UK tech startups have a lot to learn about US venture capital
“I’m terribly sorry”, you might say if you’re British, as someone treads on your toes.
For UK tech startups looking to muscle into a brash American market and tap the US for venture capital (bigger and bolder than European venture capital), such ingrained diffidence is a cultural habit hard to shrug off.
Readers would be forgiven for getting a sour taste in their mouth at the compendium of clichés above. Yet they’re living, breathing ones; a self-deprecating British manner continues to hold back ambitious tech startups seeking US funding and growth.
That’s according to numerous venture capital leaders, including Hazel Moore, chairman of UK-based investment bank FirstCapital, which has a long track record of match-making US venture capital and UK startup talent.
Three Top Tips
With Silicon Valley investment in the UK smashing through the £1 billion mark for the first time in 2017, interest from the other side of the Atlantic in UK-grown companies is stronger than ever. US investors buying out UK tech companies in 74 deals last year, with software startups most popular.
The figure is just a tiny fraction of the startups established daily (over 2,000 per day, according to Startup Britain) by ambitious business people around the country.
And while the European VC market is changing, with funds moving away from a risk-averse “drip feeding” approach to a more bullish attitude, the allure of larger scale US funding rounds is clear, as is the potential of the US market.
Hazel Moore told Computer Business Review that despite recent successes, three deal-breaking errors are still common when UK and European firms go seeking US investment. Here’s what UK startups need to do to mitigate them.
1: Get on the buyer’s radar
“It may seem obvious, but it really helps if the buyer knows who you are before you decide to exit. The Corporate Development / M&A teams in large corporates typically have a list of the companies whose success they’re following. If you’re not on that list, you will have to endure an extensive internal vetting processes, which can take several months. If you’re already on their radar, you’ve already done all that preparation and built that internal understanding of your value proposition and so you can move quickly,” Moore notes in a recent blog.
As Deborah Magid, Director of Strategy at IBM Venture Capital Group, adds: “We go to places where startups hang out. If they give a good pitch, I’ll go up and give them my card. We usually don’t meet startups randomly, we use the community and network that we’ve built up in order to meet companies who look really promising”.
2: Demonstrate Ambition
Hazel Moore tells Computer Business Review: “European startups can be very conservative in their estimates. A European business will typically want to have a greater level of certainty or proof behind their forecasts in comparison with their US counterparts. US strategic buyers and investors are used to confident pitches from companies that are ‘awesome’ with moonshot growth estimates. US investors want to see that ambition – and crucially they want to see growth plans for the US market.”
British startups need to highlight future potential, she emphasises. “Imagine what you could do if you had the resources and stretch yourself. Pitch like a Silicon Valley company.”
3: Value Storytelling
“Storytelling is really a fundamental component of any pitch. European presentations can be very technology-led, and can easily turn into a list of product features. You need think about the ‘so what?’ and emphasise the benefits to customers and the growth opportunity. In the US market, the mindset is different – it’s more about the opportunity and the value your business can create. In Europe, the focus is more on what you’ve built, what you’ve already achieved.”
Ultimately, she emphasises, buyers need to see ambition, enthusiasm and potential.
“The onus is very much on EU businesses to bridge the communication gap but, if you get it right, these relationships can work really well. We’ve seen plenty of success stories.”