Tech entrepreneurs in the United Kingdom lack ambition when it comes to establishing so-called “unicorn tech startups,” or the next Facebook or Google.
A new research suggests that most of the founders are striving to quickly sell their firm and for a relatively cheap price.
100 founders of quick scaling startups of different ages and sizes across various sectors were surveyed by VentureFounders and Beauhurst. The sectors included e-commerce, fintech, and analytics.
The survey discovered that majority of the entrepreneurs are planning an exit within two to five years and are ready to sell their company for under £50m. Only one percent of those surveyed said that they expect to sell their firm for over £1bn. Research from HM Treasury reveals that the United Kingdom has produced only four percent of the almost 200 so-called unicorns in the world.
More than two-thirds said that they were getting their business ready to prepare for an exit. However, the same proportion also said that they thought that there was a risk of exiting too early. According to information from the British Business Bank, startups in the United Kingdom were discovered to have had lesser funding rounds prior to exiting – either via a sale or an IPO – as compared to peers in the United States.
“People in the UK tend to be a little more reserved. They tend to undersell the business opportunity,” stated BGF Ventures’ Simon Calver, a venture capitalist.
“But I think they also tend to focus a little more on the structure and direction of a business. In the US, they focus more on product and vision and how things will change. They tend to be more global in how they think about it.”
“Even though UK founders are more realistic, they do undersell the opportunity,” added Calver.
VCs and Founders emphasised several factors that are restricting ambitions, with James Codling, the co-founder of VentureFounders, pointing toward these challenges instead of an inherent lack of ambition or enthusiasm.
“I think the business community is failing the UK’s entrepreneurs. Despite venture capital in London being ten times higher now than in 2010, the VC world is not willing enough to take on the risk, a lack of competition is driving down standards, and we have failed to create an ecosystem of founders who have experienced success themselves who then go on to nurture the next generation,” said Codling.
The availability of funds being smaller in the United Kingdom than that of the United States was mentioned by the co-founder and chief executive of Swiftkey, Jon Reynolds, which sold to Microsoft for $250m in 2016, while an anonymous founder noted the short-term outlook of VC’s.
“I don’t intend on making [this company] a lifestyle business, but I do intend to be doing it for the next ten to twenty years. But my investors don’t have a ten to twenty-year time horizon. I’m quite clear that I’ll do an IPO in 2022 if conditions are right,” said the founder.
A fresher ecosystem with lesser serial entrepreneurs were also noted by numerous well-known VCs and founders who were interviewed by the researchers.
Of those that were surveyed, 43 percent said that they would establish a new business, 18 percent said that they would get into angel investing or venture capital, while 15 percent said that they would work somewhere in the startup ecosystem.
“Venture capital no longer operates as an efficient market and the UK government ignores that to its peril,” Codling stated.
“The Patient Capital Review will hopefully address some of the challenges, but government propping up this industry is not the long-term answer; proving we can build tech companies with value and encouraging institutional investment in venture is the only sustainable solution.”