The closing gap

Good news! The funding gap is closing – well if you believe everything you read that is.

The equity gap, a financial market gap identified as €250.000 to €2.5 million across Europe, is being addressed and by the ever increasing activity of Business Angels. The number of business angel networks has more than doubled in the last ten years. Coupled with the training of entrepreneurs to receive such funding, such as our Investor Readiness Programme, research in both the US and Europe shows that business angels are the most important source of funding for the seed and start-up phases of enterprises.

However, The European Business Angels Network (EBAN) has issued a White Paper entitled “Stimulating the European informal venture capital market: The contribution of business angels to the EU strategy for growth and jobs” which calls for yet more action to plug the gap. The business angel market in Europe is estimated at €1,5 billion, ten times less than that in the US so we still have some catching up to do!

Here in Yorkshire, The Viking Fund has made a huge difference to technology companies looking for finance and is a good example of how business angels fill the gap.

Science Business has some interesting comments on the white paper and you can see the full report here

VCT Downdraft

The Budget 2007 has put a size limit of 50 employees and a total investment of £2M for Venture Capital Trust investments, which maybe will drive dealflow into our area of activity. I don't have any stats, but I would guess previously very few VCTs would have invested in this sector and most AIM flotations will be above the VCT investment limit going forwards - a number of established AIM VCTs have already pulled their 2007/8 offerings.

How about someone creating a VCT targeted specifically at smaller technology companies with significant growth potential?

Foolish angels rush in where the best angels fear to tread

We spotted a NESTA article discussing why VCs should invest in angel-backed deals. It makes for an interesting read and hails the smart business angel as the best way for a business to prepare for later stage investment.

Its true that the 'best of breed' angels bring far more to a business than just cash.

Surely VC's already know who the smart business angels are and are already montioring their every investment....

PwC Technology Round Table

Some interesting discussion, but mainly heated agreement on what the issues are surrounding early stage technology investment. Too few business plans are sufficiently un-sieve like, too much focus on the business plan and numbers rather than the idea and market opportunity. Too few corporate finance teams having the necessary technical appreciation to hone business plans. Lack of funding in the £500K to £1.5M range. Conservatism and fear of failure rather than embracing risk and accepting this as a necessary element of reward in the capital markets. When an investment is overwhelmingly obvious, its too late!

An interesting thought about trying to spot the next big thing might be to consider the psychology element and try to understand the needs and aspirations of people, rather than focusing on what the technology can do. Text messaging being a case in point - if anything this was a backward step in technology but everyone 'does' it and BT could have introduced it long before mobile phones appeared. Video phones have yet to hit that same sweet spot despite being infinitely neater technology...