst UK and European investors. US investors are more willing to back companies at higher valuations and at much earlier stages. In the internet sector, especially B2C, the primary focus at early stage has to be in driving user numbers to reach a critical mass, and only then to monetize.
Trying to monetize too soon can undermine long-term success. UK investors need to shy away from focusing too much on earnings and cashflow at early stage. In this respect both valuations and investors take a more academic approach here in the UK and across Europe compared to America. It means that many potentially viable business opportunities die prematurely in the UK.
As London Tech City startups grow into the successful international businesses they can become, the trick will be to get these founders to re-invest profits into the next generation of London startups. Once this feedback loop is in place, the ecosystem is more likely to thrive and future growth to become self-sustaining.
Hopefully, as we become more visible to the start up community over here we will begin to see increased opportunities to invest in a London startup. As a VC listed on AIM, it makes sense for us to have something local in our portfolio.
Alexander Selegenev is Executive Director of TMT Investments PLC, and is still waiting to hear from London-based startups